The eurozone crisis — what are the tax and transfer pricing risks?

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Europe’s leaders are striving to demonstrate their commitment to defend the euro on the markets, but the eurozone’s outlook for 2013 is still grim. Most countries are heading into recession and unemployment rates continue to rise. Also, there is speculation that the eurozone will disintegrate or that a eurozone country may unilaterally withdraw from the European Monetary Union (EMU).

Many companies are struggling to understand the effect such events may have on contracts whose payments are euro-denominated. Early identification of the most likely tax and transfer pricing risks will help companies understand which practical tax and transfer pricing aspects they could confront upon a Eurozone breakup.

When euro-denominated contracts are between parties from the same Eurozone country, then a departure from the Eurozone by that country should not in principle affect either party. In such circumstances, it is likely that the contract would, by virtue of the implementing legislation, simply be redenominated in the new currency of the relevant country at the rate that country has specified, and the parties will simply continue to perform their contractual obligations as usual. Tax and transfer pricing issues only arise when the contract involves multi-jurisdictional or cross-border transactions that are either euro-denominated or have some euro payment requirements…

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