In other circumstances, more general revisions may be required, depending on the specific facts and circumstances of a case, where allowed by domestic law. For example, tax administrations could consider evaluating the results of the transfer pricing methodology specified by the APA over the period of the APA, rather than on an annual basis, i.e. a “term test”. This approach would aggregate the financial results of FY2020, which may be exceptional, with the more normal results of prior and future years. In combination with this, tax administrations could also consider extending the period covered by an APA. Tax administrations could consider segregating the terms of the APA between financial years affected and unaffected by COVID-19, or cancelling an existing APA for FY2020 and then renewing the APA in a future period, potentially on revised terms. Alternatively, tax administration could also consider aggregating the financial results from a series of covered transactions covered separately under an APA and assessing whether on aggregate they deliver an outcome consistent with the terms of the APA.
OECD COVID-19 TPG paragraph 99
Posted on | By OECD
Category: OECD Transfer Pricing Guidelines (2017) | Tag: Advance pricing arrangement (APA), COVID-19, Effects of breached critical assumptions, Revision of APA
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- OECD COVID-19 TPG paragraph 109 Where taxpayers and tax administrations are negotiating APAs that are intended to cover FY2020, all parties are encouraged to adopt a flexible and collaborative approach to determine how to take into account the current economic conditions, and the various options discussed above in relation to the revision of existing APAs...
- OECD COVID-19 TPG paragraph 97 Revision would be the appropriate response where there has been a material change in conditions noted in a critical assumption in the APA and the tax administration and the taxpayer agree on how to revise the APA.51 The revision of an existing APA would have the effect of changing the...
- OECD COVID-19 TPG paragraph 104 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...
- OECD COVID-19 TPG paragraph 87 COVID-19 has led to material changes in economic conditions that were not anticipated when many APAs covering FY2020 and potentially future financial years affected by COVID-19 were agreed. Given this situation, it is important to determine to what extent, if any, the change in economic conditions affects the application of...
- OECD COVID-19 TPG paragraph 96 In some situations, the APA agreement, domestic law or procedural provisions may prescribe procedures to follow, or describe the consequences that will arise, in situations where there is a failure to fulfil critical In these situations, tax administrations should follow the prescribed procedures.46 In other situations, tax administrations may have...
- OECD COVID-19 TPG paragraph 12 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...
- OECD COVID-19 TPG paragraph 100 In the context of the COVID-19 pandemic, there are two situations which may lead to cancelling an APA when it is established that: in FY2020 (i) there is a material breach in an APA’s critical assumption as a result of a change in economic circumstances; or, (ii) the taxpayer failed...
- OECD COVID-19 TPG paragraph 29 As with other analyses under the OECD TPG, numerous considerations may come into play, including the availability and choice of potential transfer pricing methods and comparables, and the interrelationship among them and the parameters of the testing periods (e.g. a transaction-based method may have a different time frame from a...
- OECD COVID-19 TPG paragraph 21 The difficulty posed by the delayed availability of contemporaneous data on comparable companies or transactions may have been exacerbated by the COVID-19 pandemic. Taxpayers and tax administrations should be mindful that determining a reliable arm’s length outcome requires flexibility and the exercise of good judgment.10 Difficult transfer pricing issues that...
- OECD COVID-19 TPG paragraph 30 One potential solution to the uncertainty caused by the COVID-19 pandemic would be to allow for the inclusion of price adjustment mechanisms in controlled transactions. This may provide for flexibility while maintaining an arm’s length outcome. In particular, this approach to the extent permissible by domestic law would allow the...