Transfer prices in times of COVID-19
Transfer prices in times of COVID-19
The following issues require short-term action
1. Transfer pricing policies for so-called routine enterprises assumed to achieve low but stable margins
- May or must routine margins be adjusted?
- If so, to what extent? Is it conceivable to suffer losses through routine companies?
- Difficulty: Delayed effects of the crisis based on commercial databases - econometric adjustments required
- Can contracts with contract manufacturers be suspended or terminated at short notice (loss of business base due to a lack of demand?)
2. Is there a need for adjusting intra-group services?
- Often these are remunerated within the framework of a cost-allocation system or bilaterally based on a cost-plus system known as "low value adding services" with a uniform cost mark-up rate of 5%. Is this appropriate under the given circumstances?
3. What effects can be expected on existing license agreements?
- Sales-driven licenses vs. profit-driven licenses with basic amounts
- Should license rates be adjusted?
4. Transfer of intangible assets and transfer of functions
- How reliable are value determinations made by applying the DCF valuation method under relatively stable forecast situations resulting in expected stable values?
- What proactive steps should be taken in applying price adjustment clauses contractually agreed upon?
- Are there any reasons for transferring hard-to-value intangible assets within the group at this time?
5. Securing liquidity
- Cross-border cash pooling is an important management tool
- Financial effects due to the group rating deteriorating - complete transfer within the group of companies?
6. Restructuring projects
- Who bears the restructuring costs in a crisis?
7. Proactively providing evidence by documenting the motives for and the extent of transfer pricing adjustments
- Deviations from existing transfer pricing principles:
- Distribution of functions and risks within the Group
- Group-wide transfer pricing guidelines
- Intercompany contracts
- Reduced margins or sharing the loss of routine business
must be carefully documented as extraordinary business transactions in all cases
- Strengthening the position of the taxpayer in the event of any subsequent tax audits.