As we have said in earlier editions of the Review, transfer pricing rules will be high on the corporate tax agenda for many years to come, and they are continuing to evolve at a rapid pace. Over the next year or so, we expect the following to be among the main areas of focus. First, as in so many other areas of endeavour, the COVID-19 pandemic raises new challenges for transfer pricing, and may in some cases invert the ‘normal’ argument between taxpayers and tax authorities. Looking further forward, the experience from the 2008 financial crisis suggests that, in the medium term, the need for tax revenues is likely to push tax authorities towards a more assertive approach in transfer pricing cases. Second, a number of countries may see disputes over the extent to which transfer pricing can be used to recharacterise transactions, rather than merely to adjust the pricing of transactions. Third, the long-awaited OECD Transfer Pricing Guidance on Financial Transactions was published in February 2020. Although its immediate impact has been rather overshadowed by the COVID-19 situation, many taxpayers, and tax authorities, will need to get to grips with the potential impact of this guidance on them. Finally, the OECD/G20 project to address the tax consequences of digitalisation continues to work towards its target of presenting an agreed solution by the end of 2020. The current Pillar One and Pillar Two proposals would, if enacted, be the most far-reaching change to transfer pricing principles in close to 100 years, and would mark a significant shift away from the arm’s-length principle. The desire to shore up tax revenues in light of COVID-19 may well encourage the countries that expect to be ‘winners’ from the proposals to push for an agreed outcome.
This article was first published in The Transfer Pricing Law Review, Edition 4 (published in July 2020 – editors Steve Edge and Dominic Robertson) and was reproduced with permission from Law Business Research Limited.
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