Transfer pricing implications of Covid-19

A period of economic crisis or downturn will undoubtedly affect the context of how value is created. As transfer pricing reflects arm’s length pricing a revised transfer pricing approach may therefore be needed in the current climate for specific areas. For instance groups should review their charging policies for the provision of services provided between group members particularly where there has been a significant decrease in business activity. Many multinational groups operate transfer pricing models that incorporate ‘routine entities’ – such as distributors contract (or toll) manufacturers or limited risk distributors – which generally receive a low but stable profit margin; in the current climate it may be possible to use existing benchmarking studies to support a lower return. Similarly groups may wish to review their intercompany licensing arrangements for the use of intellectual property. It may also be appropriate to review...