The coronavirus is currently governing our daily lives. We must all respond quickly and flexibly to this virus and take all conceivable measures in these extraordinary times in order to survive this virus well and to remain in good health. Our global economy is likewise being severely influenced by the coronavirus.
The first liquidity problems have arisen and in some instances even insolvencies have occurred. Production has come to a standstill. In Germany and around the world business operating processes have been disrupted. Interruptions of the international value-added chains of multinational companies have led to serious difficulties for these enterprises. Cash flows are being enormously strained (in the short term); turnover is crumbling resulting in our observing more and more effects on the liquidity of affiliated and associated companies.
Similarly licensing revenues have in some cases plunged since they, as a rule, are based on turnover that is no longer being generated. Within corporate groups it has also occurred that affiliated and associated companies are temporarily no longer able to achieve the profit commensurate with their functional and risk profiles. As a result, numerous issues have arisen.
For example, how should routine affiliates and associates (such as sales & marketing companies, contract manufacturers and service providers) with contractually agreed upon profit margins be dealt with? Companies generally providing routine services are especially severely affected and are required to generate specific profit margin targets. In turn, tax risks increase because long proven transfer pricing structures need to be adjusted to the current situation.
In these times extraordinary measures and solutions are required.
RSM will support you in meeting your challenges and in aligning your transfer pricing structures to this crisis in such a way that the short-term solutions found will be sustainable in the long term. The objective is to optimise your liquidity within your corporate group where it is immediately required.
Multinational companies should, especially within corporate groups, consider promptly checking on the health of their transfer prices as well as their transfer pricing policies in order to be able respond flexibly to the coronavirus crisis, to take global measures and to stabilise and strengthen their global presence. Especially now transfer prices offer enormous opportunities for managing liquidity within affiliated and associated companies, for implementing the measures required, for strengthening facilities and production sites and for thereby mitigating tax risks.
The measures required due to these extraordinary times are to be immediately documented as extraordinary business transactions in accordance with § 3 of the German Regulation Regarding the Documentation of Profit Allocations (Gewinnabgrenzungsaufzeichnungs-verordnung) in order to meet the requirements of a government field audit at a later date. Also in such matters RSM, as a competent partner, is more than willing to assist you.
We can support you in these difficult times and together with you find solutions so that transfer pricing not only helps you to mitigate tax risks but is also a tool for managing your liquidity.
We would be more than glad to discuss these matters with you. Together we can develop the solutions you need also for a sustainable future.