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In a new article published in International Tax Review, Managing Director Dr. Yves Hervé and Director Philip de Homont analyse how the economic decline caused by the coronavirus outbreak may prompt multinationals to alter their transfer pricing models.

The authors outline how government-imposed shutdowns of the economy have led to a large-scale breakdown of supply chains across sectors. As a result, most multinationals will have to rethink liquidity-preserving measures to survive the crisis. The authors suggest that one vehicle could be for multinationals to reconsider their existing transfer pricing arrangements to allocate group profits or losses. In addition, they state that multinationals must anticipate that fiscal generosity by governments will, in the subsequent years, turn to more aggressive tax environments. 

The authors also explore why, in post-crisis tax audits, multinationals that have survived the crisis must expect to experience severe transfer pricing challenges. In expectation of such future situations, the authors recommend that multinationals embed their transfer pricing adjustments in a greater intellectual framework that is consistent with the evolution of the tax regulatory landscape in the pre-COVID-19 years. They explain why changes brought by the BEPS initiative and the development, enhancement, maintenance, protection and exploitation (DEMPE) concept for intangibles and risk (introduced by the OECD) provide excellent opportunities in this regard.