Transfer Pricing Challenges during Covid-19 Pandemic in 2020 and 2021

Christian Sværke Hersig Nielsen

Student thesis: Master thesis


This master thesis has the main purpose to examine and analyse the difficulties, that multinational enterprises experience under the influence of Covid-19, in a transfer pricing related matter. These difficulties are limited to subjects that are expected to have the most significant impact from the Covid-19 pandemic. As such, the thesis analyses Covid-19 difficulties that lies within the arm’s length principle in TPG 2017 chapter one, business restructurings in TPG 2017 chapter 9 and transfer of intangibles assets in TPG 2017 chapter six. In extension, the goal is to assess whether OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax administrations (TPG 2017) are sufficiently supplemented by the OECD Guidance on the transfer pricing implications of the COVID-19 pandemic (TP Covid-19 Guidelines), to guide the Danish multinational enterprises in solving these difficulties. The Covid-19 impact on the arm’s length principle goes mainly through the comparability analysis. The pandemic has a prime effect on the five comparability factors, on which the conclusion is that the risk of changes on each factor due to Covid-19 is significant. These changes may result to implications with finding uncontrolled comparable transactions. Overall, the TP Covid-19 Guidelines contributes with useful advises, such as remember to act in accordance with independent comparable companies, and secure that master and local files are updated with all considerations concerning Covid-19. Business restructurings that are made under the pandemic may be a result of enterprises adapting to the restrictions, made to reduce Covid-19 infections. Among other guidance, the Covid-19 Guidelines advises multinational enterprises to include documentation of the commercial rationale for restructuring, as tax administrations are expected to be sceptical of restructurings that are made only based on Covid-19 implications. Losses and expenses incurred due to Covid-19 affects both comparability under the arm’s length principle, and business restructurings, in the context of which group company should incur these losses. The Covid-19 Guidelines advises the enterprises to allocate the loss to the company that controls and assumes the risk related to the loss. Intangible assets in controlled transactions, e.g. transferred in business restructurings, may be very difficult to value, even before the pandemic. The pandemic impacts the controlling functions that adds value to the intangible assets, which may lead to lower values for the intangible assets, and income that are not allocated at arm’s length. Conclusions reached in theoretical chapters are demonstrated in a fictional business case, concerning a business with intangible assets, that enters into business restructuring. The case demonstrates the Covid-19 impact on the business performing analysis related to the restructuring, and the following remuneration and compensation for the restructure. Conclusion on the interaction between TPG 2017 and TP Covid-19 Guidelines, is that TP Covid-19 Guidelines supplement the TPG 2017 on a broad range of implications, though with the right amount of time available, it may be improved with further guidance.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2022
Number of pages86