Where the critical assumptions of an APA are breached, it is important that taxpayers collect and provide tax administrations with relevant supporting documentation. Depending on the particular critical assumption and other facts and circumstances, this could include, but may not be limited to:
- A description of the narrowest relevant taxpayer business segment tracked by management that encompasses the entities and covered transactions involved in the APA.
- Forecast and actual business segment profits for the financial years ending with or within financial years affected by COVID-19.
- Copies showing any proposed or implemented modifications to pre-existing agreements or of new intercompany contracts among the controlled parties affecting the covered transactions.
- A narrative explaining the anticipated effects of the current economic conditions on an agreed transfer pricing methodology during the financial years affected by COVID-19 including whether it caused restructuring of its operations and/or changes in its risks and responsibilities, and any mitigation of the impact of the current economic conditions on the tested party by government actions or other mechanisms such as business interruption insurance. The explanation must adequately demonstrate that the impact is attributable to the economic condition during the COVID- 19 pandemic, as a mere change in business results may be caused by other factors in a taxpayer’s business and accordingly may not constitute a breach of a critical assumption.
- A detailed profit and loss statement (“P&L”) with a breakdown of cost of goods sold (“COGS”) and selling, general and administrative expenses (“SG&A”) and other non-interest expenses for financial years affected by COVID-19 that include the covered transactions subject to the APA. The detailed P&L may include exceptional operating costs arising from COVID-19 or income from government assistance programme, including explanation on the accounting treatment of such costs or income.
- Information about third party behaviour.