How the OECD guidance on the transfer pricing implications of the COVID-19 pandemic can impact the closing year-end 2021?

This is already the one-year anniversary of the  “Guidance  on  the  transfer  pricing  implications  of  the COVID-19 pandemic” (hereafter “the OECD Guidance”) issued on 18 December 2020.

As a reminder, the OECD Guidance represents  the  consensus  view  of  the  137  member states regarding transfer pricing issues that may arise in the COVID-19 context. Many factors may affect transfer prices and the amount of profits accruing to associated enterprises within a multinational enterprises group. COVID-19 pandemic was definitely one of those factors and led to practical challenges for the application of the arm’s length principle. The Guidance is helpful both for taxpayers and tax administrations[1].

The Guidance provides many clarifying comments on the practical application of the arm’s length principle in four priority issues in a 34 pages document:

  • Comparability analysis;
  • Losses and the allocation of COVID-19 specific costs;
  • Government assistance programs;
  • Advance pricing agreements (APAs) or ruling decisions.

As many enterprises are still in the closing process of reporting period ending on 31 December, we choose to take few examples out of the issues linked to losses and the allocation of costs[2].

There is a conclusive evidence that many MNE groups have incurred losses due to a decrease in demand, inability to obtain products or provide services or as a result of exceptional costs.

Three main issues are pointed out by the OECD:

  1. Allocation of losses between associated parties based on analysis of risks incurred in commercial / financial transactions

 The Guidance states that in determining whether or not a “limited-risk” entity may incur losses, the risks assumed by an entity will be particularly important. The Guidance gives an example, where there is a significant decline in demand due to COVID-19 (e.g. value of sales is insufficient to cover fixed costs), a “limited-risk” distributor (taking flash-title of the goods) that assumes some market risk may at arm’s length earn a loss associated with the playing out of this risk[3]. It’s crucial to keep consistence and coherence between the risk assumed and the loss incurred. Related parties should also consider to renegotiate their intercompany agreements where required.

  1. Allocation of exceptional, non-recurring operating costs arising as a result of COVID-19

The Guidance states that the allocation of operating or exceptional costs would follow risk assumption and how third parties would treat such costs. It should be noted that certain operating costs may not be viewed as exceptional or non-recurring in circumstances where the costs relate to long-term or permanent changes in the manner in which businesses operate[4].

  1. Option to apply force majeure clauses, revoke or otherwise revise intercompany agreements

The Guidance states that force majeure events arising in the context of COVID-19 could be the prohibition of activities by a governmental body, for example, through the enforced closure of retail facilities. Thus, a party may invoke that the extreme circumstances justify the non-performance of a contract and this may be achieved through the playing out of a force majeure clause (if any in the agreement). Tax administrations will also review the agreements and verify whether the transfer pricing outcome is appropriate taken into account the related transaction and circumstances[5].


We remain at your disposal to discuss how to apply those guidance to your particular situations. Those Guidance are bringing opportunities but also challenges and our best advice is to act carefully and document as much as possible any change to related intercompany transaction.

Do not hesitate to contact the person in charge of your file or to mail at for more information.

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[1] It should be regarded as an application of existing guidance under the OECD Transfer pricing guidelines to fact patterns that may arise commonly in connection with the pandemic, but not as an expansion or revision of those guidelines.

[2] See full comments on p. 12-18, OECD Guidance.

[3] See point 40 of the OECD Guidance.

[4] See point 40 : OECD states that certain costs relating to teleworking arrangements may become permanent as a result of the pandemic. If teleworking costs are centrally borne by one entity of the MNE group, it may be appropriate to charge out such expenses to parties that benefit from the underlying product or service to which the expense relates.

[5] See point 55-59 OECD Guidance.

Support measure for companies: The Recovery Reserve

In view of the current Covid crisis, many companies have closed their 2020 financial year with an operating loss. In order to help these companies, the Belgian legislator had already proposed several tax measures to support the liquidity and solvency of companies (bill of 5 June 2020 – parliamentary document K551309). This bill aimed in particular to introduce a carry-back of losses (measure in order to support the liquidity of companies by setting off estimated losses for 2020 against profits made in 2019), and the creation of a recovery reserve (a measure to support the solvency of companies). However, the recovery reserve as proposed in this bill was rejected following a negative opinion of the Council of State, as well as an unfavorable vote by parliamentarians in the Finance and Budget Committee

As a consequence, a new and separate bill to introduce a recovery reserve was submitted and approved by the Chamber (Act of 19 November 2020 on the introduction of a recovery reserve for companies published on 1 December 2020).

I. Principle :

Companies may temporarily exempt a part of their profits made in the tax years 2022, 2023 and 2024 (accounting period closed as from December 31, 2021) up to the amount of the losses incurred in 2020 (and with an absolute maximum of 20 million euros) via the constitution of a so-called “Recovery reserve”.  This reserve must be maintained in a separate account of the liabilities (i.e. intangibility condition).

II. Excluded companies :

The law provides that the following companies are explicitly excluded from the regime:

  • Investment companies;
  • Companies which have repurchased their own shares, allocated or distributed dividends or reduced their capital between 12 March 2020 and the date of filing of the tax return relating to the constitution of the above mentioned reserve;
  • Companies holding shares or make payments to companies located in a tax haven.

III. Operations involving taxation of the recovery reserve :

In addition to the exclusions mentioned above, the law also provides that certain operations may imply that all or part of the taxable profit of the taxable period must be taken into account. In order to avoid taxation of this reserve, the company has to preserve “employment”. To do so, the company has to maintain its staff costs at 85 p.c. at least of the staff costs paid in 2019. In case of a decrease below this limit, a part of the exempted reserve will become taxable (in proportion to the excess of this limit). Furthermore, any capital reduction, shares or own shares repurchase or dividend distribution will result in the reserve being partially or totally considered as profit for the taxable period.

Tax Consult follows the new measures taken and applied by the Authorities on a daily basis and is regularly in contact with the (tax) Administration. In case of question, do not hesitate to contact our team at or directly your file manager in order to receive a tailor-made advice adapted to your situation.

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