This blog provides a summary of supporting TP technology
Three challenges and a way forward for your Transfer Pricing setup in 2023 (and beyond) – Part III
Multinational companies typically have a defined transfer pricing system with a written Transfer Pricing (“TP”) policy in place, including a definition of methods, markups and margins. This is often accompanied by a basic or more sophisticated TP compliance approach. But what happens in between the TP policy and TP compliance?
Simply put, companies will have to be ready to demonstrate not only that their actual TP outcomes are in line with their TP policy, but also that they are managing their transfer prices appropriately. Our blog series will shed some light on three key topics:
Part III - Supporting technology
Referring to part II of our little blog series, well defined processes are the basis for using supporting technology in a meaningful way.
Finance functions, including tax teams, are now expected to add significantly more value to the business than in the past. This increases the pressure not to waste time on routine and repetitive data preparation, reporting and compliance – while at the same time meeting increasing reporting requirements without increasing headcount. This also means that tax teams, as data consumers, cannot rely on other teams to fulfill existing or new requirements as before.
Core systems such as an ERP and other supporting systems may contain all the required data, but often this data is not ready for use. And it should not be expected to ever be. It is highly recommended to explore the current data and technology landscape and how smart technology solutions can be embedded in daily or regular work routines.
Today a variety of solutions are available, each with its distinct positive aspects. What works best for you and your tax departments depends on your specific circumstances. Here are some considerations which solutions can support typical TP activities:
- Data preparation: often, data from different sources needs to be combined and transformed into a consistent data set. This is referred to as the ETL process (Extract, Transform, Load). Here a variety of (no code/low code) solutions exist. A popular solution within tax departments is for instance Alteryx. Typical use cases are the preparation of transactional data for OTP or compliance purposes or preparation of segmented P&Ls. In data preparation, mapping plays a pivotal role, offering insights into processes and guiding better data integration and standardization. Overall, there's a notable advantage in automating repetitive data preparation tasks.
- Data visualization: once the data has been loaded into its destinationsuch as a database or data warehouse, tax teams may want to visualize the data and gain specific insights. Solutions such as Microsoft PowerBI or Tableau may be suitable tools. Amongst others, typical use cases are analytics around CbCR, dashboards with margin monitoring comparing actuals against benchmark study results, or even more detailed visualizations with product profit analytics.
In addition, there are various solutions that can help with other TP challenges. Tax teams may want to consider more than just one solution. They should take a holistic view of how vendors and their products can help:
- Microsoft offers a wide range of products and services. Power BI was already mentioned and is part of the Power Platform. It offers tax departments a variety of use cases including improved collaboration and data gathering, e.g. for automating the internal TP compliance processes. And not to forget the opportunities from easily accessible AI models through the Azure AI platform.
- SAP with its HANA database and S/4HANA ERP provides the backbone system for many companies. Maintaining appropriate transfer prices in the ERP is an elementary task for tax departments. As such the suite of SAP products is interesting for tax teams as well. SAP Profitability and Performance Management (PaPM) can be seen as calculation engine that can be used for TP purposes while SAP Analytics Cloud offers functionalities for analytics and data visualization.
The solutions mentioned above are a selection of possible and commonly seen products that support TP processes. In addition, there are a number of specialized TP software solutions on the market. All products have strengths and weaknesses and are priced differently. Also, a company may already have a digital and data strategy in place that determines preferred solutions.
There are powerful technology solutions available that can significantly support and enhance your TP processes. It is recommended that you define your requirements and what you want to achieve.