COVID-19 and planning for transfer pricing outcomes
This information sheet sets out the guiding principles and measures to be heeded by MNEs, in order to fully appreciate the longer-term consequences of actions taken in the wake of the Coronavirus crisis.
With COVID-19 raging unabatedly across 209 countries and territories at the time of writing this article, this is one pandemic which appears to be following the principles of the arm’s length standard too intently. What is evident though is that it is wrecking the world economy with most countries confirming that the looming recession from this virus will be unprecedented.
While multinational entities (“MNEs”) are trying everything possible to contain the fallout of dropping sales and rising costs, this is made ever more challenging given their global presence, as there is no simple one-size-fits-all answer for each territory. With this in mind, it is important to understand that when the virus is contained the business decisions taken in the short term should not become unsurmountable to defend in the long term
To that end, all the tools available to MNEs through transfer pricing (“TP”) should be well utilised so that they may act as the panacea from the strict audits that are sure to follow as countries endeavour to gather a greater portion of tax from the same available pie during the recovery.
This information sheet sets out three Guiding principles to follow:
- Have a TP policy backed with economic substance
- (Re)-focus on the economic analysis
- Robust documentation
Measures to be taken
The OECD would be expected to come out with guidance to address the economic challenges that the world is facing after the health crisis is taken care of.
In the meantime, the importance of a proper FAR analysis as the foundation to forming policies which yield desirable outcomes cannot be emphasised more during the current period. Even if it sounds cliched, the solution for addressing TP issues continues to lie in respecting the fundamental TP concepts, undertaking in-depth analysis and maintaining robust documentation.