OECD COVID-19 TPG paragraph 59

Category: TPG2020 Guidance on the transfer pricing implications of the COVID-19 | Tag: , , ,
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In response to COVID-19, some taxpayers may seek to assert force majeure in situations where it is not contained within the relevant intercompany agreement (assuming here that the law governing the contract is not a civil law jurisdiction where force majeure would automatically apply), may seek to change an existing intercompany agreement to insert a force majeure clause, or may seek to assert that a renegotiation at arm’s length would have similar economic outcomes. In these circumstances, tax administrations should carefully review such assertions in light of the accurately delineated transaction (including consideration of the conduct of the parties, both past and present) and the economically relevant circumstances of the transaction. Tax administrations should therefore review the agreements and/or the conduct of associated enterprises, in light of the guidance in section D of Chapter I of the OECD TPG, together with observations of relevant behaviour of independent parties and this guidance, in order to ascertain whether any such assertion, revision or renegotiation should be respected under the OECD TPG, and that the transfer pricing outcomes are appropriate in light of the accurate delineation of the transaction.






Related Guidelines

  1. OECD COVID-19 TPG paragraph 56Because of the COVID-19 pandemic, a party may attempt to assert that the extreme circumstances justify the non-performance of a contract and this may be achieved through invoking a force majeure clause, which defines circumstances beyond the control of parties to a transaction...
  2. 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...
  3. OECD COVID-19 TPG paragraph 54Third, adjustments for accounting consistency may be required to improve comparability. Adjustments for accounting consistency are designed to eliminate the effect of differing accounting practices between the controlled and uncontrolled transactions and should be considered if and only if they are expected to...
  4. OECD COVID-19 TPG paragraph 55Force majeure clauses may be invoked in order to suspend, defer, or release an enterprise from its contractual duties without liability in certain situations.33 This may result in losses for enterprises because of the loss of a customer, supplier or an ordinarily profitable...
  5. OECD COVID-19 TPG paragraph 41When considering the risks assumed by a party to a controlled transaction, tax administrations should carefully consider the commercial rationale for any purported change in the risks assumed by a party before and after the outbreak of COVID-19 (and taking into consideration the...
  6. OECD COVID-19 TPG paragraph 44For example, assume that Distributor X purchases products, the controlled transaction, from a related party Company Y, and sells these products to third party customers. Further assume that a major customer of Distributor X does not pay for products purchased within its standard...
  7. 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...
  8. OECD COVID-19 TPG paragraph 95When considering the consequences of the failure to meet critical assumptions, tax administrations and taxpayers should consider the (i) terms of the APA; (ii) any agreement between relevant tax administrations as to how to deal with the failure; and (iii) any applicable domestic...
  1. A Toolkit on the Taxation of Offshore Indirect TransfersThe Platform for Collaboration on Tax (IMF, OECD, UN and the WBG) has published a toolkit on the taxation of Offshore Indirect Transfers. The tax treatment of ‘offshore indirect transfers’ (OITs) – in essence, the sale of an entity owning an asset located...
  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. France vs ST Dupont, March 2019, Administrative Court of Paris, No 1620873, 1705086/1-3ST Dupont is a French luxury manufacturer of lighters, pens and leather goods. It is majority-owned by the Dutch company, D&D International, which is wholly-owned by Broad Gain Investments Ltd, based in Hong Kong. ST Dupont is the sole shareholder of distribution subsidiaries...
  2. 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...
  3. Denmark vs Maersk Oil and Gas A/S (TotalEnergies EP Danmark A/S), September 2023, Supreme Court, Case No BS-15265/2022-HJR and BS-16812/2022-HJRMaersk Oil and Gas A/S (later TotalEnergies EP Danmark A/S) continued to make operating losses, although the group’s combined oil and gas operations were highly profitable. Following an audit of Maersk Oil, the tax authorities considered that three items did not comply with...
  4. 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...