Transfer Pricing and Business Restructurings

S. 27Chapter 1: Delineating and Recognizing Business Restructuring

Natalie Reypens/Svitlana Buriak

1. Introduction

Making significant changes to a company’s operational and financial structure is an inevitable part of market adaptability, especially in times of economic downturns and market volatility. In the last three years, businesses have been facing major disruptions of supply chains, interruptions in operations in many industries due to COVID-19 related lockdowns, mass dismissals of workers during the pandemic times and shortage of labour in post-pandemic operations, soaring energy prices, the economic sanctions against the Russian Federation and the consequent exit from the Russian market, etc. They have to rapidly adapt in order to optimize their supply and value chains and maintain appropriate profitability rates.

Cross-border redeployment of functions, assets, and risks does not come without tax consequences for MNEs. Along with potential exit charges and the risk of double taxation, one of the international tax implications of business restructurings is that MNEs must face potential transfer pricing issues arising therefrom: (i) whether the restructuring itself is implemented on ...