A familiar pattern in groups: one entity holds a substantial current account balance earning little while another draws on an overdraft at cost. Nobody has quantified what that costs across a year.

Pooling addresses the pattern, but it creates intercompany lending relationships with accounting, tax and legal consequences. Those need deliberate design.

Physical versus notional pooling

Physical pooling sweeps balances into a header account, creating actual intercompany loans that need documentation, interest or profit at arm’s length, and settlement. Notional pooling offsets balances for interest calculation without moving money. It is simpler operationally but is not offered by every bank and may carry different regulatory treatment. Which one is available and appropriate depends on your banks and structure.

Intercompany funding and transfer pricing

Intercompany funding between related parties must be on arm’s length terms and documented, and the profit or interest recognized in each entity affects its taxable position and Zakat base. A pooling arrangement set up purely as a treasury task can create a tax problem later. The structure is therefore designed with the Zakat and transfer pricing position in view from the start.

Sharia-compliant structuring

Where the group requires Sharia-compliant arrangements, conventional interest-based pooling is not appropriate. The structure needs to be built on compliant principles with the bank’s Sharia board involved. This makes early bank engagement more important than in a conventional structure, and it connects to broader Islamic finance structuring.

A hypothetical example

Consider a Riyadh group with several entities, where two hold meaningful balances while a third runs a persistent overdraft. Nobody has calculated what that mismatch costs across a year, and no structure moves cash between the entities.

Operational prerequisites

Pooling requires reliable visibility of balances across entities and banks, so bank integration is generally a prerequisite instead of a parallel project. It also needs clear ownership of the daily or periodic sweep decisions, which is part of the wider treasury control framework.

Quantifying the benefit before structuring

The first step is arithmetic. We take a year of daily balances across the entities, calculate the interest earned on surpluses and paid on borrowings, and compare that with the cost of a pooled position. That single number decides whether the intercompany documentation, tax analysis and bank negotiation are worth undertaking. It draws on the same balance data that bank integration makes available and that liquidity planning already requires.

Reviewing the arrangement periodically

A pooling arrangement designed for one group structure may stop fitting after an entity is added or sold, or after cash-flow patterns change. We review it periodically against actual balances to confirm it still delivers the intended benefit and that the intercompany documentation still reflects reality. An outdated arrangement can create tax exposure instead of saving cost.

Involving the tax adviser from the start

A pooling arrangement creates intercompany transactions with Zakat and tax consequences, and fixing these after the structure is live is harder and costlier than designing them correctly. We involve the tax adviser at the design stage so the intercompany lending terms and transfer pricing documentation are ready when the arrangement goes live.