This year is marked by the COVID-19 pandemic and has certainly shaken the world in many ways. The suspension of business activities, the need to intervene with state aid, the psychological repercussions and many other factors have also negatively affected the global economy, challenging also production and distribution models usually adopted my multinational groups of any size. Those groups need to review their supply chain from a strategic point of view, which will have an impact not only on the short term (2020-2022) but also on the medium term (2023-2025).
Among the topics most discussed within the groups are certainly the following:
- profit sharing (or, in many cases, loss sharing) between the parent company (principal) and low-risk subsidiaries (e.g. third party producers and limited-risk distributors);
- the remuneration of intangibles, used both in the production and distribution process;
- any sharing of public subsidies at group level from which some subsidiaries may benefit;
- the credit rating review of subsidiaries involved in group financial instruments such as intercompany financing, guarantees, cash-pooling and others;
- management of intra-group agreements for the provision of centralised support services (e.g. cost sharing agreements) and agreements for the joint development of intangibles (e.g. cost contribution arrangements).
All of the above issues concern the general attribution of functions, risks and assets to the single group companies in relation to the different types of intercompany transactions in which they are involved, possibly also highlighting critical aspects of the models adopted so far.
Hence, while waiting for the OECD to issue (hopefully by the end of the year) methodological guidelines shared with the Member States' tax authorities on how to manage transfer pricing during the pandemic, multinational groups will need to assess today any corrections to the transfer pricing policies adopted during 2020 to take due account of the changing economic environment. The critical issues of the choices made today will become apparent in the coming years when tax authorities will carry out tax audits of the business years affected by COVID-19, with potential risk of double taxation.
However, any changes introduced today need to be carefully assessed on the basis of currently available (current and forecast) data. The economic effects (on the results of the single group companies and on consolidated level) and legal effects (on drafting intercompany agreements) are certainly multiple and complex.
Hence, our Transfer Pricing & Tax Value Chain department provides specialised assistance to multinational groups in order to analyse and manage all aspects of transfer pricing and supply chain in such a complex situation, like the one we are facing today.
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