{"id":1104,"date":"2025-03-11T15:07:08","date_gmt":"2025-03-11T14:07:08","guid":{"rendered":"https:\/\/www.red.tax\/?p=1104"},"modified":"2025-03-11T15:30:53","modified_gmt":"2025-03-11T14:30:53","slug":"cash-pool-a-mechanism-of-efficient-cash-management","status":"publish","type":"post","link":"https:\/\/www.red.tax\/en\/cash-pool-a-mechanism-of-efficient-cash-management\/","title":{"rendered":"Cash pool: a mechanism of efficient cash management"},"content":{"rendered":"<p>There are two types of cash pools:<\/p>\n<ul>\n<li>physical pooling: the bank account balances of all the pool members are transferred to a single central bank account owned by the cash pool leader.<\/li>\n<li>notional cash pool: bank account balances of pool members are pooled administratively but no physical transfer of balances take place.<\/li>\n<\/ul>\n<p>All entities in the cash pool should benefit from the cash pool. Such benefit may include:<\/p>\n<ul>\n<li>reduced need to attract external loans<\/li>\n<li>favorable interest rates<\/li>\n<li>access to liquidity that may not be available otherwise<\/li>\n<li>more efficient management of the liquidity position<\/li>\n<li>less administration<\/li>\n<\/ul>\n<p>When analysing the cash pool arrangement from a transfer pricing perspective the following aspects should be taken into consideration:<\/p>\n<ul>\n<li>It should be verified whether <strong>cash pool balances<\/strong> are indeed short-term positions, or they should be treated as rather a longer-term deposit or a term loan.<\/li>\n<li>The functions, risks and assets of a cash pool leader: does a cash pool leader perform no more than a <strong>co-ordination or agency function<\/strong> or does the cash pool leader perform a more <strong>complex treasury function<\/strong>? Depending on the answer the cash pool leader might need to report a minimum remuneration (on a cost-plus basis) or be entitled to a significant <strong>interest rate spread<\/strong> between deposits and borrowings.<\/li>\n<li><strong>Cash pool advantage<\/strong> should be determined and allocated to the cash pool leader and participants depending on the functional profile.<\/li>\n<\/ul>\n<p>Four steps to take to make sure the cash pool arrangement is compliant from a transfer pricing perspective:<\/p>\n<ol>\n<li>Review the functional analysis of a cash pool leader and cash pool participants. This review should focus on functionality (in terms of people substance), contractual risk allocation and equity at risk<\/li>\n<li>Establish the borrowing and lending margin<\/li>\n<li>Quantify and allocate the cash pool advantage<\/li>\n<li>Prepare the cash pool TP policy and include the pricing in the Transfer pricing documentation<\/li>\n<\/ol>\n<p>If the above has triggered your interest and you want to make sure that your cash pool arrangement fully complies with transfer pricing principles, <a href=\"https:\/\/www.red.tax\/en\/\">RED<\/a> can help you every step of the way. Please feel free to contact <a href=\"https:\/\/www.linkedin.com\/in\/marinazubtsova\/\">marina.zubtsova@red.tax<\/a> for expert advice.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>There are two types of cash pools: physical pooling: the bank account balances of all the pool members are transferred to a single central bank account owned by the cash pool leader. notional cash pool: bank account balances of pool members are pooled administratively but no physical transfer of balances take place. All entities in [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[30],"class_list":["post-1104","post","type-post","status-publish","format-standard","hentry","category-news"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.0 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Cash pool: a mechanism of efficient cash management - RED.<\/title>\n<meta name=\"description\" content=\"Cash pool is a mechanism of efficient cash management realised by pooling of cash balances.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.red.tax\/en\/cash-pool-a-mechanism-of-efficient-cash-management\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Cash pool: a mechanism of efficient cash management - 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