End-to-End Transfer Pricing - Digital Process

The role of data in the transfer pricing life cycle

The transfer pricing life cycle as an ideal process looks straightforward and when it comes to implementation should - at least in theory - be a simple task: After planning the global transfer pricing system based on appropriate transfer pricing methods, the prices are set, monitored and adjusted if necessary. In accordance with that, the transfer pricing system is then documented. Finally, the tax auditor is provided with a deeper understanding regarding specific questions in the course of tax audits and, if necessary, the selected transfer pricing model must be defended.

Everybody working in the field of transfer pricing - either in the tax department, in controlling or dedicated transfer pricing experts – knows that managing transfer prices is often times much more complex and tedious in practice than it might appear at first glance. This is especially true when it comes to the data-related part of the process.

To just give a few examples of the importance of data in transfer pricing

Take, for example, the operational transfer pricing (OTP) process: Setting, monitoring and adjusting transfer prices requires a lot of data that is not native in the tax department. Gathering the data requires working closely together with colleagues from other departments in the company, for whom the transfer pricing jargon often resembles a foreign language, and who seem to speak a completely different language themselves.

Planned and actual data usually follow controlling and reporting needs and are structured according to criteria such as business units, markets, segments or management KPIs, while transfer pricing may require very different criteria depending on the transfer pricing system and area of application. Data may be unstructured or originate from heterogeneous data sources, as different systems are used by different companies. As a result, OTP models are often based on many different data sources, use large amounts of data, and require complex cleansing and calculation steps which - in a lot of cases - are done in enormous excel files. Thus, the OTP process can easily become overwhelming and hardly comprehendible for any third person.

Documentation is another example of a transfer pricing process requiring a lot of data and tedious work: Classifying accounting transactions into transaction groups to prepare the transaction matrix for local files can be strenuous work on its own, and yet it is only one element of many that needs to be updated every year. In addition, depending on the particular transfer pricing system, information such as segmented margins, sales per business unit, the amount of the specific transfer prices applied, and other financial data is often required. Add to that the amount of communication and coordination necessary between the corporate tax department, other central functions in the company and colleagues in the local tax department, while at the same time limiting the available time for preparation due to legal requirements and many different tasks competing simultaneously for the attention of the parties involved in the process.

The list goes on - from collecting evidence about the actual provision of and benefits from intra-group services and their settlement up to retrieving and analyzing the necessary data when a tax auditor requests detailed insights into numbers and processes that took place years ago.

Transfer pricing experts are not only faced with a variety of tasks, but also with a large number of different stakeholders, both internal and external, such as the CFO, Controlling, Accounting, FP&A, Treasury, Internal Audit, Legal, IT, as well as local and international tax authorities, customs authorities and financial auditors. Tailoring information and documentation to the specific requirements of these different groups of stakeholders quickly becomes a real challenge where tasks still have to be tackled with historically grown and often times manual processes as well as limited internal resources.

How we help you to empower your transfer pricing life cycle through data

Tax departments drawing the full potential from their data are in a position to standardize and largely automate manual, time-consuming routine processes within their operational tasks. They are able to implement efficient, error-free and traceable processes across all phases of the transfer pricing management, gain control over critical tasks and processes, and document them in an audit-proof form. Thanks to the time saved they can increase their focus on strategic tasks, complex issues and value-adding internal business partnering.

A data driven approach enables the tax department to access insights from analyses and planning scenarios to make substantiated and well-informed decisions at the right time. Not least, they enable the tax department to anticipate risks at an early stage, avoid unpleasant surprises, e.g. in the course of tax audits, and effectively exploit opportunities as they arise.

Combining transfer pricing domain knowledge with a deep understanding of the possibilities of the technology landscape, our focus is on helping our clients to streamline their processes, automate suitable parts of the process and provide them with a better understanding of and more control over their data. We are tool agnostic and pursue a customer-centric approach prioritizing the optimal use of the clients' available technology stack before proposing additional solutions.

Our service portfolio covers process optimization, automation, compliance, and data analytics & AI.

Process optimization

Process analysis

In initial workshops, we start by getting to know the client's key employees, processes and stakeholders for operational transfer pricing topics. We develop a joint understanding of the most important pain points and derive the specific transformation goals and requirements of our clients. For this purpose, we identify the relevant as-is processes, as-is data and as-is IT infrastructure used and analyze their fit in the context of the actual requirements of the client’s transfer pricing system. In the next step, we jointly develop the first vision for the future "Transfer Pricing Target Operating Model" and recommend initial steps to optimize existing processes. The objectives of this phase are a solid pre-assessment based on the initial analyses and preparation of the transfer pricing target operating model, including tangible suggestions for improvements to the tax department.

