The Challenge
Firms engaged in transfer pricing need an objective, quantitative methodology to determine a fair and competitive interest rate for intercompany transactions. Firms also need transparent auditable processes to maintain compliance with transfer pricing guidelines. Inadequate transfer pricing policies can result in substantial risks for a firm, including compliance issues, financial penalties and double taxation charges.
Moody’s Analytics provides a comprehensive set of tools to assist corporate transfer pricing practitioners in determining competitive interest rates for all intercompany transactions. Our solution helps CFOs, treasurers, credit analysts, lawyers, and corporate tax authorities around the world carry out a thorough and transparent transfer pricing process that aligns with regulatory and firm-specific policies.
Our Solution
Moody’s Analytics RiskCalc™ and Moody’s MIR® (Market Implied Ratings) solutions provide transfer pricing practitioners with a quantitative model to determine objective probability of default (PD) and implied ratings for subsidiaries. The RiskCalc model produces a forward-looking PD called Expected Default Frequency, or EDF™ credit measure, by combining financial statement and equity market information into a highly predictive measurement of standalone credit risk. Moody’s MIR then compares a subsidiary’s EDF credit measure to a median credit spread to price the intercompany transaction.
By using a pre-set transfer pricing add-in for Microsoft Excel template, simply enter basic financial data about your subsidiaries to produce EDF credit measures, bond default rate mappings and implied credit ratings to determine the appropriate interest rates for intercompany transactions.
These solutions provide a consistent framework so multinational corporations can prepare documentation and reporting to support their transfer pricing practices.
Related Product
Our CreditEdge® solution provides PDs for publicly-traded companies worldwide. These PDs can be helpful for practitioners using a comparables-based analysis where the entity being evaluated is more comparable to a public company.