COVID-19 & Transfer Pricing ArrangementsBDO PPN WEBINAR UPDATE

JOEL PHILLIPSPARTNER, TRANSFER PRICING

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BDO PPN Webinar Update - COVID-19 & Transfer Pricing Arrangements - 28 April 2020

PRESENTER

BDO PPN Webinar Update - COVID-19 & Transfer Pricing Arrangements - 28 April 20203

Joel PhillipsSydneyPartner, Transfer PricingPhone: +61 2 8264 6572Mobile: +61 410 042 105Email: Joel.Phillips@bdo.com.au

OUTLINE

Purpose• Practical discussion on how to manage transfer pricing in an environment so heavily

impacted by COVID-19

Outline of session• Introduction and overview of the situation so far• Transfer Pricing under COVID-19

– What to watch out for– Potential outcomes based on “Market Evidence”

Questions

BDO PPN Webinar Update - COVID-19 & Transfer Pricing Arrangements - 28 April 20204

THE SITUATION SO FAR

IMPACT ON THE GLOBAL BUSINESS ENVIRONMENT

Disruption to global supply chains Travel restrictions impacting workforce mobility Changes to existing processes and move to remote working Reduction in demand and consumer spending Cash flow pressures Declining asset values Declining revenues – permanent or temporary? Profit impact - short and medium term

BDO PPN Webinar Update - COVID-19 & Transfer Pricing Arrangements - 28 April 20206

GLOBAL ACTION

Tax authorities showing empathy towards impacted taxpayers Willingness to reach compromise and reduce red tape and flex compliance

obligations Massive global stimulus measures to support economic activity Suspension of audit and compliance activity Extensions of time to lodge/pay

BDO PPN Webinar Update - COVID-19 & Transfer Pricing Arrangements - 28 April 20207

AUSTRALIAN RESPONSE Government stimulus and spending:

• JobKeeper payment – providing $1,500 per fortnight per employee (where eligible)• Expanded instant asset write-off (thresholds raised)• Other cash flow boosting measures (e.g. Government backed loans)• Range of State measures (payroll tax, land tax etc.)• Etc.

Delay of planned tax assessments and audit and compliance activity Payment deferrals and low interest payment plans - contact the ATO to arrange Relaxed compliance approach where certain fact patterns impacted by COVID-19

• Central management and control• Permanent establishments (e.g. through immobile workforces)• Arm’s length debt test

Significant global entity (SGE) penalties and compliance

BDO PPN Webinar Update - COVID-19 & Transfer Pricing Arrangements - 28 April 20208

TRANSFER PRICING EXAMPLES

SURVIVE – STRIVE - THRIVE

TRANSFER PRICING UNDER COVID-19

What to watch out for:• Restructuring of commercial arrangements

– Change in entity characterisation / TP Policy– Opportunity and threat if TP not addressed– Div815 reconstruction provisions can apply

• Comparable analysis not comparable– Timing of financials / Require market evidence– Potential comparable adjustments - FX fluctuations / Idle capacity expenses /

stock write off / restructuring– Significantly different outcomes depending tested party industry

BDO PPN Webinar Update - COVID-19 & Transfer Pricing Arrangements - 28 April 202010

TRANSFER PRICING UNDER COVID-19

Potential outcomes based on “Market Evidence”• Limited Risk Distributors (LRD’s)

– Limited risk does not mean “no risk” – Share of losses across the group– Opportunity and threat if TP not addressed

• Service Providers accepting losses• Value of IP licence rights - IP holiday opportunity• Management and admin charges – Payment holiday based on benefits test

BDO PPN Webinar Update - COVID-19 & Transfer Pricing Arrangements - 28 April 202011

TRANSFER PRICING UNDER COVID-19

Finance Considerations• Gearing level considerations – ALDT / Foreign equivalent• Interest rate and terms considerations / Credit rating changes• Cross guarantee – Pricing• Alternatives to debt

– Equity– Quasi Equity– Intercompany arrangements

Keep in mind the OECD Guidance on intra-group financing

BDO PPN Webinar Update - COVID-19 & Transfer Pricing Arrangements - 28 April 202012

TRANSFER PRICING UNDER COVID-19

Other Considerations• Legal Agreements• TP Documentation• True Up Payments / TD 2014/14 - Deductibility of “capital support payments”• Double Taxation – MAP/APA • IFRIC 23 – “Recognition of Uncertain tax positions”• PartIVA / DPT / MAAL / Reconstruction provision / penalties

BDO PPN Webinar Update - COVID-19 & Transfer Pricing Arrangements - 28 April 202013

QUESTIONS?

DISCLAIMER

This presentation has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The presentation cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances. BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this presentation or for any decision based on it.

BDO refers to one or more of the independent member firms of BDO International Ltd, a UK company limited by guarantee. Each BDO member firm in Australia is a separate legal entity and has no liability for another entity’s acts and omissions. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees.

BDO is the brand name for the BDO network and for each of the BDO member firms.

© 2020 BDO Australia Ltd. All rights reserved.

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