Survival Techniques: Transfer Pricing In A Sick Economy

Article by Patricia Gimbel Lewis¹

Times are tough. But as multinational businesses wrestle with serious economic pressures, transfer pricing remains central to ultimately balancing their global tax burdens and minimizing tax controversies. Transfer pricing strategies developed in a more stable business environment may not yield satisfactory or appropriate results in the face of unusual stress. Working with their operational counterparts, tax directors should monitor and, as necessary, modify the company's transfer pricing situation.

Transfer pricing methodologies (TPMs) applied to cross-border transactions between commonly controlled entities evaluate the parties' relative functions, risks and assets, and then value them using benchmarks based on "comparables." The financial evaluations of the "tested party" and the comparables are typically based on profitability measures. All of these elements may be profoundly affected in a protracted economic downturn.