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OECD guidance on the coronavirus implications for transfer pricing

It is essential for businesses that operate internationally to continuously examine the transfer pricing rules. New situations such as, in particular, the current coronavirus pandemic will give grounds for reviewing and adjusting transfer prices. The OECD recently responded to the pandemic and published extensive guidelines on the consequences for determining transfer prices.


The OECD, in its circular from 18.12.2020, specified the application of the arm’s length principle and the OECD Transfer Pricing Guidelines to situations that may arise or be exacerbated in the context of the COVID-19 pandemic. The circular includes a discussion of, among other things, the following four pandemic-related subject areas.

Comparability analysis

For many companies the economic changes due to the coronavirus crisis impede comparability between the historic figures and the 2020 financial figures. To this end, the OECD recommends a transaction-based case-by-case analysis. To provide help during the coronavirus crisis the OECD allows comparisons with budgeted values in order to determine plausibility. Furthermore, loss-making comparables would also generally be accepted and transfer prices may be calculated on the basis of the outcome testing approach (instead of the price setting approach, which is the preferred alternative in Germany). It is moreover possible to retrospectively adjust transfer prices or to use several transfer pricing methods.

Please note: By contrast, the OECD strongly advises against using financial figures from the financial crisis as a basis for comparability since this is not comparable with the coronavirus crisis.

Allocation of pandemic-induced losses

When dealing with losses, a distinction generally has to be made between losses caused by the coronavirus crisis and losses arising irrespectively of or only indirectly in connection with the coronavirus pandemic, e.g., as a result of declining demand.

To this end, the OECD provides for losses within a group of companies to be allocated on the basis of a functional and risk analysis. The coronavirus crisis has, in particular, huge repercussions for the risks associated with demand, supply chains and production shutdowns as well as for financing risks. Specifically, the risks that have persisted since the beginning of the coronavirus crisis could be compared with the risks prior to the coronavirus crisis and then reassessed. Entities that perform routine functions will be allowed to generate losses, too, in the short term.

Treatment of government assistance programmes

In the course of the coronavirus crisis, companies were and/or will be given support through various assistance programmes, e.g., short-time work schemes, lending, investment grants or tax breaks. Such benefits have to be examined on a case-by-case basis to determine if they reduce the cost base or increase sales and/or should be treated as extraordinary income.

Please note: Furthermore, when carrying out the transfer pricing analysis you should check if the measures have an effect on pricing because the benefits are passed on to customers or suppliers, and for how long the measures will last.

Advance pricing agreement procedure

Even in times of economic crisis, arrangement agreements generally continue. Consequently, despite the coronavirus crisis, advance pricing agreements that have already been concluded have to be complied with. Nevertheless, there has to be a case-by-case review as to whether or not the agreed conditions are being breached because of the changed market situation. It is recommended that you seek dialogue with the fiscal authority early on if it is foreseeable that the underlying assumptions are no longer appropriate.

Outlook: Against the background of these developments, you should check to see in which areas a “coronavirus-induced” need to make adjustments could arise. Pointers for a structured approach were already discussed in this article. Appropriate focus areas are accordingly:

  • changes to target profit margins for entities that perform routine functions,
  • adjustments to regular royalty payments and intragroup service charges as well as
  • aspects of safeguarding liquidity and financing.
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