What can companies do to manage their Transfer Pricing Risks in time of crisis?

KnowledgeWhat can companies do to manage their Transfer Pricing Risks in time of crisis?

What can companies do to manage their Transfer Pricing Risks in time of crisis?

A series of unfortunate events have shaken the financial stability of the world economy. With bushfires swept across Australia and the outbreak of Covid-19 challenging times will be inevitable.

In light of the recent outbreak of Covid-19, which is now known as a global pandemic threat, has jeopardized businesses significantly across the globe. Businesses of various industries are expected to lose billions of revenues.

The bushfires had also taken its toll on the Australia economy in terms of consumer confidence, air pollution and direct harm to agriculture and tourism. The economic impact is set to be substantial and long-lasting.   

Global Impact On Business 

Airline, hospitality and tourism industries will suffer the biggest hit in revenues due to fear of travelling. Major events were cancelled and suspended, and governments are also restricting travel and public gatherings to contain the outbreak.  

According to CNBC, the global business travel sector is anticipated to take a revenue hit of about $820 billion, with China accounting for nearly half of the losses as corporates curb travel plans in the wake of the Covid-19 pandemic.

Businesses are also dealing with disrupted supply chains due to China’s factory shutdowns. Tech giants’ such as Facebook, Apple and Google are faced with delays in production and temporary closure of stores and offices in China.  

China is the world’s biggest oil importer. With Covid-19 affecting manufacturing and travel industries, the oil industry is expected to experience its first fall in global oil demand in a decade according to the International Energy Agency.

What We Can Do To Help

During a global crisis, like the one we are facing today, companies are forced to take actions in dealing with losses or even group losses as a result of lower revenues. Managing costs and expenses are amongst them. This approach enables companies to improve cash flow to meet their payment obligations and continue to fund their business operations.

Secondly, companies are forced to reprice their goods and services in order to cope with losses and in response to the current markets’ supply and demand. Related party transactions (“RPT”) are no exception to the above. 
Transfer pricing (“TP”) is relevant during the global crisis as the pricing of RPT generally reflect market conditions.

Related party entities may have trouble reaching amicable prices as they are unable to meet the expected profit margin and bearing unforeseen losses. 

Therefore, it is crucial for companies to assess their TP policies during this period in order to manage the TP risks accordingly. Companies are still required by tax authorities to prepare a contemporaneous TP documentation (in compliance with TP Guidelines) to demonstrate arm’s length principle even in times like these.

The good news is that companies do not need to stop managing compliance and their transfer pricing risks due to constrains in budgets and cash flow. Transfer Pricing Solutions is here to help you manage your Transfer Pricing Risks and save on your compliance costs offering affordable fees on transfer pricing planning and compliance.

Contributed by Li San Tan

Li San works as a consultant for Transfer Pricing Solutions (TPS) Australia, Asia and Malaysia. Her expertise includes handling transfer pricing engagements and preparing transfer pricing documentation for clients of various industries such as IT, commodities and electronics. Prior to joining TPS, Li San was attached to an international accounting firm as a tax consultant. Her main responsibilities were in corporate tax.

If you want to know more about our affordable fees for NEW TP documentation or document  updates  talk to our team of experts today.


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