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TP implications in uncertain times

Transfer Pricing Implications in Uncertain Times

Dr. Alicja Majdanska[1]



The Covid-19 pandemic has greatly affected businesses around the world bringing exceptional disruption and change in the economy. Corporate taxpayers have faced significant cash flow constraints, swings in profitability, and disruptions to their operations and supply chains. To support economies through the crisis many governments offered fiscal packages aimed at cushioning the immediate impact of the sudden drop in economic activity and preserving countries’ productive capacity.

The responses to Covid-19 exacerbated tax uncertainty faced by corporate taxpayers already before the pandemic. The new economic reality gave a floor to some tax challenges, particularly concerning the application of the arm’s length principle. Taxpayers have struggled with issues ranging from the availability of reliable comparable data to the effects of governments’ assistance. In the recognition of the unique economic conditions, the OECD issued Guidance on the transfer pricing implications of the Covid-19 pandemic (Covid Guidance)[2]which intends to help tax administrations and taxpayers find mutually satisfactory solutions to transfer pricing cases. It is important how countries embrace Covid Guidance into their practice as transfer pricing disputes rooted in the economic implications of Covid-19 may follow.

Given the significance of the topic to transfer pricing practice, on 24 March 2021 Centre for Analysis and Studies of Taxation in Warsaw School of Economics together with Women of IFA Network (WIN) organized a tax webinar “Transfer Pricing Insights into Current Tax Landscape. Polish – German Perspectives”. The event brought together leading private sector experts in the field as well as policymakers from OECD, German and Polish ministries of finance.[3]The meeting consisted of two panel discussions: the first one focused on transfer pricing implications of the Covid-19 pandemic, whereas the second one on the topic of tax certainty in uncertain times. The focus was on Polish and German experiences. The tax webinar began with opening remarks from Birgit Faßbender, a representative of WIN International Committee and WIN Germany, and from Dominik Gajewski, Head of CASP. 

This article summarizes the main issues discussed during the meeting. 


Transfer pricing implications of the Covid-19 pandemic

The first panel of the tax webinar, moderated by Monika Laskowska (a CASP representative), focused on the main topics covered in the Covid Guidance. The discussion began with a short overview of the Covid Guidance. 

As it was emphasized, the Covid Guidance represents a consensus of the 137 members of the Inclusive Framework on BEPS regarding the application of the arm’s length principle as interpreted in the OECD Transfer Pricing Guidelines (Transfer Pricing Guidelines)[4]to issues that may arise or be exacerbated in the context of the Covid-19 pandemic. Due to time constraints, the Covid Guidance focuses on the most pressing issues. It addresses comparability analysis, losses and allocation of Covid-19 specific costs, government assistance programs, and advance pricing agreements (APA). The OECD consulted the selection of topics with tax administrations and taxpayers. Tax administrations confirm the relevance of topics as they are expected to come up in discussions with taxpayers. Taxpayers shared that the Covid Guidance was issued timely, considering year-end closing. 

The Covid Guidance does not provide any new panacea to the tax implications of the Covid-19 pandemic. It relies fully on the arm’s length principle and as such, it plays only a clarifying role to the Transfer Pricing Guidelines. It aims to illustrate how the arm’s length principle may apply under the circumstances of the Covid-19 pandemic. 

The Covid Guidance acknowledges that for the sake of comparability analysis taxpayers may rely on any form of publicly available information. Tax administration should accept different sources of reliable information including internal ones as well as analyses based on statistical methods such as regression analyses or variance analyses. Since the Covid-19 pandemic may contribute to the delayed availability of contemporaneous data on comparable companies or transactions, tax administrations may consider allowing for an outcome-testing approach, that takes into account information that becomes available after the close of the taxable year. To improve the reliability of comparison performed, taxpayers may apply separate testing periods or use combined periods for testing. 

