How far through the COVID-19 crash are we? What impact will it have on the economy here in Australia? What impact will it have on global economies?
Currently no one has the answer to any of these questions. What we do know is that it is looking to be as bad, if not worse, than the 2008 Global Financial Crisis. As with the GFC, we know that this type of economic turmoil will have an impact on your transfer pricing calculations and documentation. The situation is very fluid and will continue to be so for a while yet.
Whilst we are expecting to see some leniency from the ATO regarding many areas of compliance, transfer pricing is not likely to be one of them. With the heavy focus on BEPS (Base Erosion Profit Shifting) over the past few years and the increased scrutiny globally, you need to make sure your business stays on top of all the changes. This includes compliance of transfer pricing obligations and specific country-by-country reporting obligations.
The two things we think companies should focus on in relation to this pandemic are:
Pricing
It will be essential that companies review their pricing strategies and ensure that with the current disruptions, they are still logical. Depending on the product or service provided, you may have disruptions to your value chain, reductions in sales, changes to asset value and importantly, changes to margins. These need to be accounted for in your pricing policies.
Company losses
We don’t know how much longer this will go on for, but we are already seeing entities and associated entities generating losses, who should be given the opportunity to record those losses if all the basic conditions are met.
We recommend keeping records of all the impacts of COVID-19 on your business and associated entities through this period, as it will become relevant in the preparation of your calculations in relation to transfer pricing.
Conclusion
Transfer pricing continues to be a complex and challenging area of compliance. If you need advice on your transfer pricing arrangements and assistance with transfer pricing compliance requirements contact us today.
