What is the COVID-19 impact on: previously negotiated advance pricing arrangements (“APAs”); mutual agreement procedures (“MAPs”) that are currently being negotiated; and benchmarking analyses that are used to establish transfer pricing policies and prepare transfer pricing compliance documentation?
After noting that APAs are generally undertaken on the base assumption that the future will be a reflection of the past, CRA indicated that although the changes that are attributable to the business and economic uncertainty or changes caused by the current pandemic might pose a challenge, CRA does not consider that there is any need for a formal general policy, and those circumstances will inform the APA on a case-by-case basis. Regarding APAs that are currently being negotiated, there might be a need to use some limits or critical assumptions to point to a certain return within the range.
As for MAPs currently being negotiated, CRA does not expect an impact as long as those MAPs deal with taxation years that are prior to the start of the current pandemic.
Benchmarking studies will continue to be based on the information gathered by CRA. The process will remain unchanged and rooted in the underlying analysis of the functions, assets, and risks faced by the subject party, and that will inform the benchmark criteria.
CRA is not considering an across-the-board change to its historic transfer pricing policy. However, the current pandemic may impact the future selection and use of transfer pricing methodologies on a case-by-case basis.