New OECD Guidance regarding COVID-19 Impact on Transfer Prices

OECD, Transfer Pricing, Transfer prices, COVID-19

On December 18, 2020, the OECD published its guideline regarding the consideration of the economic effects of the COVID19 pandemic on transfer prices. Since this is not a normal economic crisis, the OECD provides guidance on how tax payers as well as tax administrations should deal with the effects when determining the appropriateness of transfer prices in an international context.

The OECD paper describes on how to deal with the effects of the COVID19 crisis based on the following main topics:

  • Effects of the crisis on the comparability analysis;
  • Consideration and allocation of COVID19-specific special costs / revenue losses among involved related parties;
  • Consideration of the economic effects of government assistance programs; and
  • Consideration of the crisis on existing Advance Pricing Agreements (APAs).

Given the complexity of the issue and the varying effects of the crisis on individual companies, the OECD's recommendations for dealing with the crisis remain rather abstract. However, the OECD explicitly states that even functionally and risk-minimized companies may incur losses under certain circumstances. In practice, each affected company is required to deal itself with the effects of the COVID19 pandemic on its group internal transfer prices. The OECD prescribes that companies should identify the effects and adjust transfer prices according to the situation and to document them proactively as part of the transfer price documentation (Master file / Local file). In this context, the OECD explicitly points out that companies must address the effects as well as the measures taken and justify the adequacy of the transfer prices as part of the comparability analysis of the documentation for the financial year 2020 (and 2021?).

Since the documentation of the arm’s length nature of the affected transfer prices is in many cases not a simple routine matter, it is recommended in any case to seek the advice of a professional consultant at an early stage in order to adequately map the effects of COVID19 on the transfer price situation of your company and to avoid problems in future tax audits.

MME will be happy to assist you in this regard.

The OECD guidelines (available in English and French) can be found here.

January 2021 | Authors: Hans Rudolf Habermacher, Beate Reitho

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