NETHERLANDS Trends and Developments Contributed by: Dirk Brouwers, Wessel van Dijk, Erwin Boomsma and Rocio Martel, RED Transfer Pricing
Guarantee Fees (Transfer Pricing Memorandum, May 2025) Expanding on Chapter 9 of the Dutch Transfer Pricing Decree (2022), the CGVP offers new insights into how guarantee fees should be assessed and provides guid - ance for determining an arm’s length guarantee fee. The CGVP’s guidance initially refers to three cumu - lative criteria to identify a so-called umbrella credit ( Paraplu-kredietarrest ECLI:NL:HR:2013:BW6520, BNB 2013/109), which would lead to the conclusion that the arrangement would not occur between unre - lated parties and is driven by the Group’s ownership interests. These criteria concern credit arrangements in which several companies within the group partici - pate, in which all participating companies are jointly and severally liable, and in which no recourse claim can be asserted until the debt has been fully repaid by the relevant borrower. Once it has been established that the guarantee does not derive from an umbrella credit arrangement, the CGVP highlights the importance of identifying credit arrangements that would not have been granted to the borrower in the absence of the guarantee, due to the borrower’s limited financial capacity to assume the obligations. In such cases, the relevant (portion of the) credit arrangements should be regarded as hav - ing been provided to the guarantor and followed by a capital contribution. The CGVP further elaborates on the concept of finan - cial capacity and its relevance in assessing whether a borrower could obtain third-party financing on a stand-alone basis. In this context, the guidance refers to interest coverage ratios, the group’s debt-to-equity ratio, its comparison with industry benchmarks, and the ratio at which the group company could inde - pendently obtain financing. Similar to the guidance in Chapter 9 of the Dutch Transfer Pricing Decree (2022), the CGVP also states that borrowers with a credit score below BBB- would not be able to attract loans with acceptable terms. This is a statement that is necessarily supported by financial databases where a multitude of instruments between unrelated parties can be found where the borrower has a credit score of (BB).
Subsequently, the CGVP clarifies that the borrower cannot be regarded as the recipient of a service where no legally enforceable obligation exists, where the guarantee is required solely by the lender to prevent the parent from “emptying” the subsidiary, or where the guarantee provides no benefit beyond the implicit support already available to the borrower. Under such conditions, the borrower should not pay a guarantee fee. Upon concluding from the above tests that the guar - antee is subject to pricing, the CGVP emphasises that, in principle, the current guidance appears to limit the value of a guarantee to the difference between the interest rate based on the group’s credit rating and the rate based on the derived credit score (primarily the stand-alone credit score accounting for applicable implicit support). This approach seems to imply that a financial guar - antee provided by a guarantor with a credit score below the credit score of the borrower, does not add value. This approach seems to overlook an economic reality: when a party provides a guarantee, it puts its equity at risk regardless of its credit score. By doing so, it effectively increases the pool of resources that a lender can rely on for repayment and therefore the guarantee should still lead to an improvement of bor - rowing terms. Because of this additional support, a borrower with a guarantee may appear safer from the lender’s per - spective. The lender would not only assess the bor - rower’s financial position, but also the financial back - ing of the guarantor. As a result, the presence of a guarantee can still improve the borrower’s access to financing or reduce the interest rate, even if the guar - antor itself has a lower credit rating than the borrower. The guidance further clarifies how to determine a derived credit rating, which should take into account the strategic importance of the borrower to the group. Relevant factors include the likelihood that the group would abandon the subsidiary in difficulty, the sub - sidiary’s importance to the group’s reputation, and the potential costs to the group in the event of default.
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