Overview

Economies and markets have been hit by the COVID-19 outbreak, and businesses are contingency planning to ensure their operations continue.

The adverse consequences of the virus could be broad, including reduction of consumer demand, supply chain disruption, and an increase in risk aversion in financial markets (driven by an overall downturn in business and consumer confidence). Local subsidiaries of multinational enterprises (MNEs) in affected regions, even those that are operating "business as usual," may be making a loss or experiencing a substantial reduction in profitability due to this unforeseeable event.

Some may find that their operations need to be reorganized, reduced, or relocated. A greater need for intragroup financing and cross guarantees is also possible.

Contents

The adverse consequences of COVID-19 could be broad, including reduction of consumer demand, supply chain disruption, and an increase in risk aversion in financial markets (driven by an overall downturn in business and consumer confidence). Local subsidiaries of multinational enterprises (MNEs) in affected regions, even those that are operating "business as usual," may be making a loss or experiencing a substantial reduction in profitability due to this unforeseeable event. Some may find that their operations need to be reorganized, reduced, or relocated. A greater need for intragroup financing and cross guarantees is also possible.

The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations ("TPG") has always served as a key reference point in the application of the arm's-length principle; the conditions of an unexpected, global economic crisis do not change this.

Indeed, the TPG and most recent guidance issued by the OECD, such as the new Transfer Pricing Guidance on Financial Transactions (GFT), recognize that an economic crisis can have a wide-ranging impact on transfer pricing (TP) and will pose many challenges and questions for tax practitioners. The GFT therefore provides a series of considerations, practical approaches, and useful tools for dealing with such circumstances.

This article, part of Baker McKenzie and Bloomberg Tax's Special Report, discusses practical and useful tools, and practical actions for companies following the TPG and GFT.


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