Transfer pricing in times of COVID-19

20 april 2020 - During this global pandemic, companies should urgently review their existing transfer pricing models in order to reassess transfer pricing risks, take appropriate countermeasures in the short term and find efficient solutions for compliance.


1. Transfer pricing policies for so-called routine enterprises assumed to achieve low but stable margins

  • May or must routine margins be adjusted?
  • If so, to what extent? Is it conceivable to suffer losses through routine companies?
  • Difficulty: Delayed effects of the crisis based on commercial databases - econometric adjustments required.
  • Can contracts with contract manufacturers be suspended or terminated at short notice (loss of business base due to a lack of demand?)

2. Is there a need for adjusting intra-group services?

  • Often these are remunerated within the framework of a cost-allocation system or bilaterally based on a cost-plus system known as "low value adding services" with a uniform cost mark-up rate of 5%. Is this appropriate under the given circumstances?

3. What effects can be expected on existing license agreements?

  • Sales-driven licenses vs. profit-driven licenses with basic amounts.
  • Should license rates be adjusted?

4. Transfer of intangible assets and transfer of functions

  • How reliable are value determinations made  by applying the DCF valuation method under relatively stable forecast situations resulting in expected stable values?
  • What proactive steps should be taken in applying price adjustment clauses contractually agreed upon?
  • Are there any reasons for transferring hard-to-value intangible assets within the group at this time?

5. Securing liquidity

  • Cross-border cash pooling is an important management tool.
  • Financial effects due to the group rating deteriorating - complete transfer within the group of companies?

6. Restructuring projects

  • Who bears the restructuring costs in a crisis?

7. Proactively providing evidence by documenting the motives for and the extent of  transfer pricing adjustments

  • Deviations from existing transfer pricing principles:
    • Distribution of functions and risks within the Group.
    • Group-wide transfer pricing guidelines.
    • Intercompany contracts.
    • Reduced margins or sharing the loss of routine business must be carefully documented as extraordinary business transactions in all cases.
  • Strengthening the position of the taxpayer in the event of any subsequent tax audits.

Want to know more?

Do you require more information about transfer pricing? Please contact Tanya Gartsman by email or by phone  +31 (0)88 277 24 72. She will be happy to help you.

The original article was written by Gertrud R. Bergmann en Bettia Grothe, both partners at Mazars Germany.