An interview with Christian Runge, Global Head of Transfer Pricing & Tax Technology for Royal Dutch Shell plc
Throughout May & June, Sal Partners is sharing the views of several influential figures from across the Dutch market. In our latest “Insights” publication, Christian Runge, Global Head of Transfer Pricing & Tax Technology for Royal Dutch Shell plc, has shared his thoughts on the impact of the current pandemic on the Transfer Pricing market, including areas for consideration to ensure the function is best prepared for what lies ahead.
WHAT IS YOUR VIEW ON THE RELATED COVID-19 MEASURES ANNOUNCED BY THE DUTCH GOVERNMENT?
I think the Dutch Government reacted swiftly and adequately. The measures introduced will help small and medium-sized companies survive this crisis while ensuring people retain their jobs and get paid. The rules are less applicable for MNCs as most have a strong balance sheet to at least “survive” the first part of the crisis. For MNCs, the period after the crisis is more critical, especially in terms of what will happen to the possibilities to offset losses with pre-crisis profits. Also, a reference to the April 3rd OECD “Dealing with COVID paper” will be helpful to ensure the Dutch Tax Authorities follow the principles detailed within.
WHAT IMPACT WILL THE CURRENT CLIMATE HAVE ON THE IMPLICATIONS OF APA’S AND RULINGS?
We must consider the potential effects of the current situation on APA negotiations. Given levels of uncertainty, we could find ourselves in loss-making positions over the coming years. Moving forward, our focus will shift to prioritising tax certainty via APA’s and rulings.
HOW HAS THE CURRENT PANDEMIC IMPACTED EXISTING TRANSFER PRICING POLICIES?
We are identifying the impact and are considering, based on the “new normal”, whether we need to lower the benchmarks and share the losses more equally. It will be essential for us to clearly explain our position and demonstrate the rationale for any changes made to our policies, ultimately confirming that such positions were not the result of non-arms length transfer pricing policies.
HOW WILL YOUR APPROACH TO DOCUMENTATION ALTER?
Documentation is critical to demonstrate why it is appropriate to maintain the same policies or to deviate away from them. We will be focusing on more/improved documentation to prepare for an expected rise in audits and a greater focus on operational transfer pricing around impacted supply chains and how they align with the current marking in place.
HOW HAS THE RESTRICTION ON THE MOVEMENT OF EMPLOYEES ALTERED THE FUNCTIONAL AND RISK PROFILE OF THE BUSINESS?
The OECD guidelines from April 3 have overcome that issue; however, we must ensure we have the appropriate framework to limit our PE risk. Because of this guideline, not having employees in their everyday working country does not give rise to residency, substance or DEMPE issues.
HOW WILL COVID-19 AFFECT THE CURRENT BUSINESS MODEL IN PLACE, AND WHAT IMPACTS WILL SUCH CHANGES HAVE ON TRANSFER PRICING?
Supply chains might be re-modelled by the business, and as such, we, as Tax, will follow with benchmarking adjustments of applicable margins and new cost-plus percentages. Models must reflect any re-allocation of the group’s functions, assets and risks.
GIVEN THE IMPACT OF COVID-19 ON AN ORGANISATIONS ACCESS TO FUNDING AND FINANCING, WHAT ARE THE CONSEQUENCES FOR INTER-COMPANY FINANCIAL TRANSACTIONS?
Chapter 10 of the OECD’s paper on financial transactions has given guidance on how to deal with inter-company financial transactions, which we will analyse in the coming months to help us determine the impact on our current policies.
WHAT IS THE KEY DRIVER FOR FUNCTION AS WE LOOK TOWARDS H2 AND 2021?
Our focus has shifted to cash delivery and preservation opportunities. We will also ensure we have updated our business models while ensuring we are best prepared for the inevitable increase in audits we will face.
SUMMARY
Our primary focus is to save cash whilst also considering the impact of the current environment on our supply chains. The integrity of our frameworks will be tested, we must therefore consider how our policies will be affected and take appropriate action to prepare for the future. We will ensure our “house is in order” concerning documentation; we will implement the effect of the OECD papers and prepare accordingly for the TP audits which will follow this crisis. Considering these implications, collecting evidence to prepare simultaneous documentation to support the impending economic changes will be critical.