Increased globalisation and the expansion of multinational enterprises (MNE) means that a high percentage of global transactions take place between different trading units within MNE groups. The pricing of these transactions in the MNE’s system of record (the legal entity books) determines how much tax the different operating units pay in each tax jurisdiction in which the MNE Group operates and as a result will be set globally by Tax in the Transfer Pricing (TP) policy.
Scale dictates that finance or operations are responsible for interpreting the TP policy, setting prices and entering these into the ERP systems as transactions take place. This accountability / responsibility split is inevitable but it does increase the chances of misalignment. The principle risk being that transfer prices are not set and monitored as being within the TP policy until it is too late to do anything about them.
Many businesses will have different TP policies for different segments of the business often at the stock kept unit (SKU) level with prices set using standards set using prior year budgets. Prices will often be dependent on forecast standards for internal goods and services. It goes without saying that however good forecasting processes are, actuals will deviate from budgets.
End to end TP is concerned with the improvement of the processes around the:
Improvement can be tactical or strategic, as a result of audit findings or ERP implementations.
In many groups the above processes are manual and reactive with significant repercussions for the business in effective tax rate, indirect taxes and customs and the closure of legal entity books. The digitalisation of tax authorities through initiatives like SAF-T is giving them direct access to transactional level data and TP outcomes are now far more transparent than ever as a result of OECD/G20 BEPS Action 13 and country by country reporting.
We can help in different ways. We can start by helping you assess whether your price setting process can be streamlined to increase the accuracy of your prices. Many technology vendors including SAP and Oracle are developing operational price setting capability within the core ERP system and through specific monitoring and reporting technologies. Action 13 means that Group are now looking at delivering TP documentation in more centralised ways with reporting and monitoring done from central ERPs with localisation where required. We have data and analytics technologies that can identify and assess transfer prices in the same way that tax authorities will, thereby putting ourselves in their shoes.
This is a complex area without “one size fits all” answers. Please contact us for a conversation.
Partner, PwC United Kingdom
Tel: +44 (0)20 7583 5000