IN PRACTICE (vol.14,No,17)701 and credit market interest(lower bound) and the the profit split method Given the monthly credit/debit market debit interest rate (upper bound) balances, cash pool costs as well as(monthly) market The analytical results described above should apply interest rates, the monthly cash pool profit is computed to all cash pooling situations when a pool residual profit by using equation( 1). The monthly cash pool profit is is to be distributed among the pool members. The ex- then allocated to members via pool credit and debit in- ample will serve to illustrate how the profit split method can simply be applied, and to show how arms-length terest rates that satisfy equations (10) and (11) interest rates are affected by fluctuating pool balances Monthly interest times 12 gives the annualized monthly interest Example Table 1 shows how arm's-length interest rates are calculated on a monthly and annual basis according to 656665656565|651 201001100 3008200810082008 7307 0170190.240.22021 023 0120140150161681 a2a224|2624272020420420202172321 1741.814018018517015915414916184190168 Table 1: Calculation of cash pool Interest- Example The example refers to a cash pool with stable debit and 1.68 percent for the creditors, Because balances alances, D, while credit balances, C, fluctuate heavily match in total over the year, profits are allocated sym over the year. On an annual basis, however, pool bal- me ances match perfectly. For the sake of simplicity, mar spreads of 0.68 percent compared to market interest ket interest rates and pool costs will be constant rates(debtors: 3.00 percent minus 2.32 percent; credi hroughout the year. In that scenario, the pool gener tors: 1.68 percent minus 1.00 percent) The fluctuation of annualized monthly arms-length length pool interest rates of 2 32 percent for the debtors I pool interest rates is illustrated in Figure below 3.00 220 1.20 Month (annualized) ri+(annualized) Figure 1: Development of cash pool interest -Example TAX MANAGEMENT TRANSFER PRICING REPORT ISSN 1063-2069 BNA TAX 12-21