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Transfer pricing — Year-end implications & considerations

Transfer pricing year-end implications & considerations

MNEs should consider transfer pricing planning opportunities during the pandemic

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As fiscal year-end approaches for many organizations, multinational enterprises (MNEs) should evaluate whether their transfer pricing arrangements continue to produce arm's length prices and allocations. This is particularly true this year considering the economic impact of COVID-19, and MNEs should consider potential transfer pricing planning opportunities that may help alleviate financial stress caused by the pandemic.

It is always best practice for MNEs to confirm at year-end that the transfer pricing policy for a controlled transaction has been adhered to, such as to evaluate whether the targeted distribution margin for a limited risk distributor continues to be consistent with the margins realized by comparable distributors. However, given the economic impact of COVID-19, there are additional economic factors that MNEs need to consider even when the historical transfer pricing method continues to be consistent with arm's length terms and conditions, including:

  • Transfer pricing treatment of government subsidies
  • Changes in profitability
  • Comparable Uncontrolled Price (CUP) transactions
  • Foreign exchange

There may also be situations where a company's response to the COVID-19 pandemic either necessitates a change or presents an opportunity to revisit a historical transfer pricing method or policy in the following areas:

  • Profit / loss splits
  • Business restructurings

Before fiscal year-end, MNEs may also want to consider other issues related to:

  • Related party loans
  • Cash repatriation and management
  • Documentation compliance and future audits, including Advance Pricing Arrangements (APAs)

For a full details on these considerations, see "COVID-19: Year-End Implications and Considerations for Transfer Pricing", or contact your KPMG advisor.

Information is current to November 10, 2020. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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