Operational transfer pricing implementation

Transfer pricing International tax

As multinational organizations’ global footprints grow, they often find themselves shouldering a mounting regulatory burden in relation to their intercompany pricing. These organizations may be forced to expend significant resources analyzing global operations in hopes of constructing a tax-efficient supply chain that minimizes risk, decreases the cost of compliance, and provides bottom-line benefits to the organization.

Operational transfer pricing (OTP) provides an end-to-end framework for organizations to streamline these efforts and reduce the cost of compliance in an increasingly globalized economy.

If you answer yes to any of the questions below, engaging RSM for an operational transfer pricing assessment may strengthen your organization’s tax position:

  • Are you looking for a clearly defined and documented policy to clarify and support the pricing of your intercompany transactions?
  • Would you want to have the roles and responsibilities clearly documented and understood across your tax, finance and commercial business?
  • Do you want to configure your accounting systems to reflect the intercompany transactions in accordance with the transfer pricing policy?
  • Does the data extraction require a large amount of manual interventions?
  • Are there any significant organizational changes—new enterprise resource planning, finance transformation, mergers and acquisitions, restructuring?

OTP is relevant to any multinational organization looking to improve its internal financial reporting systems and controls. In particular, organizations with fragmented ERP environments, manual data gathering and extraction processes, and inconsistent transfer pricing results may benefit from an OTP assessment. From broad-scale finance transformation projects to the automation of a single process, OTP principles can be applied to any multinational organization regardless of size or maturity.

What is operational transfer pricing?

OTP is the proactive management of transfer pricing policies. By effectively streamlining data flows, increasing process efficiency and developing automated solutions, OTP leverages an organization’s internal technology platforms (e.g., ERP systems) to strengthen and develop a more efficient transfer pricing lifecycle. When implemented successfully, OTP aligns an organization’s tax, finance and information technology functions to deliver a harmonized, end-to-end approach to transfer pricing reporting and compliance.

Why is operational transfer pricing important?

The value of data has skyrocketed in the business world. Organizations of all sizes in all industries are beginning to harness their data for new analyses and strategies to transform their business processes. Consequently, tax authorities have turned a scrutinizing eye toward examining this data from a regulatory perspective.

One of the largest operational challenges pervading an organization’s intercompany pricing is managing the expanding regulatory requirements recommended under the Organisation for Economic Co-operation and Development’s (OECD) base erosion and profit shifting (BEPS) initiative. Under BEPS, tax authorities have autonomy to request an array of organizational data from sources such as country-by-country reports, real-time tax filings and automatic exchange-of-information mechanisms.

With an increased focus on data requirements and real-time substantiation, many multinational organizations struggle to find contemporaneous procedures to control their intercompany pricing. Organizations may feel stuck in their old ways, as transitioning strategies and polices into a working operational model that leverages underlying accounting and transactional processing systems can be both complex and time-consuming. As a result, tax processes often evolve into manual tasks, slowly disconnecting from everyday business operations and becoming more reactive in nature.

Without proactive system controls in place, business transactions are often executed with little consideration for the global tax implications. This makes it difficult to substantiate certain tax positions, and can lead to lengthy and costly audit disputes. In other cases, the lack of transparency leads to double taxation, inaccurate filings or decisions based on incomplete information.

These factors, combined with the growing sophistication of tax authorities, underscore the importance of maintaining systems in which organized, easily accessible financial and transfer pricing information can be quickly analyzed and assessed. OTP seeks to resolve these issues to enable organizations to develop transfer pricing policies that address modern tax issues.

When to consider implementing an OTP into your organization

How can we help?
We help clients utilize their existing technologies and data infrastructure to create efficient operating models addressing the increasingly complex global tax issues. With a global network of talented tax professionals and resources, we assist our clients and provide actionable insights every step of the way. Whether assistance is required with the development of a consistent pricing methodology or the transformation and implementation of appropriate ERP systems and controls, we work with our clients to determine a customized approach that meets their business objectives.

As companies grow their global footprint, OTP provides an incredible opportunity to harness existing company resources to develop a more efficient transfer pricing life cycle, engage in new and meaningful tax planning, and prepare for the changes of tomorrow.