In terms of allocation of losses, incurred due to a decrease in demand or an inability to obtain or supply products or services or as a result of exceptional, non-recurring operating costs, the Covid Guidance stresses the need to follow the arm’s length principle and the existing guidelines in that respect. This means that a thorough factual analysis is required. Only on its basis, it is possible to conclude which party to a transaction carries a risk. Profits or losses can be allocated accordingly. The allocation of risks and associated cost may turn out to be the most controversial in case of so-called “limited-risk” entities. The Covid Guidance does not exclude the possibility that routine or low-risk entities may incur losses in short term. Each transaction has to be analyzed on a case-by-case basis. The question is what risks can be allocated to limited-risk entities and whether their materialization effected into losses. To answer the question, careful analysis of a contract and actual behaviour of parties to the transaction is necessary. 

While conducting a comparability analysis, taxpayers should also take into account government assistance programs. Since the programs provide a direct or indirect economic benefit to eligible taxpayers, they may have transfer pricing implications. The mere receipt of government assistance, however, does not modify a risk allocation. The potential impact depends on the economically relevant characteristics of the transaction, following an accurate delineation of the controlled transaction and the performance of a comparability analysis. The taxpayer has to show, if and how the receipt of government assistance affected the pricing. 

Finally, the Covid Guidance deals with APAs. These should be respected, maintained and upheld. The pandemic per se does not constitute a condition leading to the cancellation of or revision to the APA. If taxpayers spot any material changes in economic conditions underlying the existing APA, they should approach the tax administration to discuss its concerns and potentially move for APA revision or even the cancellation. Given the tax certainty associated with APAs, the pandemic should not discourage taxpayers from applying for APAs. 

Currently, there is no plan to provide an update to the Covid Guidance. The OECD monitors, however, the developments relevant to the application of arm’s length principle and stays in an open conversation with the business.

The OECD position on the application of the arm’s length principle to the Covid-19 economic situation is supported by a practice of many tax administrations. Germany follows that path as well. Despite the pandemic, taxpayers in Germany are expected to consistently conduct their transfer pricing analysis as explained in the Covid Guidelines. The Covid Guidance confirms that and provides sufficient support. The pandemic may affect the choice of comparables. Taxpayers may struggle with finding appropriate data. In Germany it is up to taxpayers to choose the most appropriate approach. The experiences from 2008 financial crisis may be helpful. However, it cannot be ignored that the nature of that crisis was very different from the Covid-19 crisis. In terms of government assistance received, programs vary significantly in their nature, so they require careful analysis. Finally, taxpayers may question if existing intercompany agreements sufficiently reflect new economic conditions. It is up to business partners to re-evaluate if there is a need for contract renegotiation. In any case, in Germany the tax administration will look behind the contract and analyze the actual transaction. Taxpayers should aim to apply the most practical approach in compliance with the arm’s length principle and along with required documentation.

A representative of German business participating in the webinar  confirmed that most of the transfer pricing issues faced by taxpayers during the Covid-19 crisis are not unique. Lack of comparables, risk allocation or actual conduct of parties to the transaction were issues disputed already before the Covid-19 crisis. In that context consistency in the application of the arm’s length principle is key. Consistency should be reflected in the documentation shared with the tax administration. The new economic environment following the Covid-19 crisis brought new assumptions. If these were to be included in the analysis, they have to be documented accordingly. As such, Covid-19 does not bring anything new to the transfer pricing world. There are, however, some specifics of the crisis that may call for special consideration. First, although currently, taxpayers face the lack of adequate comparables, in a 2-3 year period these will be available. There is a risk of tax administrations being tempted to act with hindsight during tax audits. Second, the Covid-19 crisis may impact different businesses in different ways. Some businesses may be close to collapse, whereas others may flourish. This begs the question of how to accommodate this mixed picture, particularly if it takes place within one company. Taxpayers may apply an aggregate view. The Covid Guidance provides some hints on how to go about it. The analysis can be supported by statistical analysis. Taxpayers may avail information from different sources. Some fundamental issues remain contentious during the crisis as well as before it. Among those, intercompany charges belong to the areas disputed by taxpayers with tax administrations. Various tax administrations across the world impose a variety of documentation obligations. There is no aligned approach. This may pose a potential area for OECD to come up with a global standard. 

