Operational Transfer Pricing (OTP)
Where and how income is taxed is an increasingly complex issue for multinational companies which have to invest a great deal of time and effort in designing operational transfer pricing (OTP)-related processes and systems to ensure that all intercompany transactions and related accounting satisfy regulatory and business objectives. The implementation of the Base Erosion & Profit Shifting (BEPS) project by the Organization for Economic Cooperation and Development (OECD) also means increased scrutiny in the eyes of tax authorities.
Companies struggle to address these basic transfer pricing (TP) needs and are prone to follow an ad-hoc approach for some or all of them. This includes a patchwork of enterprise systems and manual activities to capture, calculate, monitor, and manage transfer pricing.
Ensuring Compliance while Managing Data and Reporting Aspects of Transfer Pricing
The need of the hour is to achieve transparency in OTP and monitor execution of the TP system. This will provide clarity in TP transactions and will reduce the cost of doing business, result in fewer audit findings and lower the risk of double taxation, interest charges for back-payments and penalties.
Crucial elements in an effective TP program include:
- Awareness of TP needs in the organization
- An organization capable of handling TP, including ownership
- TP policies and parameters
- Enterprise systems for capturing TP-related data and its periodic processing
- Comparing actual performance against TP parameters
- Addressing deviations
EXA Operational Transfer Pricing
The EXA OTP (Operational Transfer Pricing) solution provides extremely user-friendly GUIs based on latest web technology allowing users to work with the system without a steep learning curve. OTP can provide an overview visibility across all value chains in an organization as well as detailed root cause analysis down to single transaction level.
EXA OTP can help establish IT system elements of a Transfer Pricing System to monitor Transfer Pricing activities and allow continuously updated access to IC margin information on any level. The solution can provide a greater level of control – enabling transparency and reporting insights. This will change the way stakeholders manage end-to-end Transfer Pricing processes.
- Customizable segmentation of P&L
Segmentation by TP Aggregate, TP Function and TP Partner with the option to customize additional segmentation characteristics. Possibility to create user-defined KPIs and values through a user-friendly interface.
- Forecasting & simulation
Simulate TP results and year-end deviations/adjustments by using existing forecasts or the inbuilt predictive analytics forecasting algorithms
- TP setting
Integrated “what-if” scenario analysis capabilities in conjunction with single or mass-calculation of new TPs. Workflow capabilities support the negotiation and communication of new TPs.
- Extensive out-of-the-box dashboards and analytics
Examples include profit split and transaction matrix views, SKU-level analyses and self-service analytics
- Rule-based, automatic allocation
Flexibly allocated OPEX or SG&A costs based on pre-defined rules to all or multiple TP Aggregates, TP Functions and TP Partners
- Flexible configuration options
Use Launchpad services to personalize and configure anything from TP Aggregates to Segmented P&L look and feel
- Full flexibility
through hosting options and user role defined functionality
- Seamless integration
in the IT architecture as OTP uses standard SAP HANA & NetWeaver technology
Benefits of Operational Transfer Pricing
- Eliminate the manual creation of segmented reporting in the controlling/tax department to provide company-wide analysis for TP aggregates, TP functions and further customizable segments
- Manage transfer prices continuously through periodic analysis, to avoid late or end-of-year adjustments
- Provide visibility of TP risks to all stakeholders
- Run root cause analyses for any internal and external audit issues at any time
- Act as the single source of truth for TP-related data, information, and reporting
EXA OTP is certified by SAP to interoperate with SAP S/4HANA®.
EXA has designed OTP as a standard SAP® Add-On that runs on In-memory database SAP HANA® with a SAP NetWeaver® stack. It takes full advantage of the in-memory processing power of SAP HANA. It provides:
- a modern, fully user customizable Fiori interface for browser-based access from any device
- typical SAP-based security access controls which allow the implementation of virtually any kind of security concept
- pre-configured SAP extractors and data interfaces for non-SAP systems
- the choice to run on an existing (on-premise) SAP system to leverage infrastructure costs or a cloud-based installation