Not only multiyear data, but the OECD also reminds taxpayers not to override inclusion or exclusion of the use of loss-making comparables. For example, the impact of the closing of a taxpayer distribution facility for three months or other government assistance and intervention. Although, in the state of the COVID-19 pandemic, care should be taken to determine the financial data that may distort actual financial performance. In doing so, it will increase the reliability in comparability analysis. In ordinary circumstances, it can be used as a means to mitigate the impact of accounting differences, appropriately measure the effects on profitability, and to evaluate other comparability factors. In addition, the principles outlined in the OECD Transfer Pricing Guidelines (TPG) regarding the use of multiple year data and average remain applicable. In principle, a comparability analysis should be performed by reference to the specific delineation of the controlled transaction including its actual economic circumstances faced by taxpayers. This is due to the fact that the conditions of the economic crisis at the time were not necessarily the same as the current pandemic situation. Read: Elaborating The Comparability Analysis in New Guidelines of OECD Transfer Pricing Documentationįurthermore, the OECD does not recommend a comparability analysis based solely on financial information from the global financial crisis 2008/2009. The use of more than one transfer pricing method.Where feasible, allow for an arm’s length outcome testing approach and.The use of reasonable commercial judgment supplemented by contemporaneous information to set a reasonable estimate of the arm’s length price.The following are some of the pragmatic approaches the OECD has introduced to address the issue of information deficiencies in contemporaneous uncontrolled transactions: For this reason, it requires flexibility and assessment for both taxpayers and tax authorities in determining reliable results. However, what must be considered is the lag in the data and information regarding contemporaneous uncontrolled transactions based on commercial databases. This principle only applies to taxpayers who determine an arm's length price for related-party transactions on an annual basis. Therefore, taxpayers will need to perform a comparability analysis for the 2020 fiscal year based on available prior year financial information and- depending on the facts and circumstances of each case, utilizing whatever current year information is available to support their transfer. Because the financial information of unrelated parties in the 2020 fiscal year will only be published at least in the middle of the 2021 fiscal year. However, the concept of contemporaneous uncontrolled transactions will be more challenging as the application is confronted with the Transactional Net Margin Method (TNMM). If usually, taxpayers and tax authorities rely on historical financial information from commercial databases, this time they have to look for other alternatives. Read: OECD Released the Transfer Pricing Documentation Guidelines for Business Affected by Covid-19 This is the same as related-party transactions that taxpayers tend to get from the current information on potential internal comparables. The current information on contemporaneous uncontrolled transactions can be obtained from publicly available commercial databases. Thus, the information is reliable to be used in a comparability analysis during the Covid-19 pandemic period. Because the information of contemporaneous uncontrolled transactions reflects how independent parties behave in an economic environment that is the same as or substantially similar to the economic environment of the controlled transaction. It is intended to answer common questions about the use of comparable company data, the period of analysis years, to practical approaches related to changes in economic behavior due to the Covid-19 pandemic.Ĭontemporaneous Uncontrolled Transactions are information relating to the selection of the same period between controlled and uncontrolled transactions in the context of current information comparables. The transfer pricing documentation guidelines offer a new concept of Contemporaneous Uncontrolled Transactions related to comparability analysis. In the issue entitled Guidance on the Transfer Pricing Implications of the COVID-19 Pandemic, the OECD emphasizes the importance of a comparability analysis in the transfer pricing of related-party transactions in accordance with the arm's length principle.
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