April 2020 - Transfer pricing in the wake of COVID-19 and the recent China-US trade dispute

Multinational enterprises (MNEs) which source their products manufactured in China or sell to the China market will be adversely affected by the coronavirus disease 2019 (COVID-19) and the recent China-US Trade Dispute during 2019. In addition to a declining global economy because of the above un-fortunate factors, these MNEs will face disruptions to their supply chains and challenges of moving personnel cross borders, which will likely lead to an erosion of profit margins.

Both the China and the Hong Kong governments have announced emergency measures to help the businesses in the two regions. Nevertheless, while the governments will provide stimulus to help the economy, they would need to boost tax revenues to finance these measures, not necessarily by increasing the tax rate, but by looking at the MNEs to raise tax revenues. MNEs, which may generally be perceived by the governments and the broader population as not paying their fair share of taxes, will likely be in the crosshairs of the tax authorities, including the China and the Hong Kong tax authorities, as an appealing revenue source to cover some of the recovery package costs.

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