OECD COVID-19 TPG paragraph 47

Category: TPG2020 Guidance on the transfer pricing implications of the COVID-19 | Tag: , , , ,
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As a result of the COVID-19 pandemic, many enterprises have incurred exceptional, non-recurring operating costs relevant to differing operating conditions for the pandemic period. These include expenditure on Personal Protective Equipment (PPE), reconfiguration of workspaces to enable physical distancing, IT infrastructure expenses relating to test, track and trace obligations and to implement teleworking arrangements. In determining how these costs should be allocated between related parties, it will be important to consider how these costs would be allocated between independent parties operating in comparable circumstances.






Related Guidelines

  1. OECD COVID-19 TPG paragraph 48Allocation of operating or exceptional costs would follow risk assumption and how third parties would treat such costs. Thus in order to determine which associated enterprise should bear exceptional costs, it would be first necessary to accurately delineate the controlled transaction, which would...
  2. OECD COVID-19 TPG paragraph 33In general, there is no overriding rule on the inclusion or exclusion of loss making comparables in the OECD TPG.15 Accordingly, loss-making comparables that satisfy the comparability criteria in a particular case should not be rejected on the sole basis that they suffer...
  3. OECD COVID-19 TPG paragraph 35First, it is important to emphasise that the allocation of risks between the parties to an arrangement affects how profits or losses resulting from the transaction are allocated at arm’s length through the pricing of the transaction.18 Hence, the existing guidance on the...
  4. OECD COVID-19 TPG paragraph 34During the COVID-19 pandemic, many MNE groups have incurred losses due to a decrease in demand, inability to obtain or supply products or services or as a result of exceptional, non-recurring operating costs.17 The allocation of losses between associated entities can give rise...
  5. OECD COVID-19 TPG paragraph 36Second, it will be necessary to consider how exceptional, non-recurring operating costs arising as a result of COVID-19 should be allocated between associated parties.19 These costs should be allocated based on an assessment of how independent enterprises under comparable circumstances operate. Separately, as...
  6. OECD COVID-19 TPG paragraph 46The above analysis outlines the factors that should be considered when determining whether associated parties may at arm’s length consider revising their intercompany agreements and/or their conduct in their commercial relationships as a consequence of the COVID-19 pandemic. However, it is important to...
  7. OECD COVID-19 TPG paragraph 52First, exceptional costs should generally be excluded from the net profit indicator except when those costs relate to the controlled transaction as accurately delineated.29 The exclusion of exceptional costs must be done consistently at the level of the tested party and the comparables...
  8. OECD COVID-19 TPG paragraph 45Determining whether a renegotiation of a commercial arrangement (including pricing under the arrangement going forward and any potential compensation for the renegotiation itself) represents the best interests of the parties to a transaction requires careful consideration of their options realistically available26 and the...
  1. 2022: ATO Taxpayer Alert on Treaty shopping arrangements to obtain reduced withholding tax rates (TA 2022/2)The ATO is currently reviewing treaty shopping arrangements designed to obtain the benefit of a reduced withholding tax (WHT) rate under a double-tax agreement (DTA) in relation to royalty or dividend payments from Australia. Typically, this benefit is sought via the interposition of one...
  2. July 2017: ATO guidance on related party financing arrangementsThe Practical Compliance Guideline (Guideline) from the ATO outlines the compliance approach to the taxation outcomes associated with a ‘financing arrangement’, as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997), or a related transaction or contract, entered into...

Related Case Law

  1. Spain vs Ferroli España, S.L.U., May 2023, Audiencia Nacional, Case No 3400/2023 – ECLI:EN:AN:2023:3400Ferroli España, S.L.U. is a Spanish manufacturer manufacture of cookers and heaters. In FY 2010 and 2011 the company had various transactions with other companies in the Ferroli Group and reported negative profit margins on these transactions. According to the company this was...
  2. Poland vs Cans Corp Sp z.o.o., August 2020, Administrative Court, I SA/Sz 115/20At issue in this case was the remuneration of a Polish manufacturing subsidiary in an international group dealing in the production and sale of metal packaging for food products, including beverage cans, food cans, household cans and metal lids for jars etc. The...
  3. Czech Republic vs Aisan Industry Czech, s.r.o., April 2022, Supreme Administrative Court, Case No 7 Afs 398/2019 – 49Aisan Industry Czech, s.r.o. is a subsidiary within the Japanese Aisan Industry Group which manufactures various engine components – fuel-pump modules, throttle bodies, carburetors for independent car manufactures such as Renault and Toyota. According to the original transfer pricing documentation the Czech company...
  4. Czech Republic vs. Stora Enso Wood Products Ždírec s.r.o., August 2023, Supreme Administrative Court, No.  7 Afs 358/2021 – 34Stora Enso Wood Products Ždírec s.r.o. a the Czech subsidiary in the Stora Enso Group, a multinational manufacturer of packaging and building products. In the years in question, Enso Wood Products Ždírec s.r.o. provided manufacturing services to its parent company and made losses....