We are pleased to announce the publication of our latest article, “Transfer Pricing and Loss Situations: Demonstrating Commercial Reality Under the Arm’s-Length Principle,” in International Tax Review (ITR).
The article explores a topic that continues to attract close attention from tax administrations worldwide: the treatment of persistent losses in related-party transactions. While losses are a natural part of business, arising from start-up phases, market downturns, strategic investment, or extraordinary external shocks, tax authorities often treat them as a warning sign that intercompany pricing may not reflect arm’s-length conditions.
Drawing on OECD guidance, jurisdiction-specific developments, and recent case law from Argentina, the Czech Republic, and France, the article outlines:
- How losses should be allocated based on functions, risks, and financial capacity.
- Why understanding the commercial drivers of losses is essential for defensible transfer pricing.
- When loss-making comparables can still be acceptable in benchmarking.
- The importance of robust documentation, credible forecasts, and consistent intercompany agreements
- Practical strategies to support defensible outcomes during start-ups, downturns, and extraordinary disruptions.
The analysis reinforces a key principle: defending loss situations in transfer pricing is not about denying the existence of losses, but about demonstrating, through coherent evidence, that those losses reflect genuine commercial realities consistent with independent-party behaviour.
The full article is available now via International Tax Review.