Transfer pricing perspectives: Winds of Change - PwC

Current situation in transferpricing managementHistorically, tax and transfer pricingmonitoring and adjustments have involvedmany ad hoc processes and technologysolutions, involving data manipulation,complex spreadsheet models, manualreconciliations and redundant effort toreport and analyse. Additionally, thesetools have typically developed as taxdepartment-only solutions, not properlyaligned with the rest of the company –whether across functions, such as businessoperations, accounting, treasury and IT, oracross jurisdictions.Some common symptoms of transferpricing management challenges are:• Large transfer pricing true-ups at yearor quarter-end• Time-consuming effort to documenttransfer pricing compliance• Poorly controlled and overly complexspreadsheet models disconnected fromfinancial systems to calculate andreconcile legal entity financials• Difficulty obtaining accurate prices(standard cost versus true cost) andidentifiers (location, ship from/ship to)at transactional level• Lack of clear transfer pricing guidanceand procedures at business levelPost SOX 404 and similar governmentallyinstituted developments require taxfunctions to operate with the same levelof transparency and rigour as the rest ofthe finance organisation. While many taxdepartments have made great headwayto improving direct tax reporting andcompliance, integrating transfer pricinginto the finance function and the broaderenterprise is still a work in progress.Transfer pricing integration –best practices to considerTransfer pricing integration (TPi) canbe summarised as aligning a company'sbusiness, accounting, IT, legal and taxfunctions to implement and monitortransfer pricing policies and proceduresmore effectively.While there is no single answer that fitsthe needs of every company, there arecertain best practices common to successfultransfer pricing integration.Organisation/Strategy:Transfer pricing integration starts withorganisational strategy. All companyshould have a comprehensive and proactivestrategy to set and monitor its transferpri.e. and to prevent and manage disputes.Companies' strategy should be reviewedregular basis to reflect any changesin business flows and organisationalstructure. The strategy also needs to bereviewed against regulatory changes sincemore countries adopt formal transferpricing requirements each year.Just one weak link in the chain may resultin a wide range of impacts includingfinancial exposure for unexpected taxassessments, interest, fi.e. penalties, andeven double taxation. Other consequencesmay include management disruptioncaused by a complex and prolonged taxdispute or negative impact to the company'scorporate brand and reputation.People:Successful implementation of a globaltransfer pricing strategy requireseffective management of company staffand resources. Multinational companiesshould take proactive steps to identify,train and maintain adequate resources inaccounting, tax and IT to address transferpricing requirements.Effective communication to all stakeholdersis critical. Transfer pricing requirementscan be quite complex to administer,constantly change and must be consistentlymonitored. Communication should includeregulatory rationale behind transfer pricingpolicies, detailed procedural guidance,as well as mechanisms to address newfact patterns and obtain feedbacks. Forexample, companies undergoing significantand frequent business changes should putin added emphasis on monitoring howthose changes impact the transfer pricingstrategy set in place.26 Transfer Pricing Perspectives. October 2011