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.

Tax Consult A&A


[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.

Payments made to so-called “tax havens” – Important update to take into account when preparing tax returns for assessment year 2021!

Principles and legal background

Article 307 §1/2 of the Belgian Income Tax Code (“BITC92”) foresees that taxpayers subject to corporate income tax are obliged to declare, on a 275 F form, all payments which they have made, directly or indirectly, to persons established in a state that:

  1. has been assigned by the OECD Global Forum on Transparency and Exchange of Information, after a thorough assessment of the extent to which the state applied the OECD standard of tax transparency, as a state that does not effectively or substantially applies the said standard. Those “non-compliant” states are listed on the so-called “OECD list”, or;
  2. has been included in a list of states – “Belgian list” – applying no income taxation or a low level of tax (typically a corporate tax levied at a nominal rate lower than 10% or effective tax rate on foreign income is lower than 15%). This Belgian list contains 30 states[1] (article 179 of the Royal Decree implementing the BITC92).

As a reminder, the obligation to declare payments only applies to payments exceeding in total EUR 100.000 per taxable period. It applies to all kind of payments, i.e. payments made in cash, by bank transfer or payments in kind.

Regarding the tax consequences, the article 198 §1, 10° BITC92 foresees that above-mentioned payments are only deductible as business expenses payments provided that they have been declared and, that the taxpayer is able to provide evidence that they have been made in the framework of “real and genuine” transactions and to persons other than artificial constructions.

Points of attention with respect to the OECD list – Administrative position updated

In the circular 2020/C/112 on the temporary COVID-19 measures, tax authorities have specified that jurisdictions having received a “partially compliant” rating from the Global Forum on Transparency and Exchange of Information are also in the scope of the article 307 §1/2 BITC, and not only the “non-compliant” jurisdictions. This has been also confirmed in a parliamentary question on 30 June 2021 by the Minister of Finance.

In practice, the Global Forum of the OECD assess on regular basis the standard of exchange of information on request (so-called “EOIR”) and allocates compliance ratings to its the Forum members (161 jurisdictions).

Four types of ratings can be allocated:

  • Compliant and largely compliant : EOIR is implemented completed or to a large extent;
  • Partially compliant : the EOIR is only partly implemented;
  • Non-compliant : when there are fundamental deficiencies in the implementation of EOIR.

Partially compliant jurisdiction represent around 12% of the rated jurisdictions and non-compliant jurisdiction represent around only 3%. By extending the reporting obligation to partially compliant jurisdictions, tax authorities have then substantially enlarged the scope of targeted jurisdictions.

 Concretely, this means that the OECD list of jurisdictions (non-compliant and partially compliant) to be taken into account is the following: Andorra, Anguilla, Antigua & Barbuda, Austria, Barbados, Botswana, British Virgin Islands, Costa Rica, Curaçao, Cyprus, Dominica, Ghana, Guatemala, Indonesia, Israel, Jamaica, Kazakhstan, Liberia, Panama, Seychelles, Sint-Maarten, Trinidad and Tobago, Turkey, Vanuatu. We strongly advise to proceed to a regular check to the OECD list.

Please note that British Virgin Islands, Anguilla and Vanuatu are also mentioned on the Belgian list.

[1] Abu Dhabi, Ajman, Anguilla; Bahamas, Bahrain, Bermuda, British Virgin Islands, Cayman Islands, Dubai, Fujairah, Guernsey, Jersey, Isle of Man, Marshall Island, Micronesia, Monaco, Montenegro, Nauru, Uzbekistan, Palau, Pitcairn Islands, Ras al Khaimah, Saint-Barthélemy, Sharjah, Somalia, Turkmenistan, Turks-and-Caicos’ Islands, Umm al Quwain, Vanuatu, Wallis-et-Futuna.