Subsidiary directors have a direct impact on the competence of the designed cash pooling system. To limit reliance on a single service provider, it may be beneficial to maintain two main accounts with different banks. In addition, each currency should have its own main account (unless a hybrid cash pooling system is chosen). In addition, for the above reasons, the creditors of the subsidiaries may be affected if they see an increasing risk of recovery of their credits, if the cash pooling system sweeps away the balance of the debtor subsidiary. Faced with these challenges, these shareholders and creditors may challenge certain established agreements (e.g. B the approval of the annual accounts, the exercise of the right of access to the cash pooling contract or the contestation of the conclusion of the contract concluded by the directors). You can download examples of cash pooling contracts from the Internet. The situation can be exacerbated by these problems when a company does not sufficiently document, if at all, its cash pooling activities. The competent authorities or courts may conclude that tax and/or company law rules have been deliberately circumvented. To do this, the group will ask its bank to create internal accounts. These accounts are then summarized in the main account. In this case, both counterparties will review their credit line agreements. Since companies are organized within a group independently of each other, their financial situation can be very different.

This also affects their liquidity or liquidity needs (i.e. means of payment and cash equivalents). While one company finances itself with loans at market interest rates, another may have less profitable financial investments. To remedy this imbalance, a cash pooling system can be set up. This is usually led by a central financial management team organized by the parent company. In addition, physical cash pools can also be extended from the radial cash pool system to a spider web system where all accounts are linked together). Cash Pooling is a valuable treasury tool for convenient and daily cash management. Cash pooling allows a multinational to centralize its internal financing agreements, which strengthens control, efficiency and synergy between the members of the group. However, in recent years, it has become clear that cash pooling agreements can also present certain transfer pricing risks. These risks manifest as non-deductible interest charges, double taxation or penalties that ultimately may outweigh profits. This article focuses on the transfer pricing risks of cash pooling agreements and follows our previous article on „Intra-Group Credit – 10 Things to Consider“. .

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