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2020: The best of transfer pricing


A quick look back at some of ITR’s best articles on transfer pricing from the Apple state aid case and a slew of other high stakes tax disputes to the OECD’s work on the digital economy.

Transfer pricing (TP) professionals have seen a great deal of change in 2020. The COVID-19 crisis has made old problems worse, and created some new ones, for taxpayers. Meanwhile, the OECD is still trying to settle the technical aspects of its blueprints for digital tax reform.

Transfer pricing continues to be a major source of controversy for taxpayers. Historic cases like Apple and Glencore have reached outcomes this year, and the precedents set by these cases will have implications for many years to come.

ITR has put together a list of some of the best-performing transfer pricing tax articles of the year, as well as some of the more interesting stories you may have missed.

Tax disputes

There has been a whole series of landmark court cases in 2020. Many of these cases will set strong precedents in history. The most important may be the Apple case with many observers calling it the state aid case of the decade.

The European General Court (EGC) shocked tax policymakers when it ruled in favour of Apple in its state aid case. Yet many taxpayers found the decision reassuring because it reaffirmed old conventions of international tax.

The European Commission argued that Apple's Irish structure violated EU state aid law. If the EGC had ruled in its favour, the Irish government would have been expected to claw back billions of euros in back taxes.

Apple's long battle with the European Commission may have reached a final conclusion, but the stage is set for new battles. The EGC decision may mean the EU will pursue greater tax reform to tackle the issues the case has raised.

However, the Apple case was far from the only case to reach a conclusion this year. There was also the Glencore case, the first case to result from the so-called Paradise Papers. Commodity company Glencore secured a partial victory in its dispute with the Australian Tax Office (ATO) concerning its transfer pricing arrangements.

The Full Federal Court of Australia has ruled in favour of the taxpayer in the Glencore caseafter the ATO waged its appeal. The mining company won the case on all but one of the issues under dispute. This was a serious blow to the ATO.

These two cases were just two of a long list in 2020. Read more about these cases here.

Digital tax is still the biggest question

The OECD released political and technical developments to its digital tax plans on October 12, but the COVID-19 pandemic impeded communication across stakeholders, delaying consensus on pillar one and two to 2021.

There is still a lot of work to be done before the pillar one and pillar two blueprints can become the basis of a multilateral agreement. If the OECD can succeed, it will be the most significant change to the international tax system since the 1920s.

At the same time, the EU and the UN are trying to find and implement their own solutions to the problem of taxing the digital economy. The race to find a workable solution is on, and the result could either be fundamental change or a wave of unilateral measures.

The impact of COVID-19

The COVID-19 pandemic has hit businesses and their employees hard, as well as the wider domestic and global economies.

Governments are slowly realising that businesses of all sizes need more support during the uncertainty presented by the coronavirus because many companies risk bankruptcy or permanent closure during these times.

Like the 2008 financial crisis, the COVID-19 crisis will have a significant impact on government coffers, business profits and the underlying backbone of some countries' infrastructure.

For example, Uber’s ride-sharing business took a serious hit during the COVID-19 lockdowns around the world. The company lost around 70% of its ride-sharing business, but Uber’s other business lines, such as grocery and restaurant deliveries, saw sizeable growth.

However, the company restructured in Q2 of 2020 and began considering longer-term changes to its TP policy. These longer-term changes are supposed to address new guidance in different countries.

Meanwhile other companies are expecting serious problems in the near future over benchmarking after such a crisis. This is just in the future though. More companies have had to grapple with uncertainty over the ALP and corporate tax residency issues this year thanks to COVID-19.

Going into 2021, ITR expects to see the global economy recover from the pandemic, but the trends towards disputes and unilateral action are not coming to an end soon.

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