2020 Year-End Tax Guide

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The COVID-19 pandemic has had far- reaching consequences beyond the spread of the disease itself and efforts to quarantine. ” “

COVID-19 The COVID-19 pandemic has had far-reaching consequences beyond the spread of the disease itself and efforts to quarantine. As the virus spread around the globe, concerns shifted from supply-side

re-pricing interest rates to be in line with third party interest rates and help to free up cash flow was front of mind. Many MNEs temporarily held off charging for inter- company interest, inter-company services and inter-company royalties. X MNEs will be under more pressure in the future to defend their existing transfer pricing policies due to the economic downturn. One element of this is that adversely affected companies will be required to explain low operating profits or losses to tax authorities for both the current and coming years. It may be prudent for MNEs to model the impact of COVID-19 on operating results now, to help demonstrate in the future the commercial rationale for changes in transfer pricing and other planning decisions, and ultimately show that low profits or losses were not the result of non-arm’s length transfer pricing policies. The business impacts vary greatly by industry sector and geography. Moreover, the profit margin data often used for setting or testing transfer prices is generally only available with a lag of five to six months for North American databases and up to 18 months for some foreign databases. X The catastrophic impact of the COVID-19 pandemic will be far reaching, and the serious implications for many MNEs’ transfer prices, analysis and documentation is yet another thing to consider.

manufacturing issues to decreased business in the services sector. The pandemic caused the largest global recession in history, with more than a third of the global population at the time being placed on lockdown. X COVID-19 created a sudden, unexpected supply chain disruption for MNEs. The virus shut down manufacturing in the heart of China and other North Asian countries and rapidly moved to impact manufacturing all over the world. Business closures across the globe had already impacted suppliers and customers, depending on the industry, and will likely to continue to impact more in the future as global consumers are required to stay home and unemployment continues to rise. MNEs were forced to review clauses in supply contracts and evaluate alternative means of performing contract obligations. Further, companies were forced to look at temporary supply options, including assessing whether to support their suppliers with advance payments or even acquisitions in order to keep them afloat. Pandemic travel restrictions continued to remain in force, and many business activities were put on hold or performed virtually. Inventory levels for both raw materials and finished goods were reassessed, required additional investment, or cut, to prepare for future shifts in demand. MNEs began to focus on responding to all of their specific issues and recalibrating their supply chains since COVID-19 became priority No.1. X MNEs were forced to review their existing inter-company agreements for inter-company financing arrangements, inter-company services arrangements and inter-company royalty arrangements. Consideration on restructuring or