Transfer Pricing
challenges & opportunities.
Transfer pricing management requires a large amount of information from various sources of the company. Pursuant to Section 90 (3-5) of the German Fiscal Code (AO), the deadline for submitting transfer pricing documentation for current transactions is generally 30 days. At the same time, the restriction that transfer pricing documentation should only be requested by the tax authorities "for the purpose of conducting an external audit" has been removed. In effect, this means that the documentation must be available regardless of an audit and must be updated annually. Gathering the necessary information is usually a considerable challenge for the people involved inter alia due to the following:
Missing processes
In the absence of defined processes, sources of information and responsibilities are often not clearly defined. To some extent this can be mitigated through personal contacts and high personal efforts. Resulting dependencies can lead to significant disruptions in processes and create risks if required information is not rendered. Examples include integration of changing business strategies into the TP model, changes in the functional and risk profile of individual corporate entities, or identification of new intra-group transactions. Relevant DAC6 situations can also become difficult to identify if flows of information are deranged. An analysis of the actual processes, identification of necessary and helpful adjustments as well as definition and documentation of responsibilities create clear and unambiguous structures.
Manual data processing
In principle, information is collected and merged from various sources. These sources are most often not compatible and the merging of data is done manually (copy-paste). Due to lack of expertise and capacity, no 4-eyes review is conducted. An example is the identification of transaction volumes for documentation purposes. Identification, provision, and automated use of data from source systems (especially ERP systems) accelerate work steps and reduce transmission errors. The derivation of results is traceable and reproducible.
Time-consuming compliance activities
Compliance activities such as the regular review and documentation of the functional and risk profiles of the group companies, the preparation of benchmarking studies or the writing of transfer pricing documentation tie up capacities and divert attention from tasks that are more valuable for the company. Identifying and integrating individually suitable automation solutions results in savings opportunities - on the cost side and on the capacity side.
Complex transfer price setting
A multitude of intercompany transactions, the quality of budget and forecast values, locally different target margins or aspects of customs law are some examples of complexity drivers in the context of a reliable transfer pricing determination. The creation of a solid and always accessible database is the basis for the integration of operational transfer pricing solutions, which take over the complex calculations and simulations.
Constantly changing regulations and laws
Global and local requirements and laws are constantly evolving. Especially since adaption of the OECD BEPS Action Plan, companies must regularly address new requirements. The two pillars on profit allocation (Pillar 1) and global minimum taxation (Pillar 2) are current examples. Creating a solid database that is always accessible is also helpful at this point. A TP Data Hub can even easily be expanded to include new data as new requirements arise.
IT requirements & TP technology
The complex requirements to transfer pricing management increase the need for supporting and/or automating solutions. When identifying and implementing suitable applications, one of the difficulties is to align the business requirements and ideas with the prerequisites of the company's own IT and to develop a common target picture that meets both the business and technical conditions. The timely involvement of the relevant departments and people, as well as clear documentation of the business requirements (business requirements specification), but also of the technical implementation (technical requirements specification), prevent misunderstandings and accelerate implementation projects.
our consulting.
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Our consulting services can be categorized according to the life cycle of transfer pricing. We also consider the aspects of the Tax CMS (Compliance Management System) and develop our solutions in such a way that they can be integrated into the existing Tax CMS.
Always, our first focus is on the existing, individual company processes. The processes relevant for TP must be described in detail and in an audit-proof manner, and a RACI must be agreed regarding the responsibilities of all parties involved (tax function, controlling and accounting, and business units). A process description forms the basis for both efficiency improvements and the definition of targeted controls. For each area of the cycle, we offer support for classic transfer pricing issues, but also focus on approaches to digitalize and automate:
fields of play.
TP Model & GuidelinesThe transfer pricing cycle begins with the creation of a transfer pricing model in accordance with corporate and business strategies. Designed models should be implemented and documented using specifications, guidelines, and guidance. Our traditional consulting areas include: - Consulting, review and modelling of transfer pricing structures - Transfer pricing SWOT analysis - Strategic transfer pricing consulting in the context of restructurings (M&A) - Transfer pricing due diligence - Preparation of company-specific transfer pricing manuals and management guidelines In the area of digitalization and automation we offer among others: - Development of a target picture for the digitalization of transfer pricing (TOM), considering software solutions already used in the group - Online function and risk questionnaire and link to transfer pricing documentation - Functional and risk evaluation (validation) based on financial figures - RACI matrix
TP Planning & OperationsTP Planning & Operations includes the individual planning of transfer pricing in connection with the operational implementation of the transfer pricing model through specifications, guidelines, and instructions. Our classic consulting areas include but are not limited to: - Preparation of benchmark studies o Full search including search strategy, qualitative review, working capital adjustments, if necessary and report preparation o Financial updates of existing studies o Provision of the database results only for the company's own further use - Interim transfer pricing management Support in operational tasks of the transfer pricing department by qualified employees In the area of digitalization and automation we offer among others: - Review and optimization of ERP transfer pricing settings, especially regarding SAP S/4HANA transformations. - Support in the selection and implementation of software solutions in transfer pricing o Creation of requirements catalogue & evaluation criteria for software solution as well as review and evaluation of providers o Alignment and transfer of understanding (within the company/group) between business department and IT o Identification of interfaces and data points o Creation of functional concept (requirement specification) o Creation of technical requirements (functional specification) o Project management - workflow analysis and adjustments
TP Reporting & DocumentationReporting, evaluation and documentation of transfer pricing issues takes up a substantial amount of time of the transfer pricing department in the company. Our classic support consists of, among other things: - Preparation of master files and local files (according to OECD requirements) - Preparation and review of intercompany agreements from a transfer pricing perspective - Evaluation, documentation, and explanation of extraordinary business transactions (e.g. DAC6) - Country-by-country reporting In the area of digitalization and automation we offer among others: - Evaluation, design, and implementation of a TP/CbCR Data Hub. - Automation of the transfer pricing matrix based on ERP data - Modular documentation creation using Microsoft Excel templates - Transfer of results of digital functional and risk analysis into transfer pricing documentation - Evaluation, design, and implementation of approaches for automated P&L segmentation - Assistance in selection of the readily available digital solution as well as support in implementation if the selected tool
TP Audit & AdministrationIssues like transfer pricing administration and transfer pricing audit usually arise in addition to handling day-to-day tasks. Our classic support consists of, among other things: - Accompanying the tax audit and negotiations with the tax authorities - Advice on advance pricing agreements / mutual agreement procedures and arbitration conventions - Advice on the organization of transfer pricing processes and their documentation In the area of digitalization and automation, we offer, among other things: - Support in the selection and implementation of software solutions (see also TP Planning & Operations)
Tax CMSThe individual phases of the transfer pricing life cycle each have their own points of contact with the Tax CMS. Processes improvements within the cycle automatically lead to quality improvements regarding the Tax CMS. Based on the transfer pricing life cycle activities, our consulting focuses on: - Process design and documentation (documentation language BPMN) - Creation of a process-related risk-control matrix - Creation of group guidelines and instructions In addition, we also offer consulting from a Tax CMS point of view in general, which then in turn highlights transfer pricing as one of its aspects.
Rent-a-Tax TeamOur service offers you the opportunity to benefit from our team of highly qualified tax and process experts without making long-term staff commitments. We offer this service to support your specific tax needs in a flexible and on-demand manner.