What is Operational Transfer Pricing?
Operational Transfer Pricing (“OTP”) is a strategic approach that enables multinational companies to allocate costs and revenues accurately across different entities within their organisation. It leverages internal technology platforms to align tax, finance, and information technology functions.
OTP is the proactive management of transfer pricing policies, focusing on the practical implementation and execution of these policies within an organisation. It involves streamlining data flows, increasing process efficiency, and developing automated solutions to strengthen and develop a more efficient transfer pricing lifecycle. OTP leverages an organisation's internal technology platforms, such as Enterprise Resource Planning (“ERP”) systems, to align tax, finance, and information technology functions.
Its key aspects include:
Developing a transfer pricing strategy: preparing documentation that tackles key transfer pricing issues such as target operating model description, appetite for risk in setting transfer pricing methodologies linked to operating models, etc.
Mapping intercompany transactions and processes: identifying and documenting the flow of goods, services, and financial transactions between entities.
Establishing pricing conditions and calculation rules: defining the terms & conditions under which intercompany transactions occur and the methods for calculating transfer prices.
Implementing transfer pricing calculation engines: developing software/tools to automate the calculation of transfer prices based on established rules and data.
Automating transfer pricing-related calculations and accounting entries: streamlining the process of calculating transfer prices and recording related accounting entries, including invoicing.
Documenting internal controls: establishing and documenting the procedures and controls in place to ensure compliance with transfer pricing regulations.
Reporting and transfer pricing documentation: generating reports and documentation to support the organisation's transfer pricing policies and demonstrate compliance to tax authorities.
OTP is beneficial for any multinational organisation looking to improve its internal financial management and reduce the cost of compliance. It can help organisations with fragmented ERP environments, manual data gathering and extraction processes or inconsistent transfer pricing results. By implementing OTP, organisations can achieve savings and efficiency gains, and also improve their ability to respond to regulatory changes and tax authority scrutiny.
What are the key benefits of a streamlined Operational Transfer Pricing process?
Insightful TP margin monitoring for better informed decision-making
Establishing a robust framework to adhere to transfer pricing regulations to mitigate the risk of penalties and audits
Streamlining operations by understanding intercompany transactions, reducing inefficiencies and avoiding duplicated tasks
How can PwC help?
With our expertise and innovative tailored solutions, we can help you navigate the complexities of transfer pricing. We provide a comprehensive framework to ensure compliance with international tax regulations while optimising operational efficiency. Read on to find out how our services can strengthen your business.
- A tailored approach
- Use cases
- Empower Your Global Tax Team
A tailored approach
At PwC, we take a tailored approach to Operational Transfer Pricing. Our team of experts will work closely with you to understand your unique business requirements and design a customised solution. Where possible and opportune, we leverage technology (including GenAi) and industry best practices to ensure seamless implementation and ongoing support.
Use cases
The below outlines a brief overview of how PwC supported the client in its operational transfer pricing approach as part of a broader business transformation and ERP upgrade project.
At PwC our tailored approach to operational transfer pricing enabled the client to select the best methodology addressing the company's specific transfer pricing policy implementation needs.
Please reach out to regular PwC contact or connect with Jonas van de Gucht, Joris Reijnierse or Bert Vergote.
Project summary - case study 1
PwC Belgium supported a company involved in the sales and manufacturing of infrastructure appliances with the reorganization of their supply chain, legal infrastructure and ERP platform upgrade.
Client need
To prepare for the anticipated business growth in Europe, the company evaluated its European supply chain and decided to further centralize its management team and upgrade its ERP platform with the aim to unlock operational synergies.
PwC tailored approach
A cross functional team of experts (tax, transfer pricing, VAT and ERP platform) took a people centric approach when evaluating the client’s business processes, data governance and technology platform. We supported the client to develop its European operating model underpinned with a sustainable transfer pricing policy supported with an appropriate governance set up. This transfer pricing policy could be automated in the ERP platform upgrade that was simultaneously rolled out.
With the system supported transfer pricing process calculation throughout the European value chain, managerial end-to-end insights could be improved for better business decision taking. Additionally, earlier manual interventions related to the transfer pricing monitoring process and corresponding transfer pricing adjustments were significantly reduced. This led to corresponding side effects like improved transfer pricing governance control (master data) and tax risk mitigation, also in the VAT domain.
Project summary - case study 2
PwC supported a leading consumer goods company to modernize its OTP system, aiming at better compliance, accuracy in transfer pricing calculations, and improved reporting capabilities. This project streamlined the company's global transfer pricing procedures, incorporating advanced technology to automate and integrate processes across its international operations.
Client Need
The client encountered difficulties with its existing transfer pricing framework due to reliance on a mix of systems and manual processes, which led to operational inefficiencies, potential compliance risks, and challenges in adapting to regulatory changes. The goal was to develop a more cohesive, automated transfer pricing system capable of managing the complexity of its worldwide operations and aiding in strategic decision-making.
PwC's Approach
PwC assembled a team with expertise in transfer pricing, tax technology, and data analytics. This team was dedicated to thoroughly understanding the client's business operations, existing transfer pricing practices, and the specific challenges faced. PwC's solution included:
Data Analytics and AI: Leveraged to automate data collection and analysis, ensuring accuracy in transfer pricing calculations.
ERP System Enhancement: Collaborated with the client's IT team to integrate the new transfer pricing framework seamlessly with the existing ERP system.
Real-time Reporting: Implemented a dashboard for ongoing monitoring and management of transfer pricing data.
Training and Change Management: Provided to ensure smooth implementation and adoption of the new system.
Outcomes
Improved Efficiency: Significantly reduced time spent on transfer pricing tasks.
Better Compliance: Strengthened the company's compliance with international regulations.
Informed Decision-Making: Enabled access to real-time data for strategic planning.
Scalability: Delivered a solution that can evolve with the company's growth and market changes.
Stakeholder Confidence: Enhanced trust in the company's transfer pricing practices among regulators, auditors, and internal stakeholders.
Conclusion
PwC's work with the consumer goods company substantially advanced its operational efficiency and compliance, setting a new standard for managing global transfer pricing in the digital age.
Empower Your Global Tax Team
Don’t let the complexities of transfer pricing hinder your global tax team operations. Our Operational Transfer Pricing service lets you unlock the full potential of your team, drive insights, and ensure compliance. Contact us today to learn more about how we can reshape your OTP processes and take your organisation to new heights.
Want to know more?
Please reach out to your regular PwC contact or connect with the PwC Belgium team members listed below.
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