Failure to address the difficulties many companies face with transfer pricing can lead to significant business risks, such as financial reporting issues, increased tax liabilities, and higher costs in terms of intercompany accounting and tax compliance.
To meet this challenge, many companies are adopting a holistic approach to executing transfer pricing – one that integrates the transfer pricing process with day-to-day operations.
Companies are also exploring new ways to improve transfer pricing processes and leverage technology to drive efficiencies and reduce risk. When taken as a whole, this approach is referred to as Operational Transfer Pricing.
The role of technology
Transfer pricing user requirements beyond intercompany eliminations are commonly scoped out of major technology upgrades or new implementations. As a result, transfer pricing implementation frequently involves offline or manual processes across multiple departments, regions and systems, adding time, cost and risk to the close process. Many of these inefficiencies can be alleviated by enabling technologies.
Technology further improves data gathering and quality of information which supports the enhanced integrity and monitoring of intercompany transactions
Companies that integrate technology may be capable of achieving significant benefits. Streamlined processes and controls can help companies drive earnings per share through greater realisation of tax planning goals and possible reduction in FTEs, while shifting tasks from routine to value enhancing.
Technology further improves data gathering and quality of information which supports the enhanced integrity and monitoring of intercompany transactions, as well as the ability to efficiently manage workflow and compliance requirements. These enhancements may increase financial reporting accuracy and timing, and reduce financial statement and tax audit risk.
A wide spectrum of tools exists to support the intercompany transfer pricing process. These can be broadly categorised into policy management, policy implementation, and compliance tools.
Many companies choose to work with a consulting professional to determine ‘best fit’ based on technology user requirements and the companies’ overall information technology landscape.
In developing a transfer pricing policy, companies should identify intercompany transactions, align intercompany agreements with transfer pricing policies, and design methods to facilitate the implementation of these polices.
Policy management and implementation
Workflow tools can support the entire transfer pricing process by facilitating information-gathering activities and providing a well-structured database for maintaining documents to support a company’s transfer pricing policies.
Benefits can include improved data quality and enhanced monitoring and reporting capabilities, which can enable companies to promptly identify and mitigate areas of risk
The potential benefits of such tools include oversight of tax and non-tax compliance requirements, centralised documentation storage and standardised reporting across the organisation.
Technology can also be used to help protect the integrity of transfer pricing data used for reporting and compliance, by ensuring that accounting procedures are integrated with transfer pricing policies and results are monitored regularly.
Easily identify areas of risk
Leading tools in this area feature automated calculation of segmented transfer pricing results, near real-time monitoring of intercompany profits, and the ability to make prospective unit price adjustments throughout the year.
Benefits can include improved data quality and enhanced monitoring and reporting capabilities, which can enable companies to promptly identify and mitigate areas of risk, plan and execute efficient tax structures, and make better-informed business decisions. Critical to the success of a transfer pricing policy implementation is cost-effective and efficient compliance management.
Tools within this area can support the step-by-step preparation and maintenance of transfer pricing documentation in accordance with local and global tax requirements. Key features include benchmarking resources, information on current transfer pricing rules and requirements, and ready-to-use report templates. Workflow capabilities enable real-time project tracking, review of documentation content and centralised information management.
KPMG member firms have operational transfer pricing professionals around the world who apply in-depth knowledge of global transfer pricing practices and market leading technologies to help companies effectively manage their global transfer pricing obligations.
For further information email Bernhard von Thaden (Los Angeles) at email@example.com; Jerry Klopfer (Chicago) at firstname.lastname@example.org; Marco Pace (New York) at email@example.com; Komal Dhall (London) at firstname.lastname@example.org;