Cross Border Financing Arrangements - How to Manage and Benefit in a World Impacted by COVID 19

24 June 2020

Did you miss our webinar? Here are the five takeaways from the third webinar in our TP Minds Digital series: Can You Afford Not To Review Your Transfer Pricing Agreements in the COVID 19 Environment.

Takeaway 1: corporate attention surrounding legal agreements has changed dramatically

Zara – “Our polling suggests approximately 40% of MNEs do NOT have legal agreements in place to support transfer pricing arrangements.  This is a pleasing result and most likely would have been very different if the poll was conducted 5 years ago.”

Joel – “Pre 2013 and pre GFC, getting budget for transfer pricing compliance was quite difficult given other priorities were seen as taking precedence. Following the implementation of BEPs we are seeing far stricter compliance requirements by corporates”.

Paul – “Agreements are not just about transfer pricing. Also relevant for GST, VAT compliance and analysis, customs duties, regulatory compliance, data protection, IP protection and addressing the expectations of a range of stakeholders.”

Takeaway 2: legal agreements are key to better outcomes when reviewed by your tax authority

Zara – “Globally we are seeing an increase in the importance of and expectations of tax authorities that corporates have a strong tax governance framework.”

Joel – “if you don’t have a sound legal agreement in place, your risk profile will increase significantly. Without it you are not putting your best foot forward in defending your position when reviewed by your tax authority!”

Patrick – “In one of my previous roles, the company was reviewed by the ATO and we didn’t have as robust a governance structure as the ATO recommended.  This created some issues to manage as the ATO expects to see something really robust and able to be audited/tested as part of the group’s internal controls.”

Takeaway 3: legal agreements must reflect what is actually happening in the business

Paul – “maintaining flexibility, ie, not nailing yourself down – these perceptions on legal agreements are a thing of the past. You can’t keep things flexible while putting together a comprehensive transfer pricing file.”

Patrick – “If we found substance had changed and the legal agreement was therefore no longer appropriate, we would look to realign the agreements and draft a new agreement. This is especially likely during COVID-19!”

Joel – “You must review your transfer pricing documentation every year otherwise you can’t really say they are fit for purpose. What was the status quo last year will not be the same 2-4 years down the track.”

Zara – “COVID is highlighting the importance of well-constructed agreements in the context of how TP clauses should be applied and how they may represent the TP policy and arm’s length range determined by any benchmarking. It is important to remember in many jurisdictions the burden of proof usually rests with the taxpayer, not the tax authority.”

Takeaway 4: get advice from experienced transfer pricing professionals

Patrick – “Tax people are great, but their day to day job is tax and finance people are not solicitors. You need to involve all stakeholders and seek specialist input from the right advisors.”

Paul – “if you can’t describe an intercompany transaction in 2-3 sentences in an agreement clause, it’s probably wrong.  If the agreement is too detailed it is probably not going to be read by anyone or followed in practice. Cut to the essence of the arrangement and articulate it correctly and briefly.”