In its latest Interim Economic Outlook of March 2020, the Organisation for Economic Co-operation and Development (OECD) warns that the COVID-19 Pandemic (“the Pandemic” or “the Virus”) is the global economy’s gravest threat since the 2008 financial crisis1. Instinctively, the effect of the Virus will amongst other areas, affect Group/Multi-national Enterprises’ (MNEs) transfer pricing (TP) analysis, benchmarking and documentation, TP compliance and other pricing arrangements between Groups/MNEs, related parties and regulatory authorities. In this report, we have considered the potential impact of the Pandemic on Group/MNEs’ TP analysis, benchmarking and documentation, TP compliance and other pricing arrangements that may affect the activities of Groups/MNEs.
TP Analysis and Documentation
An appropriate TP method is required to be adopted by an entity in the pricing of its related party transaction. Some of these methods as recommended by the OECD TP guidelines, and as provided for by the Income Tax (Transfer Pricing) Regulations 2018 (TP Regulations), require historical financial data for comparison between the tested party and other entities undertaking similar activities using similar assets and assuming similar risk. Whether an entity adopts the ex-ante or ex-post analysis of its controlled transactions, it is certain that the economic result of the last three (3) years (2017 to 2019) cannot be reliably compared to the 2020 financial year for the purpose of benchmarking as the activities, financial projections and performance of most entities are currently nosediving in the midst of the Pandemic. It is advised that companies keep proper documentation of their inter-company activities and the interplay of the effect of the Pandemic over their global operations. This will give companies an edge when defending their inter-company TP analysis.