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We are currently operating in an unprecedented commercial environment and during these challenging times critical decisions will need to be made to ensure that businesses are able to continue to operate. It is therefore understandable that the tax implications of these decisions may not be at the forefront of mind, with overall business survival the key focus.

Whilst the scale of the COVID-19 situation is unprecedented, comparisons can be made to the Volcanic eruption and the subsequent ash cloud in April 2010. Again, during this time businesses were required to make urgent and time-critical decisions with often little opportunity to consider the tax implications of these decisions.

Subsequently, we saw HMRC seek information about how the crisis management operated in practice, as a means of testing where the fundamental critical decision-makers in the business are situated. They were therefore keen to understand who in the business was managing the key risks, who was accountable for making key decisions and ultimately whether this was aligned with the underlying substance required to support the transfer pricing policies.

When overlaying this historical experience with HMRC’s (and tax authorities across the globe) recent approach of expecting more and more detailed evidence to demonstrate that a Group’s transfer pricing policies are aligned to the underlying operating model (long gone are the days that a TP tax audit can be resolved through provision of TP documentation alone), it is imperative that businesses are mindful during this period, and probably more appropriately, in the immediate aftermath that HMRC may well come asking difficult questions regarding business decisions made during this period.

In many instances the identity and location of key decision-makers will be aligned with, and provide support for, the transfer pricing model. The ability to provide HMRC with clear supporting evidence for this could prove to be extremely beneficial in allowing a Group to comprehensively conclude ongoing audits, and as a defence for potential audits Alternatively, for other businesses, the evidence from the crisis management of the operations may not align to transfer pricing policies and it is important that the implications of this are considered and documented in due course.