About 75% of survey respondents estimate that the total revenues of the companies they represent will decrease by less than 25% in 2020, compared to 2019, as a result of the medical crisis, according to the survey ”Transfer Pricing Challenges during and post Covid-19”, conducted by PwC Romania during April – May 2020.
At the same time, almost half of the Romanian entities of the multinational groups estimate the decrease of the profit margin from the transactions with the affiliated parties, and 36% of the respondents indicated that the eventual expenses generated by the COVID-19 crisis won’t be reimbursed by the group.
"Transfer pricing policies were conceived and implemented by companies in a period of economic growth and therefore now are being reconsidered. The groups assess the medium and long-term impact of the pandemic, taking into account measures to streamline and reduce costs. Thus, the evolution of the relations with the affiliated parties has a high dose of uncertainty, not being clear to what extent the parent groups will decide to support the local entities to cover their losses suffered during the interruption of the activity ", said Ionut Simion, Country Managing Partner PwC Romania.
In terms of liquidity, most respondents indicated that they had enough cash to support their business, and in the event of major problems, 60% indicated renegotiating payment terms, without contracting new funding. Only 20% of responses focused on the option of obtaining additional funding from third parties.
Expenses generated by the COVID-19 crisis
The main extraordinary expenses generated by the COVID-19 crisis are related to the workforce, being mentioned by 28% of the respondents. Other expenses in this category concern safety at work (equipment, disinfectants), according to a percentage of 20% of the surveyed and logistics companies, show 24% of them.
Almost a third of respondents say they have already made these expenses, 32% say they will make them in the next 3 months, and 28% by the end of 2020.
Most respondents have the IT tools to record and measure the financial effects of Covid-19 on related party transactions. The other respondents are not sure of the impact or do not have the necessary resources.
● 15.5% estimate the decrease in revenues between 25 and 50%.
● 14% anticipate operating losses due to malfunctions in the economy and 14% decrease in demand from affiliates.
● The expenses generated by COVID-19 will be passed as local losses of 25% of the companies and only 20% say that there is a chance to share the expenses between the affiliates.
About the survey
The PwC Romania study was conducted in April - May 2020 based on information provided by over 30 companies from: retail / FMCG, 40%, IT&C and technology, 15%, services, 15%, and industry, pharmaceutical and real estate, 10% each. In terms of business models operated locally, 72% of respondents have a limited functional profile, where group decisions are implemented locally.
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