Moody's Transfer Pricing Compliance Framework

This document is a case study detailing how Moody's transfer pricing capabilities assisted a major consultant in adhering to OECD guidelines. The client, a prominent global transfer pricing consultant operating across various industries, faced challenges in obtaining credit risk and benchmarking data for private borrowers. Tax authorities require consideration of the risk profile and credit quality of borrowing subsidiaries when assigning market interest rates to intercompany loans. Moody's provided a quantitative credit risk assessment model to evaluate the probability of default and implied ratings for subsidiaries. The solution included access to financial transaction data for arm's length benchmarking, facilitating compliance with OECD standards. The methodology employed by Moody's yielded forward-looking probabilities of default and was updated regularly. The client reported significant improvements in their ability to assess credit risk and determine interest rates for intercompany loans, ultimately enhancing their transfer pricing process and reducing financial penalties.