The virus, which causes the respiratory disease COVID-19, has given rise to "a unique economic environment" that makes it difficult to apply transfer pricing rules, according to a questionnaire obtained by Law360 on Monday. Specifically, many multinationals have incurred significant losses and there is little comparable data regarding how unrelated parties would handle pricing in similar situations, according to the questionnaire, which was issued June 3.
Regardless of the underlying economic circumstances, the OECD said its transfer pricing guidelines continue to provide guidance on how multinationals should apply the arm's-length principle to their intercompany transactions. However, the Paris-based organization noted that current challenges have been acknowledged by members of its inclusive framework, a group of nearly 140 jurisdictions negotiating international tax rules.
"Members also recognize that in these challenging times," the questionnaire reads, "it is incumbent on us to consider what additional tools could be provided for greater tax certainty and to mitigate the risks of future disputes between taxpayers and tax administrations."
The OECD sent its questionnaire to members of its Business and Industry Advisory Committee, a group that includes business and employer organizations in OECD member countries. Respondents, including individual members of those organizations, were asked to provide general comments on the transfer pricing implications of the COVID-19 pandemic.
For example, the questionnaire asks if respondents are "facing questions about the interaction between transfer pricing and subsidies or furlough schemes."
The questionnaire also asks respondents to list up to five transfer pricing issues related to the pandemic that give them the greatest cause for concern.
Citing the current unavailability of third-party data for 2020, the questionnaire asks businesses what types of sources should be used for a comparability analysis and what kinds of adjustments should be made. The questionnaire also asks businesses to identify examples of supplementary transfer pricing guidance published by national tax administrations that may address current issues, including guidelines from the global financial crisis of 2008 and 2009.
Questions were circulated on behalf of the OECD's transfer pricing working party, referred to as Working Party No. 6, or WP6. The questionnaire also came from revenue officials belonging to the OECD's Forum on Tax Administration, who are also involved with a forum overseeing the organization's mutual agreement procedure, or MAP, process for handling cross-border tax disputes.
Businesses' comments "will inform further discussions" at WP6 and the Forum on Tax Administration's MAP forum on how best to respond to the transfer pricing issues arising from or aggravated by the pandemic, the questionnaire says.
The OECD's questionnaire comes after specialists told Law360 that with businesses closing or limiting operations because of the pandemic, certain companies should prepare for revenue agencies to scrutinize losses. Specifically, multinationals should be prepared if they have transfer pricing structures designed to limit risk — and income — to some group members.
A spokesman for the OECD declined to comment on the questionnaire Monday.
--Additional reporting by Molly Moses. Editing by Joyce Laskowski.
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