Transfer pricing solutions for the coronavirus crisis

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 can assist you with quick, uncomplicated and sustainable solutions.

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.

RSM solutions for your transfer prices

  • Together we review the transfer pricing structures of your supply and service relationships, in order to mitigate tax risks or even to avoid affiliates and associates becoming insolvent.
  • Thus transfer pricing structures and valuations can be adjusted in order to give affiliates and associates a ‘shot in the arm’ wherever it is required now or in the future. Functions can be realigned by reviewing and reassessing them in terms of price and their benefit to the company.
  • Analysing transfer pricing policies (including a health check of tax planning models) and possibilities for avoiding liquidity difficulties.
  • Reviewing intra-group loan relationships (e.g. intercompany loans with “special terms and conditions”, adjusting existing intercompany interest rates, etc.).
  • Reviewing and modifying intra-group contracts (modifying contracts, e.g. through a letter of intent for mitigating litigation risks owing to an onslaught of lawsuits – contract law: compensation for harm, service disruptions).
  • Using the relief measures instituted by the German federal government (aiding in choosing the appropriate relief measures to be applied for surmounting the crisis)
  • Reducing payment obligations and extending payment deadlines.
  • Adjusting prices on the basis of changed functional and risk profiles.
     
    • Change in allocating functions
    • Adjusting value-added contributions of affiliates and associates (change in the description of value-added chains and value-added contributions of the client/taxpayer)
    • Adjusting how risk is allocated due to the impact of the coronavirus on e.g. logistics, production, etc.
    • Changes in utilising the company’s assets
       
  • Reassessing market and competitive relationships important for taxation.
  • Considering and harmonising various perspectives and tax acceptance domestically and abroad.
  • Reviewing staff secondments (labour law/social insurance law components) as well as intra-group services involving travel.
  • Preparing a tax “defence letter” for defending and arguing why transfer prices were adjusted in the short term.
  • Reviewing possibilities for adjusting:
     
    • Transfer pricing methods
    • Calculation models
    • Profit mark-ups
    • Other
       
  • Together with you we can revalue intangible assets and check for possible partial write-downs, which may be of benefit to you.

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.

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