Operational Transfer Pricing (OTP)

We supported our client in implementing effective processes for proactive operational transfer pricing management.

A segmented P&L view aligned with the transaction groups defined for transfer pricing purposes was not available from the controlling data. To date, our client had been unable to perform intra-year TP monitoring and adjustments, as manual supplementary calculations were considered too time-consuming and prone to error.

We analyzed the current processes together with the relevant colleagues from the tax and finance functions and developed a coordinated OTP target operating model that combines the tax requirements of the transfer pricing system with the operational needs of Controlling and Accounting. Our client’s objective was to establish an integrated, system-based OTP set-up to achieve:

• improved transparency regarding margin developments,
• early identification of potential risk areas and deviations between actual and planned transfer prices,
• proactive identification of regular adjustment needs, and
• reduction of administrative effort through automated execution.

Based on the target operating model, we defined the conceptual, organizational, and system-related requirements, including the necessary data foundations, conceptual requirements for TP segmentation and price adjustments, as well as the operational framework regarding systems, solutions, and employee resources.

For our client, the following measures were derived:

• Simplification of OTP processes and standardization of processes between transaction partners and similar transaction types
• Automated execution of calculations and implementation of additional controls
• Definition of a streamlined data basis and enrichment of the data in the ERP system through additional attributes
• Strengthening of governance structures and reduction of unsystematic exceptions
• Clear communication of target processes using operational guidelines and increased process stability through system-supported workflows

The development of implementation options started with an analysis of the capabilities within the existing ERP system and the potential benefits offered by external solutions, such as OTP-specific software or BI/low-code automation tools.

SAP S/4 HANA implementations provide a good opportunity to design the data foundations within the posting processes in line with OTP requirements and to enrich the transaction data with TP-specific attributes at the time of posting. Alternatively, attributes for TP segmentation can be modeled in solutions outside of SAP based on the TP-functional concept, with the calculation logic automated subsequently.

Our client’s decision between the available implementation alternatives was based on suitability in light of their specific requirements, the organizational framework, and insights gained from targeted proof-of-concept activities. The implementation of the solution was supported by focused project management and a well-thought-out change management concept.