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Articles:

Rethink - Transfer Pricing | React | Resilience | Realise

19 May 2020

Welcome to the inaugural edition of BDO’s Transfer Pricing Insight. Through this series, our transfer pricing specialists will provide you with timely insights into current transfer pricing issues. We will bring you perspectives from around the world and cover developments from tax authorities, other government agencies, judicial bodies, and the OECD. We will go beyond the technicalities to focus on how these developments affect your businesses and transfer pricing. In addition, we will explore how current economic and political conditions may impact your transfer pricing structures and policies.

Right now, the devastating global coronavirus pandemic is having an unprecedented effect on economies across the globe. As such, our first series of Insights focus on how the pandemic is affecting every aspect of global business, from meeting today’s cash needs to addressing and the effects of shocks to demand. All of these can have immediate and profound effects on transfer pricing, including rendering existing policies obsolete.

React to survive. Right now, many companies are in survival mode, reacting to the current crisis to safeguard the business. We start our series with Insights that will help you look at how transfer pricing comes into play while reacting to survive in these uncertain times. We address cash management, low-risk entities, specific transfer pricing issues related to royalties and service fees, and the unique challenges of profit split methodologies and cost sharing arrangements in the current economic climate.

Following this, we look at what comes next for companies in order to build resilience and strive towards recovery and normalcy. We discuss the meaning of “arm’s length” in this context - how do you adapt transfer pricing policies to the new economic reality? When is it appropriate to share losses among affiliates? What unique documentation issues should companies consider? 

And finally, what transfer pricing considerations should be kept in mind as companies start to realise the benefits and begin to thrive? Are there opportunities for better IP management? Should supply chains be reviewed with a view toward near-shoring or critical-function redundancy? How can the anomalies of the Covid-19 period be reconciled with a company’s long-term transfer pricing strategies? All this and more will be addressed in coming Insights.

Beyond Covid-19 however, there are many other transfer pricing issues and initiatives to examine. The OECD is moving forward, perhaps a bit more slowly than before, on developing a new international tax paradigm for digital businesses.  More and more countries are considering (and enacting) unilateral digital services taxes. The United States has just released new guidance on transfer pricing documentation best practices. The OECD will be issuing a report on the status of country-by-country reporting, first implemented for 2016. Brazil is moving toward joining the OECD and with that, will enact significant changes to its transfer pricing rules. Courts around the world will continue to rule on transfer pricing cases and set precedents. Future Insights will highlight how each of these developments, and more, will affect your transfer pricing.

This week, our Insight concerns the intersection of transfer pricing and the cash management actions that companies are taking to respond to Covid-19. On one hand, transfer pricing can be a mechanism through which cash management strategies can be implemented; on the other, transfer pricing requirements may limit the extent to which these strategies may be used. As always, the challenge in transfer pricing is striking that balance.

Read our insights in this series