The Impact of COVID-19 on Transfer Pricing Strategies of Multinational Corporations

Corporations operating in almost every country are struggling to cope with repercussions of the COVID-19 pandemic sweeping the globe. While most companies try to figure out how to manage the swift decline – or sometimes even complete halt – in production of goods and consumer sales, multinational organizations face an additional challenge: these corporations must also consider the reasonability of the pricing strategies being utilized for their intercompany purchases and sales of goods and services. 

Transfer pricing regimes look to determine whether related companies are purchasing and selling goods to one another in arm's-length transactions. That is, are related companies buying and selling goods and services to and from each other using the same pricing mechanisms and strategies that two nonrelated companies would employ when purchasing and selling goods to one another?

The answer to this question is not simply yes or no. In fact, many corporations spend a lot of money and resources determining how to build and maintain their intercompany pricing strategy to comply with this arm's-length standard. Pricing strategies are often driven by the risk each party takes on in the relationship, as well as the costs and revenues associated with the manufacture and sales from one entity to another. In a perfect – well, at least a normal – world, various risks, costs and revenues are things that can be budgeted and forecasted with some level of confidence on a quarterly or annual basis.

So what happens to our thoughtfully crafted transfer pricing strategies when a pandemic happens and everything we planned for is no longer possible? This is the question we’ll need to continue to answer in the coming months. It largely depends both on how risk is defined from a legal perspective, as well as how we as accountants and analysts quantify the financial and economic impact of such an unprecedented situation on pricing strategies.

If we put on our lawyer caps for a moment, we can start to work through questions that focus on determining which of our related parties bear the ultimate risks associated with profits and losses. It’s those companies that are truly bearing the risks that should be recognizing profits and losses. We might also ask which companies should be exempted altogether from the transfer pricing policies due to force majeure clauses in their related-party contracts? If exempted, these companies would not need to worry about deviating outside of "acceptable ranges" and could report their financials as is, with relatively low risk.

Switching to our accountant hat, we ask slightly different questions, such as should companies be working to change their pricing strategies now, or documenting their financial operations within previously established transfer pricing policies while waiting for operations to go back to "normal?" Also, if a company is able to quantify the periods for which COVID-19 has had an extraordinary impact on its business, what does an acceptable alternate analyses look like? Finally, and maybe the most complicated to answer, how does one identify comparables – a principle feature in any transfer pricing study – in a world that’s been virtually shut down for almost a month (potentially longer for companies operating in China, Italy and other countries that have been feeling the impact of COVID-19 since January)?

For many of these questions, like so much else right now, only time will yield the appropriate answer. Due to the subjective nature of transfer pricing, the approach for how to best deal with these questions within your own organization will likely be unique to your business structure and industry. No matter the business or industry, however, there will be a crucial need for multinational companies who have faced a change to their business due to COVID-19 to document those abnormalities in the coming year.

If you’d like to discuss the impact COVID-19 may be having on your current transfer pricing policy, or your current transfer pricing strategy in general, the SD team would love to hear from you!

Please visit our Coronavirus resource page at for related content.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2021 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
Build Back Better Tax Legislation Update – International Tax Changes
Proposed Tax Changes to GILTI
What to Expect When You’re Expecting a Single Audit
Persistent Challenges Facing Manufacturing
IRS Announces New Update Regarding Streamlined Filing Compliance Procedures and Section 965
OMB Releases 2021 Compliance Supplement
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.