The growing complexity and expanding remit of global transfer pricing legislation, together with the increased scrutiny from tax authorities, means that managing transfer pricing risk as part of the group’s overall tax position has never been more important.
However, setting the intercompany pricing policies in line with the arm’s length standard is only the beginning. Transfer pricing policies need to be implemented and operated as intended so that both the statutory accounts and tax returns reflect the envisioned objectives.
Tax authorities are increasingly concerned with determining whether an organisation’s transfer pricing policies truly reflect the business operations and if the transfer pricing policies also concur with what has been recorded in the statutory accounts and tax returns.
The pace of change in transfer pricing is accelerating because of commercial globalisation and the Organisation for Economic Cooperation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) recommendations. Tax authorities have increasing amounts of data available to them through mandatory requirements such as country-by-country reports and extensive treaty networks, which allow the exchange of information.
They are leveraging this data to investigate whether organisations have adequate processes and controls in place to ensure transfer pricing outcomes recorded in the statutory accounts and tax returns align with transfer pricing policies.
Accordingly, organisations are increasingly recognising the need for robust tax technology and strong data analytics. In turn, they're beginning to embrace an improved range of data collection tools, management systems and automation processes to help develop strong information, which often has wider benefits than just transfer pricing.
Transfer pricing automation can help you save a large amount of time during the calculation process and transform your data methods to make them more efficient. You need to know that the demands of the transfer pricing process are being met and that your automated systems will deliver with efficiency to meet best practices. The benefits include:
Automation and clearly defined transfer pricing processes can help organisations save a large amount of time and free resources for other activities.
Transforming data methods improves analytics and reporting insights and provides clearer audit trails.
Clearly defined transfer pricing processes which state the roles and responsibilities of each function help teams collaborate and communicate effectively. Documenting the processes also helps to protect organisations in the event of key team members changing.
A robust risk control framework is imperative to successful transfer pricing operations and ensures compliance with risk management obligations such as adhering to Senior Accounting Officer requirements. Automation of transfer pricing policies can also reduce the need for manual processes and limit the risk of human error.
There are steps your organisation should take to ensure that it has robust transfer pricing processes and controls in place with the right level of automation to meet your business needs and budget.
As a first step, you need to identify the areas which present challenges and pressure points in your transfer pricing process and agree on the key goals for your business.
The next step is to structure and design the automation to suit your needs; this may range from enhancing existing MS Excel files to utilising a third-party solution which is embedded in the Enterprise Resource Planning (ERP) system. At this stage, key stakeholders need to be consulted and informed to ensure the successful implementation of the new process.
Following completion of the process automation design phase, you need to implement the process, including testing, documenting the process and risk controls, and transferring knowledge to relevant team members.
Our tax data and analytics experts work together with our transfer pricing experts to ensure your transfer pricing processes and controls are robust, with the right level of automation to meet your business needs and budget.
