Transfer pricing aspects to be considered in the context of the state of emergency generated by COVID-19
Despite the fact that the impact generated by the COVID-19 pandemic on the economic activities of multinational groups operating in Romania may not be accurately estimated, it is likely that a large number of groups and local entities will face a reduction of taxable revenues.
Please find below several key points that should be taken into consideration, from a transfer pricing perspective, by Romanian entities that are part of multinational groups:
- Is the group as a whole registering losses due to the COVID-19 lockdown?;
- Is the local entity incurring losses due to the disruptions caused by the COVID-19 lockdown?
- What is the functional profile of the local entity and are the losses in line with the functional profile of the entity?
- Can the local entity still apply the profit margins agreed with the group before the COVID-19 lockdown?;
- Based on the OECD Transfer Pricing Guidelines, limited risk or routine entities should be entitled to at least a break-even position with no losses incurred. Are these recommendations applicable in the current context?;
- Can the current extraordinary circumstances lead to loss sharing in the group’s supply chain, even among limited risk service providers/distributors or low-risk contract manufacturers?;
- What would be the appropriate method to share the loss registered by the group with the local entity?;
- How should local entities document the changes in the price methodology arising due to the COVID-19 pandemic?;
- Should the company amend the contractual framework, applicable to intragroup transactions, so as to reflect the current conditions?
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Task force and guidance in response to COVID-19
During this time of uncertainty, business leaders need a source of reliable information to help meet the challenges they face. To help, Mazars is creating a series of useful insights written by experts in each subject to offer advice, guidance and practical support.
Mazars team can provide assistance in all areas related to transfer pricing. We have a large experience regarding the transfer pricing legislation in Romania and, over time, we provided support on this matter to an important number of companies and groups.