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
- Comparison of actual performance against TP parameters
- Process to address deviations
EXA’s Operational Transfer Pricing (OTP) is the comprehensive solution for capturing, calculating, monitoring, and managing transfer pricing while complying fully with regulatory requirements.
The extremely user-friendly and cutting-edge EXA OTP solution benefits from our mature Global Value Chain (GVC) solution by providing visibility and transparency across all value chains in an organization.
EXA OTP helps to establish IT system elements in a transfer pricing system to monitor transfer pricing activities. The solution provides companies with greater control, – transparency and reporting insights – and changes the way in which stakeholders manage end-to-end transfer pricing processes.
- Flexible setup of TP aggregates (business segments or value chains) based on any level of the product hierarchy or other identifiable characteristics
- Complete flexibility to customize TP methods, account settings, cost allocations, and much more
- Creation of segmented P&L for all TP aggregates
- Rule-based allocation of indirect costs to TP aggregates, from where they are distributed automatically during runtime
- Clear overview of disparities to enable the comparison of actual transfer prices with guidelines and targets
- Enhanced self-service analytics capabilities, enabling the user to analyze key metrics such as profits and TP deviations across multiple dimensions in customizable drill-down reports
- Simulation capabilities for forecasting TP results, thereby providing timely opportunity for potential corrections and price updates
- Dashboards providing excellent visual representations of value chains and an overview of group-wide profit and revenue splits
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
The EXA Operational Transfer Pricing Solution
- is a standard SAP® add-on that runs on the in-memory database SAP HANA® with a SAP NetWeaver® stack
- has a modern SAP® UI5/Fiori interface for browser-based access
- uses the SAP® authorization concept; can be easily embedded in the existing authorization strategy
- is developed in EXA’s own namespace