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Will Extraordinary Circumstances Impact Your Transfer Pricing Comparables?

23rd March 2022

If Covid-19 wasn’t enough to throw your transfer pricing benchmarking into a tailspin these last few years, now you have the Russia-Ukraine war to worry about. Thousands of companies rely on the countries’ suppliers for corn, wheat, diamonds, natural gas, and copper, not to mention, the low cost of labor for intercompany service transactions. But now government sanctions have caused prices to skyrocket, throwing profit margins and costs out of whack—potentially making transfer pricing benchmarking more difficult and more uncertain than ever before. Take routine-return distributors, for example. They will have to meet those routine goals selling less inventory due to depleted supplies. But historical company data, which populates business databases and is used to select comparable companies, won’t align with war-driven inflation. So, what can you do? Even in extraordinary times, you have to prove intercompany transactions are conducted at arm’s length—and we don’t recommend doing it retroactively. How can you get ahead of the ball? Now’s the time to take stock of transfer pricing risks emerging from the conflict and make adjustments to your transfer pricing arrangements: restructure operations, revise contracts and transfer pricing policies, and launch fresh benchmarking searches, applying any appropriate adjustments that you can identify. As always, contemporaneous documentation is key to reducing risk in extraordinary times—which between the pandemic and the escalating conflict, are starting to feel like the new normal.