Transfer pricing – technology enablement for today and tomorrow

23.08.2019

As businesses go digital, tax functions also need to keep pace with digitization and digitalization. Given the nature of transfer pricing and its many touchpoints across the business landscape, the function is well-positioned to be part of this megatrend. How can you use the advantages of technology for your transfer pricing organization?

Today the performance of IT systems and the availability of tools for data collection, data cleansing and data analytics is greater than ever. With so many available options it is even more important to avoid a “tool” mindset and instead be clear about what you want to achieve with the help of technology. Focusing on the “enablement” aspect is important. The right technology is the one that empowers your organization to achieve its transfer pricing goals more efficiently, accurately and cost-effectively.

This blog highlights certain aspects that you should consider when approaching technology in the area transfer pricing and tax in general in order to not get lost.

Areas of transfer pricing technology

When companies think about technology in transfer pricing, their considerations typically fall into one of the following categories:

  1. Compliance: use of technology to support the preparation and annual updates of transfer pricing documentation reports
  2. Insights: use of data and analytics to get more insights out of tax data, especially country-by-country data, information on intercompany transactions and financial performance
  3. Processes: use of tools to better organize internal collaboration whether it is in the area of compliance or operational execution of transfer pricing policies that follow clearly defined rules.

Where are you now and where do you want to go in which area?

Many companies today are still working mainly with Excel, Access or comparable applications in all three areas.  But in all three areas technology is moving away from Excel/Access to non-ERP solutions to – the ultimate advanced tech status – fully integrated ERP solutions especially for operational transfer pricing. Every development stage has its pros and cons as summarized below:

Non-ERP technology can bridge the gap between simple Excel/Access solutions today and a highly automated and integrated ERP solution in the future. A wide range of tools and (software) solutions related to transfer pricing documentation support, data and analytics but also process management and operational transfer pricing are available. Such non-ERP solutions can be off-the-shelf products provided by various specialized vendors and software companies or custom-built solutions using common applications. The variety and the possibilities are numerous, which makes it difficult to make the right choice.

Get set for change

Given the variety of options and available solutions in the area of transfer pricing technology it is important to get set for change appropriately. The starting point should not be a tool or technology solution but rather the question is what you want to achieve in the area of compliance, insights and processes. An awareness exercise at the beginning of any technology enablement initiative gives you a firm starting point from which to initiate change. Some aspects to get clarity on:

  • Where do you stand today and what technology do you use?
  • What is the vision that you have for your tax and transfer pricing function?
  • Which processes and touchpoints are relevant?
  • What skills and resources do you have or which are missing?

Regardless of your organization’s size, exploring these aspects at an early stage is essential. The ensuing discussions will take you along various avenues of exploration, ultimately combining as a specific roadmap for technology enablement in transfer pricing at your company.

For example, you may discover that you need to improve processes with a view to safeguarding compliance. A closer look at your systems shows that you lag behind peers not only with regard to automation potential in compliance exercises, but also in terms of risk exposure due to insufficient data management. Deciding to tackle these issues at the root enables you to weed out inconsistency and protect your organization against possible challenges by tax authorities. Once you know where you are heading, it is time to take the appropriate actions – but do not forget the most important element.

The human factor

Companies tend to struggle most at the implementation phase. Introducing new technology typically comes with change management issues. And while your transfer pricing specialists are experts in their field, they have not necessarily strong technology skills. So it’s critical that you can identify enablers of technology, i.e. people within your organization with IT skills that partner with the users of tax technology. Key to the success of a technology-enabled tax and transfer pricing function is that tax people develop their IT skillset and make IT people understand tax topics better. Having focused sessions and joint workshops with tax and IT on selected topics can be the ideal way to build trust, understanding and develop the necessary skillset on both sides.

Embrace technology

Due to the characteristics of transfer pricing it is well-positioned to integrate technology in its tasks and processes. This will allow users to focus on higher value adding activities and gain greater satisfaction at work. The organization gets higher quality results. Embrace technology in transfer pricing and set a positive example to other functions within your organization.

Read also: Transforming the tax function through technology

 


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