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-Ms. Snigdha Lal
COVID-19 has emerged as a life-threatening pandemic all across the whole world with almost 2,600,000 cases and around 180,000 deaths. The governments have taken various measures to prevent the spread of deadly disease and protect the citizen of the country. One of the most important measures taken by the governments of all the countries worldwide was lockdown due to which every business across the globe has come to a standstill position.
Even before COVID-19 struck the world, the global economic output was on a decline with some expecting it to land in a severe recession. It is obvious that when the global economy is on a slowdown mode no emerging economy can grow at its normal pace. While the Indian economy was on a downward path, COVID-19 made the matters worse.
In recent weeks, we have seen the earthshaking impact of coronavirus on financial markets and vulnerable industries such as manufacturing, tourism, hospitality and travel. Some economies have announced measures to safeguard jobs, assure wages and support businesses, but there is still an absence of well laid strategies to that effect and end.
The outbreak of COVID-19 and the ongoing lockdown will negatively impact the global Foreign Direct Investment (FDI) flows. Many Multinational Enterprises (MNEs) have issued statement on how their business are hit by the epidemic. The impact of of FDI flows will majorly effect the countries that are most affected by this pandemic. The top MNEs which account for a significant share of global FDI have seen a downfall in the earnings, which has forced them to make concentrated investments.
All the MNEs and their foreigns affiliates will have to set new rules and regulations to operate after the pandemic is over. Firstly, around the safety of each and every person involved and the surroundings. Each and every MNE should share with everyone a Standard Operating System. The purpose of this Standard Operating Procedure (SOP) is to describe the procedure to follow for resuming work once the lockdown is over.
It is important that after the lockdown is lifted, work resumes gradually and all precautions are taken not only for the health and safety of the users but also to contain and kill the subsequent spread.
Secondly, MNEs are likely to witness increased scrutiny by tax authorities after the lockdown is lifted. The tax authorities will carefully review each and every Transfer Pricing (TP) policy to figure out a business’s success or failure based on the impact on the economy of the country due to the pandemic and the normal market price. MNEs will majorly have to modify and restructure every TP policy according to the impact on the economy of a country. TP policies should be mainly focused on strengthening the defence mechanism to face the after effects of COVID-19. They should also consider analysing TP policies over a period of time i.e 7-10 years to allow every country to settle down and to business to start running, to get a real view of how much impact has the lockdown left on the economy.
Thirdly, due to lockdown many businesses are shut down and some business which are still in the running are on the verge of closing down. As many MNEs are hit hard due to COVID-19 and the lifting of the veil of the lockdown is not foreseen in near future, all the MNEs must cover online platforms for continuing their business and to cover for their losses. That due to many business shutting down or going bankrupt and to citizens loosing their jobs, there will be a disastrous change in supply and demand of goods and services and accordingly the MNEs will have to modify their supply chains.
Fourthly, MNEs will also have to modify or restructure the inter-company agreements. Due to the wide spread of the deadly disease, the lockdown in many countries is getting extended to prevent its spread. There is no knowing when the lockdown will be lifted and business will again start running, and till then it is tough to get a clear picture of demand and availability of goods and services. The production around the world is paused due to lockdown. If the production of necessary items continues, and the supply of raw material or the ingredients is slow, this may cause delay in production and in worst case scenario no production at all. The drastic change in economy calls for modification and redesigning of inter-company agreements. Making changes to the transfer the pricing on their inter-company transactions more effectively and with a higher chance of minimizing adjustments.
Lastly, MNEs which depend on Advance Pricing Agreements (APAs) and/or rulings from tax authorities should review critical assumptions, as critical assumptions include significant changes to economic conditions and fundamental changes in the conditions of a particular industry. At the verge of recession, it is of vital importance to reconnect with the tax authorities to determine if they will accept a deviation this year or if the APA can be revised or cancelled.
