The beginning of a year is the moment when taxpayers not only begin to annex contracts, but also make their first analysis of transfer pricing adjustments.
What is a transfer pricing adjustment?
Transfer pricing adjustment is an adjustment which consists of making a transaction marketable on the date of its conclusion. The reason for the adjustment is the need to compensate for the expected level of profitability due to the existence of previously unforeseeable circumstances. Making a transfer pricing adjustment must be preceded by specific circumstances that could not be foreseen when planning transfer prices for a given year. These circumstances include:
- changes in market prices of basic raw materials
- changes in foreign exchange rates
- increase or decrease of interest rates
- changes in product demand or supply
- a partial shutdown of the economy caused by an external factor (ex. COVID-19 pandemic)
- interruption of the supply chain (due to a pandemic)
Reasons for making adjustments to transfer pricing due to COVID-19
The occurrence of COVID-19, as well as its aftermath, does not automatically mean that there are grounds for making transfer pricing adjustments to all controlled transactions. Only an individual examination of each controlled transaction will help in determining whether we are dealing with a transfer pricing adjustment.
