As businesses go digital, tax functions also need to keep pace with digitization and digitalization. Given the nature of transfer pricing and its many touchpoints across the business landscape, the tax function is well-positioned to be part of this megatrend.
How can the advantages of technology apply in a transfer pricing organization?
Today the performance of IT systems and the availability of tools for data collection, data cleansing, and data analytics are greater than ever. With so many available options, it is even more important to avoid a “tool” mindset and instead be clear about what goals need to be achieved with the help of technology. Focusing on the “enablement” aspect is important. The right technology is the one that allows the organization to achieve its transfer pricing goals more efficiently, accurately and cost-effectively.
This report highlights certain aspects to be considered when approaching technology in the area of transfer pricing and tax in general.
When companies think about technology in transfer pricing, their considerations typically fall into one of the following categories:
Many companies today are still working mainly with Excel, Access, or comparable applications in all three areas. But in all three areas, technology is moving away from Excel/Access to non-ERP solutions to the ultimate advanced tech status—fully integrated ERP solutions, especially for operational transfer pricing. Every development stage has its pros and cons (as noted in the following table):
Non-ERP technology can bridge the gap between simple Excel/Access solutions today and a highly automated and integrated ERP solution in the future. A broad range of tools and (software) solutions related to transfer pricing documentation support, data, and analytics—and for processing management and operational transfer pricing—is available. Such non-ERP solutions can be “off-the-shelf products” provided by various specialized vendors and software companies or custom-built solutions using common applications. There are myriad possibilities, thereby making it challenging to find the right choice.
*ERP = enterprise resource planning
Given the variety of options and available solutions in the area of transfer pricing technology it is important to be prepared appropriately for change. The starting point ideally would not be a tool or technology solution. Rather, the question is what does the company want to achieve in the area of compliance, insights, and processes. An awareness exercise at the beginning of any technology enablement initiative provides a firm starting point from which to initiate change. Consider these questions or aspects to achieve clarity:
Regardless of the organization’s size, exploring these aspects at an early stage is essential. The discussions that will then follow will take decision-makers along various avenues of exploration, ultimately combining as a specific roadmap for technology enablement in transfer pricing at the company.
For example, it may be discovered that there is a need to improve processes with a view to safeguarding compliance. A closer look at the systems may reveal that the company lags behind its peers not only with regard to automation potential in compliance exercises, but also in terms of risk exposure due to insufficient data management. Deciding to address these issues at the root enables the company to weed out inconsistency and to protect the organization against possible challenges by the tax authorities. Once the company know where it is heading, it will be time to take the appropriate actions—but do not forget a critical element.
Companies tend to struggle most at the implementation phase. Introducing new technology typically comes with change and management issues. And while the company’s transfer pricing specialists may be experts in their field, they may not necessarily have strong technology skills. So, it is critical to identify “enablers” of technology—i.e., people within the organization with IT skills that can partner with the users of tax technology.
A key to the success of a technology-enabled tax and transfer pricing function is that tax professionals need to develop their IT skillset and also need to help IT people to understand tax topics better. Conducting focus sessions and joint workshops with tax and IT on selected topics may build trust and understanding and may help develop the necessary skillset on both sides.
Due to the characteristics of transfer pricing, it is well-positioned to integrate technology in its tasks and processes. This will allow users to focus on higher value-adding activities and gain greater satisfaction at work. The organization can achieve greater quality results.
Parting words: Embrace technology in transfer pricing and set a positive example to other functions within the organization.
Read an August 2019 report prepared by the KPMG member firm in Switzerland