The COVID-19 Pandemic and the Arm's Length Principle

Abstract

The wide-ranging economic impacts of the COVID19 pandemic suggest that previous analysis methods such as the arm’s length principle can no longer be fully applied in the usual way. The SARS-CoV-2 virus has disrupted companies’ accounting, administration, and controlling systems. These systems are essential for analysing the prices applied to related companies. Comparative data evaluation over time is essential to understanding an economic entity. The different measures governments have implemented to contain the epidemic and help businesses to operate have disrupted the economy. Thus, the year-on-year business performance is no longer comparable using annual historical data. Considering future changes in contractual relations analysis is also necessary because nontransitory factors should also be assessed. These factors are incorporated in the countervalue of pricing, which also changes the cost price calculation methodology. Determining force majeure situations is crucial in contracts since its assessment is a legal problem, even for independent undertakings. This paper aims to show how national GDP data help examine the application of the arm’s length principle. Since the COVID-19 pandemic, internal comparative prices, pricing mechanisms and pricing principles have become more valued than the use of external comparables. This trend is expected to continue.