Transfer pricing: taxation and digitalization of the economy
Our practitioners provide their insight on how the tax authorities, as well as multinationals in their jurisdictions, are preparing for the anticipated OECD harmonized global approach to the digitalization of the economy.
Peter Moons and Sophie Ogden contributed to the Luxembourg chapter of the comparative study of typical transfer pricing issues. This overview is published by Bloomberg and answers the following questions:
- Per the OECD, the impact of the COVID-19 pandemic on economic activity would far outweigh anything experienced during the global financial crisis in 2008-09. What similarities and differences do you see between the 2008 crisis and the current pandemic so far on the practice of transfer pricing in your jurisdiction?
- Business performance as a result of the COVID-19 pandemic:
- What do you see as the impact of the COVID-19 pandemic on low-risk entities (which typically bear limited risks, and record limited profit margin when the principal entity incurs a loss) in your jurisdiction? Do you see your jurisdiction accepting that such entities can lose money during this unusual economic downturn?
- Are there MNEs in your country who are experiencing or likely to experience increased or expanded business opportunities despite the current pandemic? What strategies should these entities be mindful of with regards to their transfer pricing models?
- How are MNEs in your jurisdiction addressing comparability issues, or how would you advise them to address comparability issues? How should they treat loss-making comparables, to ensure that any adjustments factor in the current global epidemic and adequately reflect economic reality?
- How likely are the tax authorities in your jurisdiction to consider ‘‘economic circumstances’’ as a relevant comparability factor?
- How do you see the pandemic affecting APAs? What adjustments are MNEs making — or what adjustments should they make — to ensure that they will be considered to be in compliance with their agreements? Are companies looking to amend (or should they look to amend) their APAs, or are they just documenting changes in anticipation of possible futureamendments?
- Do you think there is a ‘‘silver lining’’ or bright spot about this economic situation that MNEs should be mindful of? What are possible opportunities that otherwise would not be sustainable in the absence of an economic crisis? Reset possibilities? Location-specific advantage?
Peter MoonsPartner Attorney at law / Avocat à la Cour / Tax adviser
Peter Moons, partner, is a member of the Tax Practice Group in our Luxembourg office. He focuses on cross-border corporate tax advice for multinationals and funds, in particular private equity funds, their initiators and their investors.T: +352 466 230 244 E: email@example.com