The impacts extend beyond the tax department
The megatrends are placing greater demands on transfer pricing teams and tax departments. But as EY Global Transfer Pricing Market and Innovation Leader Ronald van den Brekel explains, it may not be the tax departments alone that must deal with enquiries.
For example, the nature of auditing by global tax authorities is shifting from a strict “rely on what the tax team is sharing to obtaining insight directly from additional sources.” In what he calls a shift to “show not tell,” van den Brekel says “tax authorities are saying, we’d like to hear it from the practitioners themselves rather than the tax team.”And so tax authorities are now seeking conversations with heads of marketing, manufacturing, logistics, finance and other functions.
Another new wrinkle in OECD guidelines reinforces the concept referred to as “options realistically available” (ORA). Essentially, in evaluating any transfer price, authorities are able to engage in a review of all other possible options. As van den Brekel explains, “with ORA, the OECD guidelines add subjectivity to traditional arm’s length evaluations.”
Responding requires technology
A more proactive transfer pricing function can help. Achieving this vision means the transfer pricing function needs to shift attention to issues that matter most – less focus on day-to-day operations and more focus on strategy and controversy. Getting it done, explains EY US Central Region Transfer Pricing Leader Rebecca Coke, “means making the most from technology.”
Unfortunately, the survey shows that when it comes to transfer pricing, companies are proving slow to align technologies to pain points. For example, 76% of transfer pricing leaders (73% of the C-suite) find their transfer pricing data collection process to be challenging, involving multiple IT systems, and 79% say such matters are riddled with quality issues (80% of the C-suite).
Coke says many tax departments are still relying on dozens, if not hundreds, of traditional spreadsheets and word processing files. Their work is manual, linear and iterative instead of realtime, proactive and strategic. What needs to happen, says Coke, is that businesses need to find ways to obtain the information they need automatically so they can focus on more value-added issues.
The watchword, says Coke, is acceleration. The C-suite needs to help their tax departments move faster and more efficiently through the embrace of technology. It begins with process redesign, streamlining and simplifying the work. Getting started, Coke explains, transfer pricing teams need to take steps such as building bridges to their ERP systems or alternatively, reconfiguring their ERP systems to generate transfer pricing reporting directly.
Amid process redesign, businesses should also evaluate co-sourcing and outsourcing. As Coke explains, “repetitive, low-value activities can often benefit from the sorts of scale economies introduced by a third-party provider – so this is something the C-suite should consider within a go-forward technology strategy.”