We are all familiar with the month-end crunch — a scramble to extract the data needed to run the transfer pricing (TP) monitoring calculations, determine adjustments, investigate inconsistencies, gain approvals and book those all-important TP entries. Then focus might shift to a new acquisition, which will require harmonizing TP policies, stress-testing existing policies, facing new data source challenges and dealing with unraveling processes. And then the tax authorities serve up a surprise — a 2019 tax audit. The search for financial data, reports and intercompany agreements becomes time-critical to consult on an initial response and calculate potential risk.
The transfer pricing lifecycle is continuous and can be unpredictable at times. There’s an increasing need for accuracy and timeliness, clear reporting on positions and impacts, and support for overall business strategy. Technology can help you achieve these business-critical goals, but how? Where do you start? What are the key considerations? Here are some ideas to help.
Take a holistic approach within and across the TP, tax and business lifecycles
Each of the elements of the transfer pricing lifecycle are intrinsically linked and have integral relationships in a broader tax and business context. Taking a holistic approach:
- Considers the upstream and downstream impact potential improvements may have.
- Is taking a people, process, data and technology approach to evaluate the current-state challenges and identify the benefits that can be realized under each category.
- Involves listening and collaborating with those that support transfer pricing and the users of transfer pricing outputs.
Start with an organized and inclusive assessment workshop
Before implementing technology or any other changes, it’s important to first evaluate the current state to develop a roadmap to a fully optimized tax function. We recommend doing this across four key areas:
- Process: Whiteboard your transfer pricing processes using a comprehensive end-to-end engineering approach focused on deliverables.
- Data: Identify all transfer pricing data sources, inputs and outputs, and develop a future-state data management strategy.
- Technology: Assess transfer pricing technologies that are available in the market while also considering related tax engines, workflow and calendar tools, and supporting automation technology for extract, transform and load (ETL), analytic process automation (APA) and robotic process automation (RPA).
- People: Ensure your entire team and related stakeholders are involved in the assessment so that their voices are heard. Train them properly to enable successful adoption of the new process and technology.
Create a strategy with the end in mind
Planning is key to any well-designed process. While small changes along the way can create a big impact, optimizing your transfer pricing approach with technology is a long-term strategy. As you work toward your ideal future state, it may be helpful to document your goals to keep you on track. Some key questions to consider as you navigate the process include:
- Do you want to adopt a new technology, expand the functionality of existing technology or a combination of both?
- Should there be a “big bang” approach, or should you adopt a phased approach?
- How many tools is too many tools? Is it better to adopt one platform or multiple specialist applications? Do you prefer to integrate individual “best of breed” solutions, or do you prefer one overall platform to handle as much as possible?
- Who is the post-implementation owner for maintaining the technology? What is the right level of reliance on the in-house team versus a third-party provider for managed services?
To answer these questions effectively, it is important to understand where you are today and where you want to go, taking into account budget, resources and your company’s tax transformation maturity.