To sum up the key results of the process analysis phase:

Workshop results and cross-functional alignment with process-relevant key stakeholders
Detailed analysis and documentation of as-is processes including as-is data and data sources
Presentation of the pre-assessment results, initial improvement potential and first vision for the future transfer pricing target operating model

Process optimization

Once optimization potential, key resources and transformation goals have been identified, we design people-centric to-be processes that are practical for implementation in the client’s environment. Key steps of the process optimization phase include the clear definition of to-be processes, interfaces and responsibilities between the tax department and all process-relevant stakeholders. These stakeholders are involved in the data collection, planning and execution of transfer pricing related processes and are informed about outcomes from various operational transfer pricing tasks. In addition, we jointly validate the transfer pricing data model and offer practical approaches to avoid potential target conflicts between a controlling perspective and tax perspective on transfer prices. As part of the process optimization phase, we work out the details of the future transfer pricing target operating model and actively support the development of a business case for subsequent automation projects as needed for the client’s internal project approval processes.

To sum up the key results of the process optimization phase:

Joint development of aligned to-be processes
Detailed process definition for each step of the to-be process including relevant data points and data sources
Gap analysis between current as-is and planned to-be processes
Summary of the results listing all specific requirements needed for subsequent implementation and automation steps
Communication templates and elaborated business case for the following automation plans

Automation

Process automation

Based on our knowledge of our clients' transfer pricing processes, we identify the relevant parts of the process that are suitable for automation. In the automation phase, we focus on systematically establishing the identified optimization potential and defined to-be processes. In doing so, we use a wide range of technologies to (partially) automate processes. This means that we seek close alignment with our clients to select and implement those solutions that are most suitable for them and are impartial regarding the respective software publisher.

For automating, we apply a customized approach that leverages the client's current or potential IT landscape where possible and aligning our tool suggestions, for example, with the client's degree of technology affinity, preference for self-service vs. managed service, and the company's IT policies. For this purpose, we use completely flexible low-code solutions, standard and specialized software as well as integrated solutions within the client's existing ERP system landscape.

Maintenance

Our maintenance strategies ensure the long-term success of the transformation projects of our clients. Based on their respective transformation goals and the long-term organizational planning of their tax department, we support the adoption of the newly introduced technologies and processes into their daily business. The profound experience in change management is also reflected in our user-focused and agile project management and implementation strategies. For extensive transformation projects, we call upon our experts from the lean and change management team at WTS Digital.

For a successful go-live of the transfer pricing target operating model, we offer different collaboration models such as build-and-transfer, build-and-operate and build-operate-transfer. In the build-and-transfer model, we implement the new technologies and processes directly on-site for our clients. In the build-and-operate model, our WTS Digital infrastructure and human resources can also be brought in for the desired processes. Alternatively, we accompany the operational transfer pricing processes after implementation within a desired time frame (usually 1 to 2 years) until we hand them over completely to our clients (build-operate-transfer).

Compliance

We advise and support our clients in optimizing and automating their transfer pricing related compliance tasks. This includes, in particular, the efficient use of technologies for the creation, preparation, review, coordination and storage of (largely) standardized transfer pricing documentation (e.g. local file, master file) and tax audit management.

With regard to service documentation, we assist our clients in setting up technology-supported processes and concepts, including the cross-departmental creation, updating, and tracking of meaningful service descriptions, intercompany service agreements, as well as collecting evidence to document the actual provision of and benefits from intra-group services.

Our clients' requirements for a system-supported global documentation solution vary widely depending on their organizational structure (centralized, decentralized or hybrid) and many other factors. Based on our knowledge of the documentation solutions available on the market and their respective functionalities, strengths and weaknesses, we help our clients to select and implement those solutions that best meet their specific needs - from specific documentation tools to flexible automated report creation based on low-code solutions.

Our compliance-oriented solutions are closely linked to the professional expertise of our WTS Transfer Pricing colleagues.

Three-tiered approach to transfer pricing documentation

OECD requirements
Master File	Local File	CbC Report
Comprehensive overview of business operations of MNE Description of the organizational structure and the value chain	Detailed information about intercompany transactions of the local entity Function and risk analysis and economic analysis of the local entity	Overview and breakdown of revenues, profits, taxes and business activities Reporting at the level of the tax jurisdictions and at the level of the local entities
wts TPmanager		wts CbCRmanager
wts TPmanager		wts CbCR-2-XML

Data analytics & AI

A targeted analysis of tax data provides valuable insights, avoids unnecessary risks, and opens up potential for optimization. We help our clients make the best use of their data and gain deep insights through customized analyses, visualizations and advanced approaches such as AI models applying industry best practices and global data analysis standards. This enables our clients to sustainably improve their transfer pricing processes and face the next tax audit with confidence. We support our clients from data collection and cleansing, through data transformation, to analysis and professional interpretation. We use data analytics and advanced analytics methods of varying degrees of complexity as required.

In combination with our professional expertise, we open the door to a truly data-driven tax function.

Digital operationalization of transfer prices