The London lnterbank Offered Rate (LIBOR) serves as the benchmark for an estimated US$370 trillion in financial transactions worldwide. The discontinuance of LIBOR at the end of 2021 will require alternative base rates to be used by market participants. Emerging alternative rates differ by region, currency, tenor, and basis.
This pending change has transfer pricing implications for multinational enterprises (MNEs) across all industries that have intercompany financing arrangements tied to LIBOR. MNEs should evaluate the impact on existing transactions and policies and prepare a transition plan that addresses the anticipated impact from LIBOR's discontinuation.
Alternative rates
LIBOR is an interest rate based on the average reported interest rate at which major global banks can to borrow from one another on an unsecured basis. lt is published for five currencies across different maturities. LIBOR is used to price many types of financial products, from plain-vanilla loans to interest rate swaps and other complex derivatives.
