The impact of COVID-19 on Transfer Pricing Policies

By BGSM & Partners 


The Covid-19 outbreak has led many companies to adopt new strategies aimed at optimizing their business and their financial management. In particular, multinational companies are advised to review their business models by which they operate globally, and it is also advisable, consequently to the first operation, to adapt the transfer pricing policies to the changed economic scenario through special means (as reasonable arrangements), in compliance with the arm’s length principles.
In this context, the importance given by an appropriate documentation, that allows to support the applied transfer pricing policies, is enhanced.

The economic crisis has also had important consequences on cash flow, on EBIT (E
arnings Before Interest and Tax), on sales made and on multinational groups’ value chain.
Therefore, this economic uncertainty should lead companies to consider the possibility of using means aimed at establishing the most appropriate transfer pricing adjustments.
Economic crisis could also have an impact on those companies that have drawn up Advance Pricing Agreements (APA) with terms and conditions that are currently difficult to fulfill.
Therefore, these companies may not be able to fulfill the provisions agreed with the financial administration for the determination of transfer prices.
In this case, it will be necessary to re-define the agreement’s terms in order to include critical assumptions’ clauses that allow to make a more flexible choice about pricing methods or, in any case, it will be necessary to include clauses that provide for an express flexibility of the agreements.

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