Multinational Enterprises (“MNE”) that are looking to mitigate their exposure to market changes provoked by crisis may find themselves considering the termination or suspension of intercompany agreements with non-performing parties. Terminating an existing intercompany agreement can very well be a key step that an MNE undertakes to protect its business; however, MNEs should also be aware that terminating arrangements could lead to unintended transfer pricing and tax consequences and may ultimately impact the structure of the group.
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Juan F. Lopez Valek
Allocation of Catastrophic Costs
COVID-19 has placed unforeseen stress on the distribution structures of Multinational Enterprises (“MNE”) due to catastrophic losses and costs from supply chain interruptions and plummeting demand. Existing intercompany agreements most likely do not cover the allocation of catastrophic costs or losses and several questions may need to be addressed. For example, should catastrophic costs be shared among group members, and if the answer is yes, then how?
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Support Among Group Members in Time of COVID-19
Many multinational enterprises (“MNEs”) are providing new forms of financial, technical, or other support to group members facing COVID-19-related business issues such as plant (temporary) closures or supply chain disruptions. This support may in some cases give rise to a transfer of value, such as the knowhow of a seconded employee. It may also involve a transfer of assets coupled with the ability to perform certain functions and assume certain risks. Such transfers could be viewed as a “business restructuring” as defined by the Chapter IX of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2017) (the “OECD Guidelines”) and may trigger transfer pricing and tax consequences.
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