Where taxpayers and tax administrations are negotiating APAs that are intended to cover FY2020, all parties are encouraged to adopt a flexible and collaborative approach to determine how to take into account the current economic conditions, and the various options discussed above in relation to the revision of existing APAs will be relevant. For example, consideration could be given to agreeing a short period APA covering the period affected by the COVID-19 pandemic and a separate APA covering the post-COVID period. Another solution could be to conclude the APA for the whole period (e.g. APA period of 2020-2024) with a condition that the relevant impacts of the COVID-19 pandemic will be analysed and reported annually once they are known, and retrospective amendments to the APA made accordingly, when appropriate. Another solution could be to extend the period of the APA to mitigate the short term effect of the pandemic, depending on the magnitude and the length of such effect. Additionally, the use of a cumulative or term test throughout the APA period could be given consideration. In this context, it is important that taxpayers be transparent and disclose all relevant information concerning the impact of the COVID-19 pandemic on the covered transactions in a timely manner. The supporting documentation as mentioned in paragraph 104 of this guidance may serve as reference in this regard.
OECD COVID-19 TPG paragraph 109
Category: TPG2020 Guidance on the transfer pricing implications of the COVID-19 | Tag: Advance pricing arrangement (APA), COVID-19
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- OECD COVID-19 TPG paragraph 100In the context of the COVID-19 pandemic, there are two situations which may lead to cancelling an APA when it is established that: in FY2020 (i) there is a material breach in an APA’s critical assumption as a result of a change in...
- OECD COVID-19 TPG paragraph 108In the current environment, taxpayers may be reluctant about continuing or initiating new APA applications. This is understandable given the significant level of economic uncertainty that many businesses face, uncertainty that for some taxpayers may mean it is not feasible to reach agreements...
- OECD COVID-19 TPG paragraph 88One of the primary benefits of an APA is that it provides tax certainty to taxpayers and tax administrations by ensuring predictability in the treatment of international transactions for tax purposes. It is important to underline, however, that taxpayers and tax authorities are...
- OECD COVID-19 TPG paragraph 86Finally, when applying a one-sided method such as the resale price method, the cost plus method, or the TNMM, the accounting treatment of the government assistance in both the tested party and any comparable may need to be specifically identified, especially when the...
- OECD COVID-19 TPG paragraph 19Data from independent comparable transactions or companies from other time periods, such as average returns in preceding years, may not provide a sufficiently reliable benchmark for the current period without considering the specific impact of the pandemic on the controlled transactions under review....
- OECD COVID-19 TPG paragraph 3The arm’s length principle has been found to work effectively in the vast majority of cases,1 and this principle-based approach to assessing intercompany prices is equally robust for evaluating controlled transactions in the face of the COVID-19 pandemic. The OECD TPG are intended...
- OECD COVID-19 TPG paragraph 57Where one party to a controlled transaction seeks to invoke force majeure, the agreement and underlying legal framework within which force majeure may be invoked should form the starting point of a transfer pricing analysis. It cannot be automatically assumed that where a...
- OECD COVID-19 TPG paragraph 20The discussion below provides several pragmatic approaches to this issue. Tax administrations could consider these pragmatic approaches in an attempt to minimise disputes where taxpayers are making good faith efforts to determine arm’s length prices in the context of the information deficiencies associated...
- OECD Publishes Manual on Bilateral Advance Pricing ArrangementOn 28 September 2022 OECD published a new manual for entering bilateral advance pricing arrangement (APA’s) which has been approved by the Inclusive Framework on BEPS, as well as all members of the FTA, on 6 July 2022. The Bilateral Advance Pricing Arrangement...
- Spain releases report on application of their General Anti-Abuse Rule.The Spanish tax authorities have published a report on the applicability of their domestic General Anti-Abuse Rule (GAAR). In the report, a conduit arrangement aimed at benefiting from an exemption at source on the payment of interest to EU residents is described. ...
Related Case Law
- US vs Eaton Corp., August 2022, Sixth Circuit, Nos. 21-1569/2674Eaton is an Ohio corporation with a global presence. It manufactures a wide range of electrical and industrial products. During the relevant period—2005 and 2006—Eaton had its foreign subsidiaries in Puerto Rico and the Dominican Republic manufacture certain products which Eaton then sold...