Credit Ratings and the Debt-related Costs for a Subsidiary of a Multinational Firm

  • Thomas Horst
Part of the MPI Studies in Tax Law and Public Finance book series (MPISTUD, volume 1)


This paper evaluates debt guarantee fees paid by a subsidiary to a foreign parent company. Part 2 explains in very general terms how a company’s consolidated financial results can be used to predict with surprising accuracy the credit rating that the rating agencies have assigned to the company. Part 3 of reviews the Canadian Tax Court opinion General Electric Capital Canada, Inc., which concluded that (1) the benefit to GECCAN of GECUS’s written guarantee was equal to the 1.83 percentage point differential between the average interest rates on BB+/BBB- rated debt and AAA rated debt, respectively, and (2) the incremental benefit to General Electric Capital Canada, Inc. (“GECCAN”) of a written guarantee set an upper limit on the arm’s length price. Part 4 compares the rules for calculating guarantee fees paid by a subsidiary to the OECD’s current guidelines for determining the comparable rates for a domestic branch of a foreign corporation. Also, the tax treatment of a consolidated company’s credit rating is compared to the treatment of patents, trademarks and most other intangibles.


Credit Rating Parent Company Transfer Price Multinational Firm Default Loss 
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Copyright information

© Springer-Verlag Berlin Heidelberg 2012

Authors and Affiliations

  • Thomas Horst
    • 1
  1. 1.Horst FrischWashingtonUSA

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