OECD Releases Pricing Guidance for COVID-19 and Transfer Pricing

On Friday, Dec. 18, 2020, the Organisation for Economic Co-operation and Development (OECD) released transfer pricing guidance as it relates to the COVID-19 pandemic. The guidance, Guidance on the transfer pricing implications of the COVID-19 pandemic, focuses on how the arm’s length principle and OECD transfer pricing guidelines apply to issues that arise from or are exacerbated by COVID-19.

This guidance is separated into the following four sections to highlight areas in which multinational companies may experience challenges in compliance with transfer pricing regulations. 

  • Comparability analysis
  • Losses and allocation of COVID-19 specific costs
  • Government assistance programs
  • Advance Pricing Agreements (APAs)

The following includes brief highlights of each of the four sections of the new guidance.

Comparability Analysis

The guidance includes sources of contemporaneous information to use in support of comparability analysis for fiscal year (FY) 2020, including:

  • Analysis regarding changing sales volume during the COVID-19 pandemic, including any change due to use of other sales channels and comparing specifically to FYs prior to COVID-19);
  • Capacity utilization for relevant transactions;
  • Incremental or exceptional costs borne by parties in the relevant transactions;
  • Analysis of governmental assistance provided, if any;
  • Details of governmental interventions;
  • Information located on interim financial statements (e.g., Securities and Exchange Commission (SEC) quarterly filings);
  • Macroeconomic data, such as country-specific gross domestic product (GDP) data or industry indicators; and,
  • Statistical methods, such as regression analysis or variance analysis, to predict variability in profits.

Furthermore, the guidance also includes discussion on comparing budget to actual results. This type of analysis should include preparation of detailed profit and loss analysis with explanation of any variances caused by COVID-19, as well as the following evidence:

  • How the changes in profit were caused by COVID-19;
  • Any increased allocation of costs or reduction in sales to the tested party; and,
  • Governmental assistance provided to the tested party, including its effects and accounting treatment.

The comparability analysis should be performed by reference to specific delineation of the controlled transaction. For example, using data from the 2008 global financial crisis would raise significant concerns given that there may not be a like-for-like economic circumstance as compared to the COVID-19 pandemic effect. Separate data periods may be used to test results in order to evaluate arm’s length pricing. In addition, loss-making companies that satisfy comparability criteria should not be rejected on the sole basis that they suffered losses in periods affected by COVID-19.

Losses and Allocations of COVID-19 Specific Costs

The OECD does not specifically define limited risk entities, and therefore, the mere connotation of “limited-risk entities” or that an entity receives fixed remuneration does not mean they cannot incur losses. As such, if there is a limited risk distributor (LRD) that simply takes “flash title” to goods, the market risk could result in a loss given a proper comparability analysis. When accounting for COVID-19 expenses in the comparability analysis, these expenses may be excluded from the analyses, and adjustments can be made for accounting consistency and to improve comparability. When allocating exceptional or non-recurring costs, the analysis should be based upon how third parties would allocate similar expenses. These costs may not be considered extraordinary if these expenses are expected to continue to be incurred (e.g., personal protective equipment (PPE) that may continuously be used for the foreseeable future).

Additionally, contracts containing force majeure language should be reviewed to make sure the contract is actually executable. An analysis of what is causing the force majeure event should first be concluded before executing upon this clause. Furthermore, in the absence of intercompany agreements, taxpayers should review third-party agreements to ensure similar force majeure language is included and to what extent an analysis should be performed.

Government Assistance Programs

Consideration for government assistance programs should be included in comparability analysis wherein there is a reimbursement of labor costs to ensure employment – thus, when conducting the comparability analysis, cost plus renumeration should safeguard that the taxpayer is not receiving reimbursement for costs already reimbursed by the government. Furthermore, the accounting treatment of such government assistance programs should also be included in such analysis.


Given that APAs are negotiated between taxpayers and tax authorities, taxpayers should exercise care when alerting tax authorities to the effects of COVID-19. The OECD has provided many different options for tax authorities and taxpayers to negotiate in order to ensure that comparability analyses are conducted accurately.

For more information about the guidance, reach out to us at tax@dhg.com.


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