First Look: OECD guidance examines transfer pricing issues created by the COVID-19 pandemic

Today, the OECD published guidance on transfer pricing issues that arise or may be exacerbated on account of the COVID-19 pandemic.

The new guidance reflects the consensus view of the Inclusive Framework on BEPS, an OECD-led body comprised of 137 countries. 

The aim of the guidance is to enhance certainty for businesses that operate aross borders, said Grace Perez-Navarro, Deputy-Director, OECD Centre for Tax Policy and Administration.

“[T]he two-sided nature of transfer pricing means that only through a common agreed approach can tax administrations effectively enhance tax certainty for businesses operating across broders,” Perez-Navarro said in an OECD blog.

The guidance provides practical approaches to the additional limitations the pandemic has created in obtaining third-party comparable data. It notes that the pandemic may reduce the reliability of historical data for comparability analyses and require resort to practical approaches, like comparability adjustments.

The new guidance also discusses the allocation of losses attributed to COVID-19 between group members. One issue is how exceptional, non-recurring operating costs arising from COVID-19 should be allocated. The guidance also notes that the pandemic has created conditions in which associated parties may consider whether they have the option to apply force majeure clauses, revoke, or revise their intercompany agreements. This development could impact loss allocation, the guidance notes.

The guidance also discusses the transfer pricing implications of government assistance programs to lessen the economic impact of COVID-19, such as labor subsidies or forgivable loans. Further, it examines the extent to which the unanticipated, changed economic situations affect the application of existing advance pricing agreements or alter APAs under negotiation. 

The new guidance is not an addition to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Thus, it will not be automatically applied to some countries’ transfer pricing laws. 

MNE Tax expects to publish an expert analysis of this new guidance shortly.