Amid uncertainties stemming from the pandemic, particularly the issue of the lack of contemporaneous information on comparables or other direct evidence of arm’s length behaviour in response to the pandemic, price adjustment mechanisms in controlled transactions may be found appropriate. As discussed at the meeting, in countries that rely on a price-setting approach, a shift towards an outcome-testing approach may pose to be challenging. Poland can serve as an example. The Polish legal environment may require more guidance to be provided to taxpayers. So, the Transfer Pricing Forum, bringing together representatives from business, research, Polish Ministry of Finance and the tax administration, has been recently working on the transfer pricing explanations elaborating on transfer pricing implications of the Covid-19 crisis. 


Tax certainty in uncertain times. Addressing transfer pricing challenges

The discussion during the first panel of the tax webinar confirmed that transfer pricing remains a contentious area. During the second panel, the focus shifted towards the question of how to improve tax certainty, particularly in the uncertain Covid-19 environment. 

The topic of tax certainty is not a new tax issue either. As the moderator of the second panel, Joanna Koronkiewicz from WIN Poland reminded, tax certainty has already been part of the OECD agenda for a few recent years. It has been discussed in several reports published by OECD and other international organizations.[5] The topic has grown in importance due to its significant economic role. Providing a greater tax certainty to taxpayers supports trade, investment and economic growth which is a priority to governments and businesses.[6] There is a wide variety of tax policy tools that can contribute to greater tax certainty. These include tax rulings, APAs, mutual agreement procedures (MAPs), joint audits, cooperative compliance programs, or one of the most recent, the International Cooperative Assurance Program (ICAP). The discussion during this panel focused on these tax policy instruments.

As it was confirmed by a German business representative tax policy tools contributing to tax certainty are of paramount importance in investment decisions. They help avoid costly and lengthy disputes with tax administrations. Zalando SE tends to approach tax administrations proactively. Different countries have varying tax policy tools available. The company participates in various ways of cooperation with tax administrations, ranging from tax rulings in Poland to dialogue procedure in Sweden. Out of the existing tools, MAP seems to be the least attractive to corporate taxpayers. This is so due to its long-lasting and expensive process. Besides external tools, relying on the cooperation with tax administrations, a taxpayer may avail of internal processes that help improve tax certainty. In Germany, a tax control management system plays an important role in showing how a corporate taxpayer goes about its internal processes. The system in place may be relevant for a determination of whether an error constitutes a willful act or gross negligence and might be relevant from a criminal prosecution or administrative charges point of view. 

The role of the internal process in achieving tax certainty is important both for headquarters as well as for subsidiaries. Since the burden of proof usually  lays on a taxpayer (e.g. in Poland), they may prefer to have in place a sufficient control framework. 

From the perspective of the tax administration, the choice of a tax certainty tool should follow the type of business. Along with business growing internationally, taxpayers should consider multilateral tools. This is of key importance, given varying approaches of tax administrations to the same tax risks. Bilateral and multilateral APAs, ICAP and joint audits are the right choices for taxpayers operating cross-border. Germany is currently exploring new ways of international cooperation with other tax administrations, e.g., a pilot program on a cross-border dialogue with Finland. In that context, MAP should be seen as the last instance tool. Despite this view, Germany has a quite significant inventory of MAPs. A potential reason for that may be a field audit, being a practice in Germany, and triggering potentially more discussions and following them disputes with taxpayers. So far, there is no cooperative compliance initiative in Germany. The existing provisions for tax control management system do provide a basis for that type of tool.

MAPs remain to be important tax certainty tools in Poland as well. The statistics confirm that view. There are currently 141 MAP cases concerning transfer pricing in Poland. The inventory has been growing in recent years. A significant part of the Polish MAP inventory concerns cases with Germany. The MAP process so far has proved to take often longer than 24 months. This is mainly due to the complexity of transfer pricing cases and the size of the documentation to be analyzed. Simultaneously, taxpayers participating in MAP with Poland can apply for arbitration procedure.  In contrast to Germany that opted for binding mandatory arbitration in case of unresolved MAPs cases within the Multilateral Instrument[7], Poland belongs to countries that are not in favour of that dispute resolution method. From the Polish perspective, arbitration may result in a resolution that is favourable neither for the tax administration nor for the taxpayer. Besides MAPs, there are also some other bilateral tax policy tools available to Polish taxpayers. 


