OECD COVID-19 TPG paragraph 12

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Another potential approach to utilise in setting transfer prices is to compare budgeted or forecast financial results to those actually achieved, to approximate the specific effects of COVID-19 on revenues, costs and margins. The financial outcomes that taxpayers within a controlled transaction would have achieved ‘but for’ the impact of COVID-19 may provide useful information, particularly when assessing the financial impacts from COVID-19 (e.g. reduced sales volume or increased operating expenses) and determining, in light of contractual terms and risk assumption of the parties, any appropriate resulting impact on intercompany prices. This analysis may include:

  • The preparation of a detailed profit and loss analysis showing changes in revenue and expenses, with an explanation for variances resulting from COVID-19 – this may include a variance analysis of budgeted (pre-COVID) versus actual results;
  • Details of profitability, adjusted to where the outcome would have been if COVID-19 had not occurred – this should consider all factors that have a positive or negative impact on the profits of the taxpayer to a controlled transaction and should be supported by evidence;
  • The rationale and evidence for any increased allocation of costs or a reduction of sales (and subsequent changes in operating margins) to the tested party in the controlled transaction, taking into consideration its function, asset and risk profile; and
  • Any evidence of any government assistance provided or affecting the tested party in the controlled transaction, its effect and its accounting treatment.

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