Operational Transfer Pricingwebmaster2023-06-01T17:14:30+02:00
Operational Transfer Pricing
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OPERATIONAL TRANSFER PRICING
Throughout history, multinational enterprises (MNEs) have managed intercompany (IC) processes and systems related to transfer pricing (TP) primarily to meet their business objectives. However, the Organization for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) initiative has sparked a dramatic shift in corporate tax transparency and has led to the introduction of new local tax legislation across different tax jurisdictions. The resulting heightened TP scrutiny has left MNEs struggling to address the new tax compliance requirements. They often tend to adopt an ad hoc approach, resorting to a patchwork of ERP or BW systems and manual activities involving spreadsheets to capture, monitor, and calculate TPs while managing all related IC processes. While this ad hoc approach might work for a short time, responding to queries from audits conducted a few years down the line can prove to be quite a challenge. Without proper traceability, it is not easy to provide accurate information on why certain prices were changed several years ago. This has prompted tax and TP departments to focus increasingly on certain crucial factors such as:
Gaining a clearer understanding of TP compliance and its related data needs
Defining clear responsibilities to proactively manage TP
Ensuring operational IC pricing is aligned with tax policies
Implementing systems to capture TP-related data consistently
Conducting regular comparisons between actual results and benchmark ranges
Addressing deviations by implementing adequate measures
In the past, most MNEs maintained TPs simply to meet their own purposes, not necessarily to ensure tax compliance with regulatory requirements. It is only recently that countries have started to become stringent about compliance with BEPS. Prior to this, there was no real pressure on MNEs to achieve global tax compliance and, more notably, there were no suitable IT solutions available to help them manage their TPs easily and effectively. The two main reasons for the lack of suitable solutions were:
ERP systems were not designed to address the problem of monitoring and managing TP from a tax perspective.
Most of the MNEs typically run on disparate systems, which means that master data conflicts and discrepancies between legal entities or systems are commonplace and so the data required for TP is not readily available. They lack the ability to integrate with ERP systems at the level required to properly understand and interpret the various transactions.
The focus has meanwhile shifted to the topic of TP and MNEs are finding themselves under increasing pressure to demonstrate their global tax compliance, which has prompted them to seek out solutions to help them monitor and manage their TPs. While several standard solutions offering varying degrees of functionality and integration with source ERP systems are available today, none of them offer complete integration with source ERP systems, providing the required data at the required level of detail.
So, this is where EXA steps in to fill this gap with its Operational Transfer Pricing (OTP) solution – a comprehensive SAP Addon that addresses all these new compliance requirements. OTP enables MNEs to integrate, retrieve, and cleanse the required data and, in turn, calculate, monitor, and manage TPs on a global scale while ensuring material TP compliance with local regulatory needs.
Solution highlights include:
Tight integration with all your SAP systems without you having to worry about the preparation of often cumbersome data
Working in your familiar SAP environment with all the advantages of data security, authorizations based on defined roles, and single sign-on, etc.
Easy customization of the solution to meet your exact needs
Automatic segmentation of P&L in line with your TP policy withe drill down to every single transaction
On-the-fly reconciliation with SAP accounts at any time
Integration of your own forecast data or use of inbuilt forecasting mechanisms to visualize year end scenarios
Calculation of TPs for every single product and for every relationship while considering the impact of customs, etc.
Writing back the new TPs to your SAP systems
Unprecedented monitoring and reporting capabilities enabling you to always stay on top of your business
Seamless collaboration with group entities regarding allocations, forecasts, and price setting, etc.
Close integration allows data to be retrieved from source ERP systems and then harmonized without any manual intervention. Costs and revenues related to the transactions in a period are properly matched, vendors are accurately identified, and data is automatically mapped to various OTP accounts. Furthermore, the transfer prices are written back to the condition records in the ERP systems in line with the related policies. This saves customers the extremely tedious and highly complex task of preparing and updating data.
Standardized auto-harmonization of TP-related data extracted from (multiple) source systems – from SAP R/3 to SAP S/4HANA
Out-of-the-box interfaces for various SAP data sources (e.g., ACDOCA, PCA, COPA, BW)
Precise identification and treatment of complex IC transactions, such as cross-company sales or drop shipments
Automatic TP updates by writing optimized prices directly back to condition records in the ERP systems on both the supplier and receiver sides
File interfaces for non-SAP ERP system enabling secure connection and fast processing
A flexible, automatic, and very easy-to-use P&L segmentation application that segments your P&L data into the desired dimensions based on the rules defined and offers drill down options to each single transaction. The overheads are allocated with the help of a multi-level allocation engine, which also includes overheads already allocated in your ERP systems.
Fully automated segmentation of P&L according to TP relevant dimensions and attributes
Enhanced segmentation dimensions available, such as division, transaction group, function, TP partner, IP owner
Easy reconciliation to SAP accounts at any time
Powerful multi-level allocation engine that includes pre-allocations carried out in SAP avoiding any manual cost allocation effort
Up-to-date TP deviations to the target profit margin at every relationship level
Continuous monitoring in TP operations is a must but this can only be achieved if the system can prepare and present the data in a format that is intuitive and easy to handle. OTP monitoring applications do exactly that. You immediately see what needs your attention and action without wasting any time.
“Intercompany Map” providing visualization of IC flows from a bird’s eye perspective for all transaction groups at all relationship levels
Intuitive “Management Dashboard” application that provides a global overview of tax risk exposure
High-risk transactions on a radar to initiate countermeasures
Automated “Transaction Matrix” with inbound / outbound IC charges between all legal entities for easy documentation
What would your risk look like at the year end?What measures should you take now to avoid that risk?Questions such as these are what keep TP managers busy. The answer lies in finding a solution that can easily forecast theremaining periods. OTP can integrate your existingforecasts or create new forecasts based on your past data and/or allow you to manually provide this information.
Automated forecast generation for remaining periods until the year end
Enable early warning to understand the most probable year-endscenario and resulting tax/ TPrisk on entity level from final deviations
Auto-forecasting of SGA/OPEX accounts
Option to upload existing forecast data or allow manual input
Collaboration between entities using workflow approval
TPs are calculatedusing your pricing strategies for individual products or automatically for the entire segment. This is supported by multi-level approval workflows that arecustomized for your business.
Automated calculation of optimal TPs achieving the targeted margin objective at the yearend
Option to optimize single IC relations and specific segments within entities with margin impact simulation on-the-fly
Calculation of new TPs for new materials/relations based on various pricing strategies
Consideration of landing costs or stock-on-hand when calculating optimal TPs
TPs calculation with workflow approval and audit trail
Collaboration using state-of-the-art and familiar SAP workflows keeps things simple. The workflows are customized to your exact needs and the notifications come to your standard SAP Inbox and/or Workflow Manager and can later be tracked at any time.
Integrated, fully customizable and intuitive workflow functionality across various OTP applications
Efficient cross-functional and cross-entity collaboration for IC forecasting and TP calculation
Flexible approval flows by division, entity,and IC relation
Notifications via “Workflow Manager”, standard SAP Inbox (“My Fiori Inbox”) or email
There’s no need to worry about the security of your data. OTP is an SAP Addon, which means that it enjoys the exact same security as your other SAP applications. The same goes for other features, such as single sign-on or SAP roles.
OTP enjoys the same data security as that of underlying SAP systems
Single sign-on with existing SAP users
SAP roles and authorizations in line with your GRC strategy