As we near the end of one of the most challenging years in history, businesses face a lengthy “to-do” list of year-end planning action items. For international businesses, that list should include a review of transfer pricing policies.
With so many demands on executives’ time between now and the calendar year end, it’s important to maintain a proportional, balanced approach to transfer pricing. Your policy needs to respect jurisdictional idiosyncrasies and identify transactional characteristics that are likely to generate questions from tax authorities without overcommitting to projects that exceed your current needs. A well-documented review of your transfer pricing policy driven by the impact of COVID-19 could lead to modifications that more accurately reflect this year’s activity, in some cases, resulting in lower tax bills in the countries where you operate.
COVID-19 and transfer pricing considerations
The rapid and unforeseen economic upheaval brought on by COVID-19 has made obsolete many of the assumptions and benchmarks that were used to create transfer pricing policies prior to 2020. Many businesses have soared while others have barely survived, but almost everyone has seen some kind of significant shift this year versus prior years.
It’s important to consult with an advisor to determine how the shifts in your business and your industry have affected your transfer pricing model. You need to answer questions like these in time to act before the end of the year:
- Did the volume of intercompany transactions increase or decrease?
- Did operations shift from one country to another based on locally available government assistance?
- How have the benchmark indicators you relied on changed?
- Do your benchmarks accurately reflect the size and resources of your business, or are they based on large public companies that have significantly more financial wherewithal to weather this crisis?
- Have you reviewed the accuracy and appropriateness of losses in jurisdictions where you’ll be reporting them?
These are questions that an outside advisor can help you answer quickly and accurately to make any necessary modifications to your transfer pricing policy before the year ends. They are also questions that demand an advisor to have a forward-looking perspective from a transfer pricing perspective that at the same time, understands your business.
To learn more about developing a customized, targeted transfer pricing review as part of your year-end planning process, please contact your Plante Moran advisor.
