Transfer Pricing Adjustments when the Economy Takes a Turn

by | Jul 15, 2020 | Federal Tax, State and Local, Tax News

By Davinia Lyon

The economic impact of the COVID-19 pandemic has created tax challenges for businesses operating internationally. The tax rules international players follow to determine tax duties are particularly challenging right now around royalty arrangements, adjusting comparable data, and attributing losses to subsidiaries, reports Daniel Bunn for the Tax Foundation. In his recent paper, Bunn identified a number of key findings that impact transfer pricing when economies are struggling, including:

  • Businesses will need to adjust their transfer pricing to reflect the changing economic circumstances with limited real-time data on comparable entities and transactions.
  • Royalty arrangements with production facilities, distributor returns, and loss attributions all create decision points for companies to adjust their transfer pricing.
  • Significant transfer pricing changes could lead to new disputes with governments unless there is flexibility.

The Takeaway 

Local jurisdictions are going to increasingly challenge transfer pricing methodologies to offset the impacts of the economic downturn to their revenue. As a cross-border company, a review of your current tax and transfer pricing structuring could uncover options to improve cash flow and potential tax savings as well as prepare to you to battle these challenges. As you adjust your transfer pricing policies to align with the economics of your business, the adjustments you make may impact where and how much in taxes are paid to governments globally.

Get in touch with your TaxOps Adviser to discuss transfer pricing adjustments that reflect current market economics.

Let’s Talk Tax

Davinia Lyon can be reached at dlyon@taxops.com or 720.512.5438. 

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