The OECD COVID Guidance makes it clear that comparability analysis is difficult during the pandemic due to several reasons, in particular: 

• Lack of information about the effect of the pandemic on comparables (and the economy as a whole)
• Timing issues (especially for the TNMM application)
• Issues with comparability (i.e., due to different government assistance programs in different countries)
   

The OECD COVID Guidance provides several practical approaches to address information deficiencies, and, more generally, comparability difficulties:

• Use of reasonable commercial judgement to set an estimate of the arm's length price (supported by contemporaneous information);
• Allowing the use of "price testing" approach (where "price-setting" was used in the past) and greater flexibility to use compensating adjustments; ensuring access to MAP to avoid double taxation; Use of more that one transfer pricing method;
• Use of more segmented periods for price testing (or price setting), or, alternatively, a greater level of aggregation (i.e. comparing the results of the controlled transaction for several years, combined);
• Where one of the comparability factors is considered the most relevant (i.e. geography) - greater flexibility around other comparability search criteria.  

 
II. Losses and allocation of COVID-19 specific costs
 
As a general principle, the OECD COVID Guidance highlights that losses and COVID-19 specific costs should be split in line with the risk allocation between parties of the transaction. Parties should align the allocation of exceptional, non-recurring costs (i.e. PPE costs) with how independent enterprises' would allocate them.   

 
One of the most burning COVID-19 pandemic TP questions is if limited risk entities can incur losses. The OECD COVID Guidance does not go beyond what is written in the OECD Guidelines. One of the important takeaways is that OECD urges against generalizing the "limited-risk" entities and highlights that each case is unique. I.e., if the entity was bearing the marketplace risk that played out during the pandemic, it could incur losses, if not – then no marketplace risk losses should be assigned to it.
 
Consistency between risk allocation and profits/losses distribution is critically important, and the OECD makes it clear that modifying functional analysis to substantiate the loss is not a good idea.
 
This section also provides more detailed guidance on how exceptional costs should be taken into account in a comparability analysis and the effect of force majeure clauses on the losses allocation.
 
III.  Government assistance programs
 
Generally, the OECD COVID Guidance recognizes that there are various types of government assistance, and it is difficult to develop one size fits all approach. The availability, substance, duration and take-up of these programs will differ and may have different transfer pricing implications. Some general principles on transfer pricing implications of government assistance programs are summarized below:
 

• Government assistance is an economically relevant characteristic, where it has a substantial economic effect (i.e., wage subsidies, liquidity support, etc.)
• In line with the OECD Guidelines, government interventions should be treated as conditions of the market
• Taxpayers and tax administrations should carefully consider if the government support affects prices in the controlled transaction (and related transactions with third parties), the enterprise's cost base, and how these effects should be accounted for.
• Since government assistance programs are country-specific, benchmarks that use comparables from other countries can become less relevant. 

 
IV. Advance Pricing Arrangements (APAs)    

The issue of APAs during the COVID-19 pandemic is especially relevant. The main problem is that many APAs concluded by taxpayers in the past include critical assumptions around economic conditions' stability. Obviously, the pandemic leads to significant changes to the environment, and therefore, a potential breach of critical assumptions.
 
The OECD COVID Guidance encourages taxpayers to adopt a collaborative and transparent approach by raising COVID-19-related issues with the relevant tax administrations in a timely manner. The document highlights that tax administrations should consider every APA on a case-by-case basis. The report considers three potential outcomes for APAs and provides details on the reasons for choosing these options by tax administrations:

• Revision: The APA still applies for the whole period, although terms can be adjusted.
• Cancellation: The APA is in effect only up to the cancellation date. 
• Revocation: The APA is treated as having never been entered into. 
  
  

 
The OECD COVID Guidance recognizes difficulties taxpayers and tax administrations face while negotiating APAs during the COVID pandemic. These include both fundamental issues (uncertainty, business changes, etc.), as well as practical problems (travel limitations, no f2f meetings, etc.). Nevertheless, the document notes that despite potential challenges, the value of achieving advanced certainty and effective dispute prevention through APAs remains compelling.