COVID-19 & Transfer Pricing: Adapting Benchmarks and Documentation in France
The economic disruption caused by the COVID-19 crisis had an immediate impact on corporate performance and a more subtle, but no less complex, impact on transfer pricing policies. In France, this has prompted a rethinking of how to establish reliable benchmarks for 2020 and beyond.
1. Comparability Adjustments for Intragroup Pricing
Under normal conditions, transfer pricing studies rely on comparable financial data from previous years. But with 2020 results heavily impacted by the pandemic, using 2018 or 2019 data without adjustments risks producing distorted arm’s length ranges.
To address this, French tax practitioners have explored several adjustment options:
Including previously excluded loss-making comparables to lower the pricing range
Accepting margins in the lower quartile for 2020
Simulating economic impacts on comparables to recalibrate arm’s length intervals
Any approach taken must reflect the company’s specific situation — including the actual financial impact of the crisis and its pre-COVID forecasts — and should be thoroughly documented.
2. Enhanced Documentation Requirements
Transfer pricing documentation should now be reinforced with:
Revised functional analyses
Clear explanations of how Covid-related risks materialised
Evidence of economic rationale behind pricing shifts
The French tax authorities may question whether routine entities (with traditionally limited risk) can justifiably report major downturns, unless robust documentation supports the claim.
3. Contractual Adaptations
Beyond documentation, the pandemic highlighted the need to revisit intragroup contracts. These should now include clauses that account for extraordinary circumstances and their effect on pricing policies.
The members of L&N can support you with:
Designing Covid-adjusted transfer pricing strategies
Revising documentation and intragroup contracts
Conducting comparability adjustments tailored to 2020 data
Preparing for 2021, corroborative analyses
