Transfer pricing and the Corona pandemic

Article by: Jonathan Schwarz (Temple Tax Chambers; King’s College London) – Published on

In my last blog, I looked at the immediate impact of Covid 19 Lockdowns on key elements of double tax treaties – residence, permanent establishment and employment income. Many tax administrations have published guidance on their approach to these issues. Indeed, almost immediately after the OECD also published helpful comment on them too. The general thrust is that circumstances forced on taxpayers by the pandemic will, within legal limits, not be taken to prejudice affected taxpayers. Those factors largely deal with taxing jurisdiction.

Unanswered questions remain about the allocation of income and profits in light of the pandemic. Allocation issues are primarily governed by article 7 (attribution of profits to permanent establishments) and article 9 (transactions between associated enterprises). Guidance has so far been less forthcoming on the application of the arm’s length principle to these articles in current circumstances.

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