Rethink - Transfer Pricing | React | Resilience | Realise

06 July 2020

Welcome to the inaugural Edition of BDO’s Transfer Pricing Insight.

Through this series, our BDO Global transfer pricing experts will provide timely insights into current issues, including perspectives on tax matters from around the world and news from tax authorities, other government agencies, judicial bodies, and the OECD. 

The series will go beyond the technicalities to focus on how these developments affect your business and transfer pricing matters. In addition, our experts will explore how current economic and political conditions may impact transfer pricing structures, policies and outcomes.

The coronavirus pandemic is having an unprecedented effect on economies across the globe. As such, the first series of Insights focuses on how the pandemic is affecting every aspect of global business, from meeting short-term cash needs to addressing and the effects of shocks to demand. All of these have immediate and profound effects on transfer pricing, and in some cases make existing policies obsolete.

React to survive is the theme of our first Insight Edition. Many international businesses still remain in survival mode. They continue to react to the crisis to safeguard the future of their business. The re-opening of the Irish economy is underway and many businesses are trialling different procedures to allow them to function under ongoing and possibly long-term restrictions. 

BDO’s Transfer Pricing Insight will help you look at how transfer pricing comes into play while reacting in these uncertain times. We address cash tax management, low-risk entities, royalties and service arrangements, and the challenges of profit split methodologies and cost sharing arrangements. This series of Insights considers these matters in the context of the current economic climate.

In Edition II, we explore what is next for businesses in order to build Resilience and to strive towards recovery. In Ireland, our phased re-opening will allow business and consumers to adapt to the prevailing business environment. Our Transfer Pricing experts discuss the meaning of “arm’s length” in this context. How do you adapt transfer pricing policies to this new normal? When is it appropriate to share losses among affiliates? What documented data and evidence should companies prepare to support decisions made today? 

The final Edition will focus on the transfer pricing considerations for when companies start to Realise the benefits and begin to thrive. Are there opportunities for better IP management? How can anomalies of the Covid-19 period be reconciled with a company’s long-term transfer pricing strategies? All this and more will be addressed in coming Insight Editions.

BDO Insights will highlight how Covid-19 and other ongoing tax developments can affect transfer pricing practices for international business. The first four Insights in Edition I concern the matters that are considered of greatest importance to our clients during these times:

  1. Intersection of transfer pricing with cash management - how companies are responding to Covid-19 using transfer pricing mechanism.
  2. Adjust “routine” margins – businesses facing losses or reduced profitability can reduce tax burdens if fixed profit margins were adjusted.
  3. If and how to re-price services and licenses – under what circumstances and for how long should a company revise specific policies during the pandemic to reflect different level of profit (or losses) across the organisation?
  4. Sharing losses via profit splits and cost sharing – how can a loss-making business use profit-sharing or cost-sharing models to distribute the financial loss of this economic shutdown, and what are the longer-term implications? 

If you have any queries on the above or the topics discussed in this series, please contact Warren Novis, Head of Transfer Pricing at BDO Ireland, [email protected] or Kevin Doyle, International Tax Partner at BDO Ireland, [email protected].