Figure 1. Polish MAP inventory


TP MAPs requested

TP MAPs closed

PE MAPs requested

Competent Authorities meetings

All countries











APAs seem to be another broadly used instrument for achieving tax certainty. Particularly in the last two years a number of APAs under negotiation have grown exponentially. The main reason for that is a new regulation that implemented limits on tax-deductible expenses incurred by Polish taxpayers on certain intangible rights and services for the benefit of related parties.[8] The cost of such services can be deductible only up to the value of 5% of EBITDA (calculated as a difference between (i) total revenues decreased by interest revenue and (ii) tax-deductible expenses decreased by tax-deductible amortization costs and interest expenses) for costs above PLN 3M per annum. The deductibility limit does not apply to transactions covered by an APA. As the statistics show, there is a significant number of unilateral APAs pending in the Polish inventory. Most of these cases result from the limit on tax-deductible expenses. It is still not clear how the Polish Ministry of Finance will deal with the backlog of cases. Although the team is growing, taxpayers’ cooperation is required. The interesting question is, whether the expenses seen as not deductible in Poland, could be subject to MAP. According to the Polish Ministry of Finance, that type of case would not qualify for MAP, since taxation is not a result of action taken by Country and such taxation would not fulfil the requirement of being not in accordance with a double tax treaty.


Figure 2. Polish APA inventory

Type of APA

APA concluded

APA pending

Average time to conclude APA (months)*













*Based on 88 APA applications concluded in the period 2006-2020.



The tax webinar provided insights into tax topics relevant to the Covid-19 pandemic.  The arm’s length principle prevails and can work effectively also during these particular times. The Covid Guidance plays a clarifying role in the OECD Guidelines. It is neither their expansion nor their revision. Finding a reasonable estimate of transfer price remains a contentious area. The accurate delineation of transaction may be even more important than before. 

Approaching the issue of tax certainty in the uncertain Covid-19 times may require international approaches. As discussed, bilateral or multilateral tools may be the most effective. The focus should be on dispute prevention rather than dispute resolution. The latter one persists to be seen as too lengthy and costly. As a result, joint audits, cooperative compliance programs or APAs may be the best choice. On 22 April 2021, already after the webinar, Poland has confirmed joining OECD ICAP programme for co-ordinated tax risk assessment of large MNEs, commencing in September the same year. 



[1] The author is a certified Polish tax advisor, member of IFA Germany, currently working as International Tax Manager/M&A at Henkel AG & CO. KGaA. The author would like to thank Monika Laskowska and Joanna Koronkiewicz for feedback to the report from the tax webinar.  

[2] OECD, Guidance on Transfer Pricing Implications of the Covid-19 Pandemic, 2020, available:, accessed: 30.03.2021.

[3] The agenda along with the complete list of presenters is available online at: Webinar WIN Poland - WIN Germany | IFA - International Fiscal Association; last accessed: 16.05.2021.

[4] OECD (2017), OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017, OECD Publishing, Paris.

[5] There are several papers, to mention a few: IMF/OECD (2019), 2019 Progress Report on Tax Certainty, Paris, available online at:, accessed 31.03.2021; IMF/OECD (2019), 2019 Progress Report on Tax Certainty, Paris.; OECD (2016), Co-operative Tax Compliance: Building Better Tax Control Frameworks, OECD Publishing, Paris.

[6] IMF/OECD Report for the G20 Finance Ministers, Tax Certainty, March 2017, p. 5, available online at: tax-certainty-report-oecd-imf-report-g20-finance-ministers-march-2017.pdf, accessed: 28.03.2021. 

[7] Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, read more: Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS - OECD, accessed. 31.03.2021.

[8] Article 15e of the Polish Corporate Income Tax Act (Dz. U. z 2020 r. poz. 1406 ze zm.), available online (in Polish):, accessed: 31.03.2021.


* The German version of the Report was published in 16 & 17 2021 "Internationales Steuerrecht":

iStR • Internationales Steuerrecht | 27. Auflage | 2021 |

1368_2021_08_19_istr_16_2021_inhalt.pdf (