OECD Guidance on the transfer pricing implications of the COVID-19 pandemic

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Unique economic conditions arising from COVID-19 and government responses to the pandemic have led to practical challenges for the application of the arm’s length principle.

For taxpayers applying transfer pricing rules for the financial years impacted by the COVID-19 pandemic and for tax administrations that will be evaluating this application, there is an urgent need to address these practical questions.

The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017 (“OECD TPGâ€) are intended to help tax administrations and multinational enterprises (“MNEsâ€) find mutually satisfactory solutions to transfer pricing cases and should continue to be relied upon when performing a transfer pricing analysis, including under the possibly unique circumstances introduced by the pandemic.

Accordingly, guidance have been issued focusing on how the arm’s length principle and the OECD TPG apply to issues that may arise or be exacerbated in the context of the COVID-19 pandemic, rather than on developing specialised guidance beyond what is currently addressed in the OECD TPG.

The guidance focuses on four priority issues:

(i) comparability analysis;
(ii) losses and the allocation of COVID-19 specific costs;
(iii) government assistance programmes; and
(iv) advance pricing agreements (“APAsâ€); where it is recognised that the additional practical challenges posed by COVID-19 are most significant.

 

 






Related Guidelines

  1. OECD COVID-19 TPG paragraph 53Second, when determining a cost basis, it will be important to consider whether the basis should include or exclude exceptional costs that are deemed to relate to the controlled transactions (determination noted above), and, if included in the costs basis, whether such costs...
  2. 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...
  3. OECD COVID-19 TPG paragraph 82The comparability of open market transactions or enterprises may be influenced by the receipt of government assistance, affecting both how the parties establish their commercial or financial relations and how they price their transactions. Therefore, when performing a comparability analysis, it may be...
  4. OECD COVID-19 TPG paragraph 87COVID-19 has led to material changes in economic conditions that were not anticipated when many APAs covering FY2020 and potentially future financial years affected by COVID-19 were agreed. Given this situation, it is important to determine to what extent, if any, the change...
  5. 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...
  6. OECD COVID-19 TPG paragraph 98In some circumstances, it may be possible to retain some of the terms set out in an APA, but revise specific provisions for which the breach in the critical assumptions is relevant. For example, an APA may cover a series of controlled transactions...


Related Case Law

  1. Spain vs. Zeraim Iberica SA, June 2018, Audiencia Nacional, Case No. ES:AN:2018:2856ZERAIM IBERICA SA, a Spanish subsidiary in the Swiss Syngenta Group (that produces seeds and agrochemicals), had first been issued a tax assessment relating to fiscal years 2006 and 2007 and later another assessment for FY 2008 and 2009 related to the arm’s...