On December 18, 2020 the Organisation for Economic Co-operation and Development (OECD) issued its much-anticipated Guidance on the transfer pricing implications of the COVID-19 pandemic (Guidance). True to the expectation that had been set in advance, the Guidance reaffirms the belief that the arm’s length principle (ALP) as set forth in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017 (TPG) is robust enough to deal with the economic conditions arising from the global pandemic
The Guidance is not prescriptive and leaves solutions to the issues that it raises unanswered. We note that the Guidance is not binding on tax administrations and gives deference to domestic laws which may not provide for the full flexibility of the TPG in the application of the ALP.
- Gather evidence and document how the COVID-19 pandemic has impacted your business (including commercial relationships with third parties) and transfer pricing policies.
- Comparable companies and search criteria may need to be reconsidered when an existing set of comparables is rolled forward to 2020.
- The transfer pricing impacts arising from the pandemic should be evaluated in accordance with the delineation of the transaction pre-pandemic and any changes in the risk profile of the parties to the transaction may be a business restructuring under Chapter IX.
- Tax administrations are encouraged to work with taxpayers who make good faith efforts to address the benchmarking issues raised in the pandemic period.
- The potential for disputes with (or between) tax authorities remains high.
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