Transfer Pricing News

Guidance on the transfer pricing implications of the covid-19 pandemic

Recently, Organisation for Economic Co-operation and Development (‘OECD’) has released a detailed Guidance note for the taxpayers and tax administrations, in light of the ongoing covid-19 pandemic.

This guidance focuses on effective implementation of the arm’s length principle and the OECD’s existing transfer pricing guidance, on the issues that arose in the context of the covid-19 pandemic.

In this regard, OECD identified and has provided guidance on four priority issues:

a. comparability analysis;

b. losses and the allocation of covid-19 specific costs;

c. government assistance programmes; and

d. advance pricing agreements

On the most potent concern of the stakeholder on the issue of comparability analysis, OECD has provided necessary guidance concerning the sources of contemporaneous information that may be used to support the performance of comparability analysis, the extent of reliance that can be made on budgeted financial information to support the setting of arm’s length prices, time-period for which information of uncontrolled transactions shall be used, practical approaches that can be relied upon to address information deficiencies, use of loss-making comparables, etc.

Accordingly, the guidance shall be helpful for the taxpayers in effectively managing their transfer pricing documentation requirements for the financial periods affected by the pandemic, and the evaluation of the same by the tax administrations.

Further extension of transfer pricing related compliance due dates

The Central Board of Direct taxes (‘CBDT’) vide its Notification No. 93/2020/F. No. 370142/35/2020-TPL dated 31 December 2021, has further extended time limits for various transfer pricing related compliances.

This is intended to provide some respite to the taxpayers from various challenges being faced in completing their annual transfer pricing compliances within the existing due dates, as a result of continuous covid-19 related restrictions and its consequent impact on their business operations.

The revised timeline for undertaking various compliances has been provided below: