When a major electronics manufacturer struggled with intercompany loan compliance across 20+ countries, BPM delivered an innovative solution. Discover how our Interest Rate Benchmarking Dashboard helps clients establish defensible rates while meeting regulatory compliance for international transactions. 

Challenge 

A major global provider in the electronics manufacturing services (EMS) industry, with operations spanning over 20 countries and generating billions in annual revenue, regularly needed to transfer funds between its various entities. To comply with Section 482 regulations, particularly Reg. 1.482-2(a), the company was required to establish and document arm’s length interest rates for intercompany loans. 

Like many companies operating in multiple jurisdictions, the client’s tax practitioners faced significant challenges due to limited and hard-to-source market data in many countries where the company operated. This scarcity of reliable information made it difficult to establish appropriate rates that could withstand scrutiny from tax authorities. Most clients, including this one, lacked access to comprehensive and up-to-date market data, leading to inefficiencies and the risk of inaccurate rate assessments. As a result, the client often found itself in a reactive position, where analyses were conducted after the intercompany rates had already been determined. 

The client engaged BPM’s Transfer Pricing practice to mitigate these challenges. Despite BPM’s knowledge and experience, substantial time and effort were required to locate relevant data and produce the necessary reports. However, the after-the-fact nature of these analyses meant that the client’s intercompany rates were often set without the benefit of timely, accurate information, increasing the risk of compliance issues and operational delays. 

Solution 

BPM’s Transfer Pricing team collaborated closely with the Data Analytics and Economic Consulting teams to address the challenges of data aggregation and analysis related to international interest rates and benchmarking. BPM Advisory Director Megan (Bohnke) Lombardi, with extensive experience in interest rates and derivatives, developed a model to streamline this effort. The model compares third-party bond issuances across various credit qualities, terms, currencies, issuers and other factors against corporate credit curves.  

The model evaluates bond yields by leveraging regularly published third-party credit curves to provide a robust benchmarking solution. In cases where data is sparse for a specific location or currency, a rate estimation feature was introduced that uses basis swap calculations to calculate equivalent interest rates in foreign currencies for comprehensive coverage.  

The model calculates Interquartile Ranges (IQRs) for bond data over a user-defined period, with these IQRs and supporting data serving as key components for transfer pricing documentation. The inclusion of basis swap calculations further enhances the accuracy and reliability of the client’s selection of interest rates for transactions between foreign entities. 

Originally built in Excel, the model was later converted into a Power BI dashboard to handle its complexity and scale. The data is updated monthly, providing clients with web-based access to the latest information. They can filter by geography, loan term and the credit quality of their borrowing entity, which is an attribute also assessed and incorporated into the model by BPM.  

Results 

This comprehensive solution not only empowers clients with timely, detailed data but also helps ensure that the BPM Transfer Pricing Team has immediate access to the latest information for any client report, enhancing efficiency and compliance across the board. 

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