The current corona crisis will probably lead to the worst recession in the post-war period. Companies will therefore increasingly be faced with the question of what consequences arise for the determination and reviewing of transfer prices for intra-group supply and service relationships or for intra-group financing. It is necessary to anticipate the consequences of the crisis for all transfer price applied at an early stage and to prepare appropriate documentation already now.
Companies active on a global scale should analyse whether the agreed transfer prices are still appropriate or whether contracts need to be renegotiated. What is decisive here is whether existing contracts still comply with the arm's length principle and whether, for example, even enterprises with a limited function and risk profile should exceptionally and temporarily participate in losses.
As a general principle, companies that renegotiate their contracts with external suppliers and customers should also make comparable adjustments to their contracts with affiliated enterprises.
This also applies to the question of financing between affiliated enterprises. It must be examined whether existing financing needs to be adjusted in terms of agreed interest rates or collateral. In future, defaults on loan receivables will lead to increased (partial) write-offs and may trigger transfer pricing adjustments.
It is important to have proper documentation as to why certain adjustments were made or not made.
If the current situation leads to changes in the supply chain, for example because individual group companies are closed down, it should be considered whether such changes could possibly lead to a transfer of functions from a tax perspective. This may have direct tax consequences in some countries. It is possible, however, that there may also be options that companies can use to their advantage.
All multinational companies are strongly recommended to review and assess their current transfer pricing models, intra-group financing arrangements and existing transfer pricing agreements with affiliated enterprises.
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