- QUESTION POSTED BY: Student
- PROGRAMME: Postgraduate Diploma in International Taxation
- TOPIC: Transfer PricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... Extended (WEEKS 28, 29 & 30)
- LECTURER: Okkie Kellerman
FULL QUESTION
I heard that, due to the recent pandemic, comparables from earlier years (before 2020) are not advisable to use. Is there more reliable data now since we are 4 years down the line?
ADDITIONAL WRITTEN ANSWER
The COVID-19 pandemic introduced significant economic disruptions, leading to challenges in using pre-2020 comparables for transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... analyses. In December 2020, the OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... released guidance addressing these challenges, emphasizing the importance of contemporaneous data and suggesting alternative approaches when current data was unavailable.
As of November 2024, four years have passed since the onset of the pandemic, and more recent financial data is now available. This availability enhances the reliability of comparability analyses, as current data better reflects the present economic environment. However, it’s crucial to recognize that the pandemic’s impact varied across industries and regions. Therefore, when selecting comparables, it’s essential to ensure that the chosen entities operate under similar economic conditions and have been affected by the pandemic in comparable ways.
In summary, while pre-2020 comparables may no longer be advisable due to outdated economic contexts, the availability of post-2020 data provides a more reliable foundation for transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... analyses. Nonetheless, practitioners should remain vigilant in assessing the comparability of data, considering the specific circumstances of each case.
VIDEO SCRIPT
The COVID-19 pandemic introduced significant economic disruptions, leading to challenges in using pre-2020 comparables for transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... analyses. In December 2020, the OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... released guidance addressing these challenges, emphasising the importance of contemporaneous data and suggesting alternative approaches when current data was unavailable.
I will provide you with a link to this in the answer sheet.
As of November 2024, four years have passed since the onset of the pandemic, and more recent financial data is now available. This availability enhances the reliability of comparability analyses, as current data better reflects the present economic environment.
However, it’s crucial to recognise that the pandemic’s impact varied across industries and regions. Therefore, when selecting comparables, it’s essential to ensure that the chosen entities operate under similar economic conditions and have been affected by the pandemic in comparable ways.
In summary, while pre-2020 comparables may no longer be advisable due to outdated economic contexts, the availability of post-2020 data provides a more reliable foundation for transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... analyses.
Nonetheless, practitioners should remain vigilant in assessing the comparability of data, considering the specific circumstances of each case.