Covid-19 – impact on intercompany transactions

December 2021

Covid-19 forced companies around the world to review strategies and operations in rapid time. On 18 December 2020, the Organisation for Economic Co-operation and Development (OECD) published guidance on the implications of Covid-19 for transfer pricing.

The guidance focuses on the practical application of the arm’s-length principle in four key areas:

• comparability analysis
• losses and the allocation of specific Covid-19 costs
• government assistance programmes
• advance pricing agreement (APA)

The primary objective of the guidance is to give tax administrators and taxpayers some context in which to structure their transfer pricing policies. The OECD recommends that related parties review and update their transfer pricing policies in the following areas to ensure they are adequate for the current economic situation:

• the risks assumed by each party in carrying out relevant functions
• all transfer pricing policies, conditions, contractual terms, and the development of any new policies or business restructures
• extraordinary and one-off expenses incurred specifically because of the Covid-19 pandemic; for example, HR, marketing, and IT, as well as an evaluation of experience among companies of comparable size and operations
• used assets and fixed costs

The review should contain documentary evidence that supports the analysis. The OECD guidance also states the importance of documenting the financial impact caused specifically by the pandemic through a risk analysis of each entity in a multinational group.

Let’s now consider two examples of possible impacts of COVID-19 on intercompany transactions in Spain and Mexico.


Company A is a Spanish entity that imports and distributes wholesale beer and other drinks products to customers in the hospitality industry. Company A buys its products from Company B, a related party in Belgium. Company A has negotiated payment terms of 45 days with its customers, identical to the terms it has with Company B.

When the pandemic struck, the hospitality industry shut down and customers were unable to meet the 45-day payment terms. This, in turn, caused Company A cash-flow problems preventing it from paying Company B.

A review of the functions and risks assumed by Company A and Company B within the overall group showed that Company A is a limited risk distributor, assuming the principal risks of credit and market risk for its activities in Spain. Company B was able to extend its payment terms to 75 days, easing Company A’s cash flow while it waited for payments from its customers.

Importantly, this extension enabled Company A to avoid seeking external finance to cover its liabilities and eliminated the tax risk related to the deduction of interest. Company A signed an amendment to its distribution agreement with Company B, modifying it temporarily, in accordance with paragraph 44 of the OECD guidance.


The automotive industry is one of the most important in Mexico. It proved particularly sensitive to the pandemic when year-on-year activity collapsed by 64% in the second quarter of 2020. The automotive sector includes sales and after-sales service; at a manufacturing level it assumes limited risks, while its associated parties deal with end customers. The manufacturer supplies the product and other specific services to its related network in Mexico.

The collapse in the automotive market clearly created problems with intercompany payments for supply and services. By considering factors such as historic performance, production and sales indicators, and exchange rates, the automotive industry was able to renegotiate payments and offer discounts. These actions met the OECD guidance as they were incurred specifically because of the pandemic.

COVID-19 has affected business in all areas, of which intercompany payments is one specific area. The OECD guidance provides welcome help in this area, but it is no substitute for professional advice.

About the authors

Jacobo García-Nieto
Barcelona, Spain

Jacobo joined GNL Russell Bedford Auditors in 2016 as a senior manager with a specific focus on transfer pricing. He has extensive experience in providing transfer pricing consulting services in relation to valuations, financial transactions, business restructuring and services transactions.

Xochitl Contreras Olvera
Puebla, Mexico

Xochitl is an economic consulting and transfer pricing partner at Russell Bedford Puebla. She is a leading expert in transfer pricing and economic consulting services, including contemporaneous transfer pricing documentation, valuation of companies and intangible assets, as well as cross border transactions.

Sindy Hernandez Santiago
Puebla, Mexico

Sindy is a transfer pricing and economic consulting manager at Russell Bedford Puebla. She graduated in economics specializing in finance. She has worked in transfer pricing and economic consulting for seven years and is a member of Russell Bedford Mexico’s national technical committee on transfer pricing.

Author: Jacobo García-Nieto - GNL Russell Bedford Auditor, Barcelona, Spain, Xochitl Contreras Olvera and Sindy Hernandez Santiago - Russell Bedford Puebla, Puebla, Mexico

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