Transfer pricing and the COVID-19 pandemic
Jonathan Schwarz of Temple Tax Chambers takes an in-depth look at why businesses might need to review their pricing arrangements in light of the global COVID-19 pandemic, including key practical takeaways.
Many tax administrations have published guidance on their approach to COVID-19 lockdowns on key elements of double tax treaties – residence, permanent establishment and employment income. However, unanswered questions remain about the allocation of income and profits in light of the pandemic. Allocation issues are primarily governed by article 7 (attribution of profits to permanent establishments) and article 9 (transactions between associated enterprises). Guidance has so far been less forthcoming on the application of the arm’s length principle to these articles in the current circumstances.
Two questions arise for cross-border business: