Back to top

Transfer Pricing in Times of COVID-19

Transfer Pricing in Times of COVID-19

Find here the full transcript for our webinar on transfer pricing in times of COVID-19.

Our panelists were:

  • Lefteris Androkli, Director, PremioServe, Cyprus
  • Claire Sanga, Partner, Transfer Pricing Specialists, Spain
  • Terence Wilhelm, Attorney at Law & PhD, CARA Société d'Avocats, France

Introductory Remarks

Mateo Jarrin Cuvi: Welcome everyone to Taxlinked’s latest webinar. Today we are organizing this in collaboration with Pride Partners International, which is a transfer pricing network. This is the second webinar we've done with them and they have been pretty well received, so we're excited to have three other members here with us to discuss transfer pricing in the times of COVID-19. Again, this is part of our series of webinars on COVID-19. We had a couple on the many tax measures that countries have actually implemented to weather the storm, so this is part of that series but more focused on transfer pricing.

So before we get started with our introductions and the six questions we have for you today, let me get some admin issues out of the way. This webinar is being recorded. We will have a video recording hopefully by early next week. We'll also have a full transcript available to everyone. Those are going to be emailed to those people attending and will be posted on Taxlinked. It requires us a few more weeks to get the transcript done, but within two or three weeks we should have that out. Also, if you're a Taxlinked member, remember that you can get CPD credits for attending this webinar, one CPD credit, but make sure that you're actually paying attention because the system tracks whether you are paying attention or not. So, if you want that CPD credit, make sure that you're attentive, that you're engaged and that you are asking questions and whatnot. Also, if you have any questions for Lefteris, Claire or Terrence while you're listening to them speak, just submit them on the Zoom control panel. I’ll be moderating and I’ll either work the question into the discussion as it happens, or I will save them for the end of the discussion. So that's pretty straightforward.

We have six questions now, so I’m going to ask each one of our panelists to introduce themselves, give us a brief introduction as to who they are, what they do, etc., and then we'll jump into the question and answer portion of the webinar. Lefteris, you want to get us started please?

Lefteris Androkli: Yeah, sure. Good afternoon from Cyprus. I’m Lefteris Androkli. I’m a certified public accountant and registered auditor in Cyprus. I am in the profession for more than 17 years now, and I’m dealing with international tax and transfer pricing issues of multinational enterprises—what we call MNEs in transfer pricing—advising them in international tax and transfer pricing issues in Cyprus and other jurisdictions as well.

Claire Sanga: Hi, my name is Claire Sanga. I’m a founder of Transfer Pricing Specialists, which is based in Madrid in Spain. I’ve been working in transfer pricing for about 19 years now. At TPS, we have mostly Spanish clients but we also have clients in Europe and the Americas.

Terence Wilhelm: Hi everyone, Terrence Wilhelm. I am an attorney at law and the managing partner of a law firm called CARA based in France, which specializes in transfer pricing and international taxation. Before that I used to be an executive director in a Big 4 type of firm, and I’ve been doing transfer pricing for 17 years now.

Mateo Jarrin Cuvi: So, as I mentioned at the beginning, we have six questions here. I’m going to present the first question as a way of framing the issue as to how COVID-19 is going to affect transfer pricing. So the first question we have here is: What are the main challenges posed by COVID-19 to the practice of transfer pricing?

Question: What are the main challenges posed by COVID-19 to the practice of transfer pricing?

Lefteris Androkli: Yes, sure. There are many challenges to transfer pricing due to the pandemic. Before we start, let's consider what transfer pricing is about. Transfer pricing is to apply the arm length’s principle on transactions between related entities. One major factor to consider when applying the arm length’s principle is the market conditions. COVID has impacted market conditions, therefore, has impacted arm length’s principle as well and, consequently, transfer pricing.

One of the main challenges is the comparability of data. For 2020, most of the companies are affected negatively from the pandemic on profits, on sales. Therefore, one of the transfer pricing methods that is used to apply the arm length’s principle such as the TNM method is negatively affected from the comparability of data, meaning that if we use data of the previous years, it will not be comparable with the current situation.

Another impact and challenge is the increased digitalization. The pandemic has accelerated the digitalization of the economy, of the society, of the businesses. Therefore, the business model changed. We have noticed that distribution channels, digital sales changed. The manufacturing model changed as well. Therefore, this is impacting how the arm length’s principle should be applied on intragroup transactions. Further, the digitalization has another impact in terms of new intellectual property generated. We have seen a huge increase in e-trading, online sales. There is a huge collection of data within organizations, there are groups that are developing algorithms to process this data, to identify what are the market trends. Therefore, these new intellectual properties—we call them IPs—need to be remunerated within the group. Therefore, there is a challenge of how to remunerate these IPs.

Furthermore, the way we work has changed. Now we have distant work, people working from home. There is an effect on what we call significant people functions in transfer pricing, meaning that if we previously had a company that its CEO was traveling from France to Luxembourg for work, now he stays at his home in France. Therefore, we have to consider: Is the Luxembourgian entity entitled to the same remuneration as before or not because of the CEO staying at his home in France? Another question that we need to address is whether a permanent establishment is created in France because of the activity of the CEO. So this is a challenge that needs to be considered.

On the financing part of the business, we have to take into account whether the related parties, the finances between them, whether this should be characterized as financing or is it equity? What are the realistically available options for the parties? Is taking new loans a realistically available option for the borrower or is an equity contribution? How will we determine the interest rate? As I understand, we will discuss this at a later stage but financial transactions between the group companies has a big significance on how a group operates and has been impacted a lot due to the pandemic.

These are the main challenges that need to be addressed, and groups and taxpayers need to be prepared and need to take action from now, to prepare the appropriate documentation, to revise their transfer pricing policies, and to being in compliance within the jurisdiction that they operate.

Claire Sanga: That was a pretty complete list of challenges there. I think of it more in a practical way. So this time next year we'll be trying to support our clients on how they document and justify their transfer pricing position. They're probably looking at fewer sales, loss making positions, and so on. So right now one of the challenges is that we're going to have to document and defend these positions but also taking into account their previous transfer pricing documentation. So one of the things here is consistency and how we can set up our clients now so that they don't have a problem in 2020 or for the documentation for 2020. So what I mean here is, if we're documenting 2019 now and we're saying that they are a limited risk distributor, we probably want to change that conclusion because next year when we come to justify 2020 and their loss making, perhaps they're not limited risk. Perhaps they do have some risks that you want to be able to include and the documentation for setting them up for the future. That's one of the things that we've been looking at. Also, how are we going to support loss making positions, how are we going to share out the losses that have been made within the group, should the principle and the transactions should they take all the losses, probably not. Limited risk doesn't mean no risk, so there should be some sharing of losses. And then when we look going forward and these transfer pricing positions they're being questioned by tax authorities, because they will be questioned, our clients are going to need some contemporaneous evidence, which they should be collecting now. So they need contemporaneous evidence to be able to support perhaps all of the extra costs that they've incurred and not been able to achieve a profit on.

Terence Wilhelm: This is very exhaustive. Frankly speaking, it's quite complicated to add something on top of that. But, if you ask me, I’d like to play the devil's advocate for a minute. Of course, there are many challenges but to some extent there are also opportunities for us practitioners because, to some extent, all the transfer pricing theories, the concepts that we've been discussing for years and years, they now became live, they are for real. How to allocate losses exactly as Claire just said, what does that mean or what does it entail to qualify an entity as a limited risk distributor or manufacturer versus the entrepreneur, things like this, the allocation of the residual profit or loss. So all those concepts, now we’re confronted with these concepts and we need to find solutions, whereas in the past when the economy was running out basically, when things were quite okay so far, those concepts were not so important after all. So it's true that we need to reinvent, I think, lots of transfer pricing theories because now we are confronted with something global and harsh to deal with.

Just to summarize all that, I would say that if I had to find just one challenge, one concern in this arena, I would say: How can we now allocate the global losses within the group, whereas in the past we have qualified for years and years and years some entities as limited risk distributors and manufacturers, what does that mean after all? Does that mean that these should be immune from losses? It doesn't make any sense, and today we understand that doesn't make any sense. No iconic player can be kept immune from losses, so this is something that we need to revise, and this is something also that we need to make sure the tax authorities will hear and will understand. And that's actually the main challenge because we can discuss between us practitioners a lot of things but again we need to ensure that the tax authorities will be on the same page.

Mateo Jarrin Cuvi: The second question, which I’m going to direct to Claire to get us started off with, says: Might this pandemic increase the risk of double taxation and tax disputes between jurisdictions? How so?

Double taxation

Question: Might this pandemic increase the risk of double taxation and tax disputes between jurisdictions? How so?

Claire Sanga: Yeah, definitely so. There definitely is opportunity for double taxation to arise; we already have it even without a pandemic to deal with. For example, I have a client at the moment, it's a very big client with a smaller subsidiary in Spain, it's under transfer pricing assessment in Spain, when we have transfer pricing adjustments, and they're too small for us to be able to instigate a mutual agreement procedure, then that's where we may be having double taxation.

Terence Wilhelm: I’m trying to be optimistic but it's true that so far, at least I’m speaking from the French side, we don't know what reaction from the French tax authority we need to expect, meaning that will they be more flexible because they want to support enterprises and multinational companies or, on the other side, because, let's face it the French government have been very generous, very zealous, when it came to distributing money over the past few months. The country expect reactions such that the tax administration will be even harsher in the coming months or years to recover additional taxes on cash, basically, because we need cash. If we're heading towards that path then, yes, there will be new and additional reassessments, meaning double taxation for sure. So to some extent, there will be more and more and more double taxation type of situations whereas the departments in charge of mutual agreement procedures, they are not expanding. We know that today they are already overwhelmed so they can't do more than that. We have mutual agreement procedures, for example, myself I had two, one was Italy and the other one with Spain, and these two procedures they are still ongoing and this has been lasting for more than three years. It's nonsense. So I’m afraid that, unfortunately, statistically speaking, yes, we will need to face more double taxation situations and, at the same time, I’m quite confident that the authorities or the departments in charge of handling those procedures will not be more substantiated, so we'll be confronted by frictions for sure.

Lefteris Androkli: I agree with Claire and Terrence that there will be more disputes coming between jurisdictions. Due to the pandemic, the pie is getting smaller and governments will want to take as much of it as possible. One of the possible disputes will be the limited risk distributors or the contract manufacturers that, what was done in the previous year, this company was risk-free and therefore was earning a standard remuneration. Now things have changed and, from a transfer pricing perspective, we need to document why these entities should bear losses, because if we consider that the principal entity is negotiating with all of its suppliers for a discount or better payment terms, then we should reflect this in the transaction with the limited risk related company as well. And if the limited risk company cannot survive or cannot show profitability with lower revenue, then losses should be allocated to this company, as well.

Mateo Jarrin Cuvi: We actually received our first question and I think it's revolving around what we have been discussing, so I’m just going to throw it in right now. The question is: Can national COVID-19 economic impact assessments be used to support positions?

Question: Can national COVID-19 economic impact assessments be used to support positions?

Terence Wilhelm: Just to make sure that the question means that can we use it as an argument to support or defend our position? Well, if you allow me to respond to that, even though I can't be conclusive of course, but yes, definitely I would say this is a robust argument to be used. One example that just pops up is that in France this pandemic has been recognized as a force majeure cause, so basically that means that even in intercompany transactions, we could pretend that this situation could not be expected, it is a force majeure, so that we will not apply the terms that are in the drafted intercompany transactions and notably the remuneration, for example. So based on that, we could pretend indeed that this year we will not implement the transfer pricing policy, we will not ensure that, for example, the French affiliate will derive a positive arm’s length margin because now we have this force majeure cause applying, so yes, definitely, I would typically use that as an argument.

Lefteris Androkli: I agree that you can apply this, also to show any adjustment made in the current agreement that you have with your group company, what was the impact in the national economy in order to assess what would be the adjustment in your current pricing structure as well.

Claire Sanga: In Spain, we had some new legislation regarding the rental contracts of properties, and it was just going along with Terence’s comments regarding force majeure, you could implement that article of the contract and change the terms of the agreement, so of course.

Mateo Jarrin Cuvi: Moving on, this question, I guess the Terence could get us started with this one. How would COVID-19 affect the establishment of arm's length prices for loan transactions and what about royalty payments?

How will transfer pricing models be required to be adjusted following COVID-19?

Question: How would COVID-19 affect the establishment of arm's length prices for loan transactions and what about royalty payments?

Terence Wilhelm: It's quite surprising that the question focuses specifically on those two types of transactions, but it is true that these two types of transactions clearly are on the radar of most tax administrations, so eventually the question could be what is the impact on arm’s length prices for all transactions? But it's quite fair it focuses on these two only. But basically it’s exactly what Lefteris said in the introduction, it's a matter of comparability, I would say. When it would come to assess the arm’s length nature of intercompany loans or financial transactions or royalty payments, indeed we'll need to basically determine what is an arm’s length reference and, unfortunately to date, we do not have contemporaneous references, we only have references dating back to 2019 or even before that, so if I were to assess the arm’s length nature of a loan, for example, today, the aggregates I would use in my databases, for example, they would not be adequate, for sure. So that leads to what I call indirect comparables, meaning that direct comparables are those that you can find either internally within the group, internal comparables or on specific databases, and to me indirect comparables are basically the virtual, I would say, comparables that leads us to the concept of option realistically available. So to put it in different words, then that will affect the arm’s length price of a loan or royalty payment, I now need to ask myself whether an independent entity would enter into such a transaction considering now the environment that we all know, considering that the sales will certainly drop and because my royalty payments are based on the sales achieved eventually, maybe these royalties will not be valid any longer. That's probably how this will affect more than the price, I would say, the reality itself for the transaction.

Lefteris Androkli: It's important to examine, except from the pricing, the interest, it’s important to examine before going there, the realistically available opportunities for the parties. Let's take a real life example. In Cyprus, there was by law the government gave the capability to companies, individuals employed, to postpone their loan installments in the bank for nine months up to the end of 2020. Therefore, we have a Cypriot company taking finance from his parent company and he needs to finance now, the realistic level or alternative might be not to take a new loan but to examine the existing loan, whether you should postpone the installments. Further, we need to examine whether the borrower has the capacity to take more borrowings, it might not due to losses and worsening financial position. So there is a risk there that the tax authorities might challenge the financial transaction and considered it to be an equity transaction instead of a financing transaction. Further, to the party granting the loans, given that the economic circumstances all over the globe are worsened, they need to examine whether it needs more equity to absorb additional risk from the new financial transactions that the actors will be a part of. So it's a number of parameters that they need to take into account, firstly, to consider whether it's a loan or not, and then, based on what Terence said, how to price this loan.

Claire Sanga: Okay. So the other thing is that we would expect companies to be acting as third parties would do, so even for existing loan relationships or royalty transactions, if the company is facing financial problems you would expect them to renegotiate, as third parties would do.

Mateo Jarrin Cuvi: Moving on, I guess now a question looking towards the future in terms of the adjustments needed. The question basically says: How will transfer pricing models be required to be adjusted following COVID-19?

Question: How will transfer pricing models be required to be adjusted following COVID-19?

Lefteris Androkli: The transfer pricing models need to reflect market conditions. Therefore, each group needs to take immediate actions by gathering appropriate documentation of what has changed in the various countries that they operate, how the market conditions have changed and to apply these new conditions into intragroup arrangement, as well, and intragroup pricing. We need to have in mind always that the arm’s length principle is what third parties will do in similar circumstances. Therefore, if we have a group that is negotiating a crisis with all of its suppliers, third party suppliers, then we expect this to happen between internal suppliers. Therefore, it needs to have documented what has applied with third parties in order to apply it with the related companies as well, and the documentation, as Claire said, needs to be collected now because if it is going to be collected one year later, going back when you're preparing or updating your transfer pricing policies, you might miss information that would be crucial in defending your position against tax authorities.

Claire Sanga: In terms of the transfer pricing models, I’m not sure how those would change too much, but I think that in terms of being more specific about which risks each party assumes, I think the contracts will be made a lot more rigorous from now on, and these types of risks would certainly be highlighted to be taken into account for future transactions and updating of current transactions.

Terence Wilhelm: I will just rephrase what Claire and Lefteris said but it's true that now it is critical to have a holistic approach, meaning that we can't just update transfer pricing documentations, for example, or just draft another intercompany agreement. We need to do everything at once and now draft transfer pricing documentations in light of agreements, which also are drafted in light of the real environment and the substance sheltered in this entity or the old one, etc., etc. We really need to have a holistic approach because again, for several years, I mean, most people, most firms, most practitioners, even us when I was working in a Big 4 firm, we were doing transfer pricing, for example, just by drafting a transfer pricing documentation report leaving some of the points aside, for example. We can't do that any longer because now we realize that we need to consider everything at once and even consider the worst-case scenario and then document it. If this worst-case scenario happens, what will be the consequences, who will bear the risk, who will bear the financial consequences, etc.

Mateo Jarrin Cuvi: The next question is for Claire to get us started with. How will travel restrictions and the temporary relocation of business functions impact transfer pricing?

Question: How will travel restrictions and the temporary relocation of business functions impact transfer pricing?

Claire Sanga: So Lefteris mentioned right at the very beginning that we'd be talking about company CEOs potentially and other staff in the business that are actually in their homes, which aren't necessarily where they used to usually work from. So this may create PEs. However, they'll be temporary, it's only until we go back to how we were used to working, which I hope is not going to take too long. So there's the potential for creating PEs. Then also, following on Terrence’s comment regarding the documentation for this year, it won't be an update, there'll be new circumstances, if there are different business functions being carried on in the jurisdiction because of people staying at home, then that needs to be reflected in the transfer pricing documentation. If people are receiving their salary in a different country to where they usually are residing, then that will also be taxable in that country. It would be on a temporary basis but all these things would need to be taken into account just for this temporary moment until we will get back to the real normal.

Terence Wilhelm: The key words in that question to respond to are permanent establishment. We all know now with these BEPS initiatives that permanent establishment also is in the radar of most tax authorities, it certainly will be again in the future, so we really need to consider that. Imagining that permanent establishment and transfer pricing basically are two flips of the same coin because once you determine there is a PE somewhere, you then need to attribute a specific remuneration to it. So, again, I’m just going back to my previous response, but when I was saying that we need to have this holistic approach that is one part of it, also to consider whether or not this new way of doing business, those restrictions and how the companies kept operating, whether that created a permanent establishment or not.

Lefteris Androkli: I agree with Claire and Terence. Groups should basically rerun their functional analysis and value chain analysis in order to be consistent with what is happening now, with the travel restriction and change of the business model.

Mateo Jarrin Cuvi: Now it's a question more geared towards what each jurisdiction has done in terms of making things easier for transfer pricing specialists. So the question is and we'll start with Terence who could tell us a little bit about France. Has your jurisdiction enacted any policies to ease the burden imposed by transfer pricing, country-by-country reporting and any other compliance obligations during this pandemic?

Country-by-country reporting

Question: Has your jurisdiction enacted any policies to ease the burden imposed by transfer pricing, country-by-country reporting and any other compliance obligations during this pandemic?

Terence Wilhelm: It's going to be very short unfortunately; there were very few initiatives, I must say, in this regard. And this is a pity, let's face it, because I recall that during the former financial crisis in 2008 to 2010, there were some jurisdictions, I recall Canada, China, for example, where the tax authorities were very proactive, and they really suggested lots of solutions. Today, the OECD is working on it, yes. I know that there are some other countries like Australia, for example, that recently released some guidance also to cope with that situation. Unfortunately, on the French side, now we have very few initiatives, the only initiative that we have basically is just to postpone the declaration, the timing to submit, for example, CbCR or the transfer pricing documentation. The tax audits also were suspended but, apart from having an impact on the timing, I would say there are no other initiatives or actions unfortunately.

Lefteris Androkli: From Cyprus as well no initiatives for obtaining guidance on the tax effect of the pandemic. Cyprus is still to have a complete transfer pricing legislation; it’s expected to be voted by the parliament by the end of the current year, which will be based on the OECD transfer pricing guidelines. The other obligations that have been extended is DAC6 reporting and an extension of FATCA and CRS as well. Other than this, there is no other guidance or postponement of obligations.

Claire Sanga: In terms of transfer pricing, we don't have anything. And actual fact, it's made transfer pricing now a little bit more difficult because we got an extension for filing the accounts for 2019 until the end of this year. However, there's no extension in terms of filing of tax returns, so we're filing transfer pricing and tax positions based on accounts that haven't been audited yet. So that's a little bit of an issue. In terms of tax inspections, we also had the audits stopped for a short period of time and then as soon as they've come back they've been very active. Whereas our clients, they're still trying to cope with people working from home and all the operational issues. Now on top of it they have to deal with transfer pricing and tax audits as well. They're going quite fast on their tax audits and they're being very active.

Mateo Jarrin Cuvi: Questions started rolling in so I’m going to work through these one by one. The first one we have is: How can disruptions in supply chains be factored in?

Question: How can disruptions in supply chains be factored in?

Terence Wilhelm: That's a tough one because again we're not facing I would say a situation that has passed all over. Usually in the transfer pricing arena we have to deal with transactions that are over already, either because we need to document this, so basically they're done, and today we're facing contemporaneous changes and we need to deal with these. So how can we deal with disruptions in the value chain? I would say we need to anticipate a new or future model to avoid this type of situation again or to avoid some entities to bear too many losses, etc., or to find alternatives when it comes to supply chain. When we anticipate this future model, we need to connect it with the past model and not to create a disruption in the past model or the new one, because any disruption in the transfer pricing arena means that there is something being transferred, a function, a risk, an asset, something else, whatever. So it's very hard because again we need to think forward in the future, we need to connect it to the present and the past, and certainly that's what I’m telling my clients, we really need to envisage the fact that aside of these consequences, the financial consequences are linked to the pandemic, there will also be consequences attached to changes in the transfer pricing model and quite certainly we will need to revise the current transfer pricing models in order to avoid future disruptions in the supply chain to occur.

Lefteris Androkli: What needs to be examined as well is how these disruptions affect the operating model of the group in order to examine whether transfer pricing needs to be adjusted or the profitability of the parties involved needs to be adjusted as well, depending on the method that you use to apply the arm’s length principle.

Claire Sanga: In terms of the disruptiveness of the supply chain model, of course, we need to look and see what third parties are doing in similar circumstances. That's the easy answer. Then the more difficult answer is how do you get that information. So, you know, looking into the market but then the market is not going to have that information available yet.

Mateo Jarrin Cuvi: We have two more questions that have rolled in. I’ll shoot this one; maybe Lefteris can get us started. The question is: Whether capacity under utilization adjustment is warranted or justified during these times? If yes, whether the adjustment has to be computed on the margins of the tested party or the comparables?

Question: Whether capacity under utilization adjustment is warranted or justified during these times? If yes, whether the adjustment has to be computed on the margins of the tested party or the comparables?

Lefteris Androkli: Depending on the benchmarking exercise or on the data collected to perform your analysis, you need to apply adjustments if these data are not comparable with the current circumstances. As we said in the beginning, the use of previous year’s data is not comparable with the current situation. Therefore, comparability adjustments need to be applied. These comparability adjustments depend on the industry and how it’s impacted from COVID. What is recommended is that groups, organizations, they should be in a position to identify by themselves how COVID impacted their business, say, by having a separate income statement, by having an analysis of how it impacted sales, profitability, costs. Based on this, they should apply comparability adjustments on the comparable data that they collect and on comparable companies of the same industry.

Terence Wilhelm: Basically, I would respond yes to the first question but eventually I would respond yes to all questions because the fact is that we can do whatever we want in the transfer pricing arena as long as we're in the capacity to demonstrate that independent parties would have done the same. So that's what Claire said a minute ago. Today we do not have the capacity to look in the mirror and see basically what the independent parties have done during this troubling times but eventually I’m quite confident that in such a situation, unrelated parties indeed would quite certainly engage into adjustments linked to under utilization or under capacity. I’m quite confident about that. That reminds me that I had one client that specifically anticipated such situation in his agreement, in its intercompany agreement, where the limited risk manufacturers enjoyed what we called a take-or-pay type of clause, whether basically they just produce and whatever is produced needs to be purchased by the distributor. So in that circumstance there is no need to adjust because they are already protected against such, I would say, under utilization or under capacity. But in other situations again, we need to go back to the agreement and just ensure that the drafting, the wording used in these agreements, do not forbid such adjustments and even if that's the case again, eventually you could say, “Yeah but look, here we have a force majeure type of situation,” which justifies the fact that we will put the agreement aside and then again we need to think about what unrelated party would do. So again, my response to that, it’s a long way to respond but yet my response would be yes.

And to the second question, whether we would then need to adjust the comparables of the tested party, at first sight, I would very much prefer to adjust the tested parties aggregates eventually by using different comparables, why not using comparables from other markets, but which were hit by other economic crisis before, for example, why not. But again everything is possible as long as we're in capacity to provide robust argumentation and say that from an economic viewpoint it makes sense and that unrelated parties would have done the same. Again, to me, you can do whatever you want.

Claire Sanga: I think here what we're talking about is trying to calculate the additional cost that we've suffered and that we haven't been able to get a remuneration on. So I think this would be just looking at the tested party and seeing whether they're going to be compensated by group companies for their under capacity utilization. If we get to the conclusion that they're able to bear that risk, then the point is we just have to calculate how much of the costs relate to that risk and use it as an adjustment when we're looking at comparing their results to the comparable data.

Mateo Jarrin Cuvi: So we have one last question here and then I’ll ask you for some concluding remarks just to kind of wrap things nicely and then I’ll say goodbye. But the last question here I have: Is there a need for a special OECD TP guideline to address TP documentation for 2020?

Question: Is there a need for a special OECD TP guideline to address TP documentation for 2020?

Terence Wilhelm: That's an excellent question, I like that one, I must say. Maybe not new guidelines but it is quite certain that we really expect the OECD to provide some sort of guidance, some concept, standards to refer to because today, let's face it, it's a huge mess. I mean, all the tax administrations are completely lost, they don't know what to do, up to now and even before the pandemic, the OECD was boiling basically because we have all these BEPS initiatives, it was getting quite turbulent and now we have this pandemic. So, yeah, it would be good to have the OECD to issue something new that would, of course, make the link with the previous concepts and previous transfer processing guidelines, but a special report, yeah, would be very much welcome for sure.

Claire Sanga: Yeah, of course, but they take a long time to produce stuff so I don't think it'll be in time for us to prepare the documentation for 2020.

Lefteris Androkli: I agree but, as Terence and Claire said, this is not expected at least very soon, to have an OECD report on how to deal with the pandemic and transfer pricing issues, I don't see it coming to be honest.

Mateo Jarrin Cuvi: I’m going to ask you each one of you to give us just a nice summary or any concluding remarks, like a last message you want to send out to the people who have been listening in and then I’ll say goodbye.

Concluding Remarks

Lefteris Androkli: As we said in the beginning, there are a lot of challenges due to the pandemic on transfer pricing. Organizations and groups need to gather their documentation now and revisit the intragroup agreements, arrangements and pricing to take action now in order to defend their position in future tax audits.

Terence Wilhelm: I want to be optimistic, frankly speaking, because at some point this will be over but we need to also see positive challenges in this situation, and there is room indeed to be optimistic. I’m saying that because, even though we can't start transfer pricing policy or model from scratch, we can't start from a clean slate. Still, this situation provides us the possibility to think of transfer pricing models again, to rethink these models, revisit them and then make things better eventually.

Claire Sanga: Yeah, I’m looking forward to helping our clients through this transition period. I think they're going to get very interested in transfer pricing and how they manage their transfer pricing going forward as a result of this pandemic. So I’m looking forward to a lot more work.