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22-04-2020 - COVID-19: Transfer pricing considerations

Transfer pricing is a strategically important issue, in business and tax terms, for multinational groups operating in a context where the health emergency and COVID-19 containment actions are posing critical operational and financial challenges and with uncertain outcomes.
The OECD Guidelines provide some general suggestions that can be applied in periods of recession, such as the current one. In general, the main consequences that an economic crisis (such as the one that is facing the COVID-19) can have on Transfer Pricing are:

• reduction of business resulting on profit indicators; 
• renegotiating intra-group agreements and/or granting extraordinary discounts in relation to specific transactions;
• reallocation of functions, risks and assets used between the different entities of the Group in order to limit losses and preserve profitability;
• lack of liquidity and use of intra-group financing and/or independent third parties;
• non-compliance with advance pricing agreements ("APAs") already signed with the Financial Administration.

The above might entail substantial changes to the group’s Transfer Pricing policy or even remodulation of the benchmark analysis previously conducted. On this last aspect, special attention should be paid, among other things, to the selection of the most comparable subjects in the changed economic conditions, to the assessment of making comparability adjustments and to the possible adoption of a wider arm’s length value range (also in light of recent jurisprudence).
In order to support compliance with the arm’s length principle, of any adjustments and/or variation of intragroup prices, appropriate documentation must be prepared in order to corroborate the economic reasons for the behavior adopted.


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