Transfer Pricing Defense Documentation 2020

Transfer Pricing Defense Documentation 2020

As a direct impact of the current COVID-19 outbreak, companies from various industries have been faced with many pressing issues with direct or indirect consequences, such as having to shut down production and distribution facilities or experiencing a fall in demand or number of clients.

Rene Schob

Partner, Head of Tax & Legal

KPMG in Romania


Thus, several issues have arisen, for both local and multinational companies in terms of supply chain disruption, losses, intellectual property (both in terms of R&D and intangible assets or licenses) or sustainability of historic and globally recognized business models and their related functional profile. One of the main issues companies are worried about is system losses, considering that this economic downturn driven by the COVID 19 pandemic is likely to push a significant number of companies into overall losses.

For multinational companies, the issues mentioned above generate a variety of transfer pricing issues, with immediate or medium to long term impact. One of the questions raised by many companies is how the transfer pricing documentation will look for 2020, especially for companies which have had to stop their activity altogether or which have registered significant drops in their profitability levels or client base.

Using this as a starting point, we have designed a transfer pricing documentation, which we have called TP Defense Documentation 2020. This aims to help companies to document thoroughly the prices used for intra-group transactions during this period (e.g. to show why prices were higher or lower, leading thus to variations in the profitability indicators from one year to another). The TP Defense Documentation 2020 has been designed to be specific, for each company and the course of its activity in this period. However the documentation will also be industry/sector based, as industries have been impacted in different ways during this outbreak – for example some of the industries most affected include automotive production, real-estate, pharma, textile production and, of course, many others.

One of the main focus areas of this documentation will be to determine the economic losses associated with COVID 19, which most likely will require sophisticated economic modeling and income-based analysis.

This documentation will also be practical in the context in which the benchmark studies for this period will not be as reliable as they used to be, considering that they are one year behind and will not accurately reflect the arm’s length nature of intercompany transactions in 2020 and in the future. Moreover, this crisis can affect taxpayers operating in the same industry differently – some may register a decline in their profitability, while others may not.

The TP Defense Documentation 2020 is strongly linked to the fact that an increase in intra-group transactions is expected, as well as a shift in business models and renegotiation of contractual terms. This rethinking of business models is foreseen by companies operating in various industries. According to an impact survey conducted by KPMG Global:

  • One of the top three reported company issues in this context is the operating model. 
  • The first priority of surveyed companies at the moment is keeping up to date with operational changes happening in the business. 
  • One of the top three priorities after the pandemic abates is dealing with the tax implications of operational changes in the business

In close connection to the above, based on the same impact survey conducted by KPMG Global among approximately 500 companies, the issues these companies are most concerned about in this context are -  [Download PDF]

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