4 minute read 15 Jul 2021
Technology in Transfer Pricing

Why technology is the tipping point in transfer pricing

By Ashwin Vishwanathan

EY India International Tax & Transaction Services- Transfer Pricing, Partner

Experienced transfer pricing professional advising companies on intercompany pricing and working with tax administration on tax policy issues.

4 minute read 15 Jul 2021
Related topics Tax

As businesses evolve, transfer pricing is emerging as the top tax risk.

Operational transfer pricing (TP) has seen convergence of the worlds of business and taxation. It is one of the biggest custodians, user and consumer of trade related financial data in a multinational enterprise. With tax revenues becoming increasingly critical to governments, transfer pricing monitoring in the context of related party transactions is likely to be under the public microscope. At the same time, business models are rapidly evolving, and the associated regulatory landscape presents challenges within transfer pricing that did not exist historically. It is, therefore, not surprising that the 2021 EY Tax Risk and Controversy Survey across 1,265 respondents in 60 countries and 20 sectors, identified Transfer Pricing to be the # 1 tax risk.

Common challenges faced by taxpayers when operationalizing their transfer pricing policies include disparate data sources, lack of controls and automated transfer pricing documentation, manual calculations separated from the organization’s ERP, inconsistent outcomes across countries, year-end adjustments, and difficulty in generating segmented financial results.

Technology in transfer pricing can be a powerful force to address the above inefficiencies. Harnessing it effectively may confer the benefits of:

  • Comprehensive data management and transfer pricing analytics
  • Standardized processes to source, distil and interpret intra-group transactional flows
  • Transparency across the organization
  • Strategic insights on trends, risks and opportunities
  • Integrated approach across other areas that may have a bearing on the overall tax and financial position of a company

It is essential for organizations to analyze different elements of their transfer pricing life cycle planning, compliance and controversy- and its interface with policy, data, process, controls, systems and inferences to identify potential challenges.

Thorough transfer pricing analytics and benchmarking against leading practices can provide ‘quick fixes’ that are low on efforts and do not entail significant investments. These could help eliminate data duplication and rework. One example is to templatize segregated and standalone intercompany transaction data requirements from different internal teams like finance, MIS or treasury teams.

A logical extension of the above study is to prepare a comprehensive transfer pricing automation roadmap, driving change in a coordinated and cost-efficient fashion. The main premise of the roadmap should be to define the journey for the upcoming three to five years, aligned with an organization’s strategic objectives, business plans, external needs and identified improvement initiatives.

Key considerations which are usually built into this roadmap are:

  • Organization

    To what degree can the technology in transfer pricing be implemented in the organization? Is there an already existing technology, or does it have to be acquired? Are there in-house resources for implementation or installation or will it require reliance on third party consultants?

  • Functionality

    To what extent does the technology in transfer pricing support user requirements?

  • IT design

    How does the technology in transfer pricing fit in the overall IT roadmap? Will it be supported and maintained going forward, how are data security and confidentiality parameters addressed. How does it align with finance or other automation or transformation projects?

  • Financial

    How does the cost of acquisition or license cost fit with the business case. What is the design and implementation cost transfer pricing automation?

  • Communication and change management

    A successful transfer pricing automation journey can never be achieved without integration between tax, finance and IT throughout people and process touchpoints. Accordingly, the roadmap acts as a vision statement to guide the teams towards a common goal.

Transfer pricing risks are real and managing it is important to avoid financial and reputational damage. With increasing regulatory focus, corporate boards are also securitizing related party transactions carefully and want credible data and controls underlying the transfer pricing design of a company. Technology can be a competitive advantage from an operational and strategic standpoint and is a sine qua non for a sustainable tax function of the future.
Vijay Iyer
Partner & National Leader for Transfer Pricing , EY India

Another opportunity for the transfer pricing function is when the organization is embarking on a transformation journey. For example, implementation of a new ERP system or upgrading an existing ERP system can be leveraged to integrate transfer pricing requirements bottom up into the organization’s data management framework and maximize the benefits from this investment.

It is often said, “a journey of a thousand miles begins with a single step”. Companies may differ in terms of size, scale of operations and complexity of intra-group transactions. They may, hence, have to determine a technology and automation agenda tailored to their specific needs. Technology in transfer pricing presents a big opportunity for tax functions to up their game. Clearly the tipping point may have been reached and sooner they embark on this journey the better it may be.

(Arpit Lodha – Senior Manager, EY India also contributed to the article.)


Organizations that integrate transfer pricing into their transformation journey are more likely to attain value from their investments.

About this article

By Ashwin Vishwanathan

EY India International Tax & Transaction Services- Transfer Pricing, Partner

Experienced transfer pricing professional advising companies on intercompany pricing and working with tax administration on tax policy issues.

Related topics Tax