Discussions are leaning toward guidance in the form of frequently asked questions that will describe how the OECD's transfer pricing guidelines could apply to particular situations, according to Stewart Brant, head of the organization's transfer pricing unit. If the guidance gets the green light, it could be published this year, he said, speaking during a webinar hosted by the National Association for Business Economics.
"We're dealing with very unique times right now, and the implications on transfer pricing are quite real," Brant said.
The virus, which causes the respiratory disease COVID-19, has resulted in business closures around the globe and widespread economic turmoil. Multinational companies are facing a range of transfer pricing issues, including the question of how to compare their intercompany transactions to unrelated businesses, according to Brant.
Prior-year data is typically used for this comparability analysis, "but for this year, it doesn't make sense," he said.
The OECD is working with delegates from two groups: its transfer pricing working party — referred to as Working Party No. 6, or WP6 — and the organization's Forum on Tax Administration, or FTA. The revenue officials belonging to the latter group are also involved with a forum overseeing the organization's mutual agreement procedure, or MAP, process for handling cross-border tax disputes.
The FTA MAP forum and WP6 will have discussions next week with the OECD's secretariat, the organization's leadership, "to see if there's interest and capacity" for guidance, Brant said.
Taking an opportunity to "set expectations," he noted that many delegates believe the OECD's transfer pricing guidelines can apply in "good times, bad times — and it can address all of these particular issues."
Last month the OECD asked companies and trade associations to comment on the transfer pricing issues they've experienced because of the pandemic. In a questionnaire, the Paris-based organization noted that the virus has given rise to "a unique economic environment" that makes it difficult to apply transfer pricing rules.
For practitioners, it would be helpful if guidance addressed timing differences faced by multinationals that need to benchmark their intercompany transactions against comparable standalone businesses, according to Jill Weise, managing director and global head of transfer pricing at Duff & Phelps.
Weise, who moderated the webinar, told Law360 that the very nature of that exercise involves "a backwards look" because multinationals use comparable financials that have already been completed and are in the public domain.
Transfer pricing rules use multiyear averages that are meant to smooth out any blips that shouldn't be overly weighted, according to Weise. But when "you have such a shock to the system," like what the pandemic has caused, there might not be enough smoothing out to get to a place where those timing differences aren't meaningful, she said.
Weise added that it would be helpful if guidance addressed "what, if anything, a taxpayer should consider or think about as they are grappling with that timing difference."
As for what revenue authorities have done so far, the Australian Taxation Office published information last month on how it assesses COVID-19 economic impacts on transfer pricing agreements.
--Editing by Joyce Laskowski.
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