Why technology is the tipping point in transfer pricing

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:

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.)