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KPMG report: Year-end transfer pricing considerations

KPMG report: Year-end transfer pricing considerations

As fiscal year-end approaches for many organizations, multinational enterprises (MNEs) need to 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 the coronavirus (COVID-19) pandemic. MNEs thus need to consider potential transfer pricing planning opportunities that may help alleviate financial stress caused by the pandemic.

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It is always a 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 when 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)

Read a November 2020 report prepared by the KPMG member firm in Canada

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