Operational Transfer Pricing (OTP)

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

A segmented income statement that provided a view of the transaction groups defined for transfer pricing was not available from the controlling data. Until now, our client had been unable to perform interim transfer pricing reviews and adjustments because manual secondary cost calculations were considered too time-consuming and prone to errors.

We reviewed the current processes together with the relevant colleagues from the tax and finance departments and developed a coordinated OTP target model that combines tax law requirements for the transfer pricing system with the operational needs of Controlling and Accounting. Our client set the goal of establishing an integrated, system-based OTP setup for a

• improved transparency regarding margin trends,
• 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 vision, we define the conceptual, organizational, and system-related requirements, including the necessary data foundations, technical requirements for TP segmentation and price adjustments, as well as the operational framework regarding systems, solutions, and human resources.

The following measures were derived from this for our client:

• Simplification of OTP processes and standardization of workflows between transaction partners / similar transaction types
• Automated execution of calculations and introduction of additional controls
• Definition of the data foundation 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 workflows using operational guidelines and increased process stability through system-supported workflows

The development of implementation options began by examining the capabilities of 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 structure the data foundations within the posting processes in accordance with OTP requirements and to enrich the posting data with TP-specific characteristics right at the time of posting. Alternatively, the TP characteristics for TP segmentation can be modeled in solutions outside of SAP based on the business concept, and calculation logic can be automated subsequently.

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