Operational transfer pricing is the end-to-end process of ensuring that the transfer pricing policy is correctly reflected in the financial statements of legal entities.

Alternatively, OTP can be considered as being the accurate, transparent and efficient implementation of transfer pricing policies in the books and records of a company based on quality data and robust processes and controls. Achieving quality OTP outcomes helps provide confidence that agreed upon transfer pricing policies are actually happening on the ground, all around the world.

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There are a number of circumstances, in addition to companies generally wanting to improve their overall tax processes, that tend to trigger a more in-depth look at and/or desire to improve an organisation’s OTP, including:

• Tax audits flag up issues of incorrectly applied transfer pricing policies or an HMRC business risk review identifies process/governance issues that lead to higher risk rating;
• External stakeholders challenge the speed and accuracy of transfer pricing calculations and outcomes, particularly in regulated industries
• Statutory audit flags up issues with application of policies;
• Tax departments need to meet a “do more with less” challenge from Finance/CFO;
• Higher levels of assurance are required by the Board driven by new legal obligations (e.g., SAO, CCO);
• Only one individual understanding OTP calculations or spreadsheets and concern that all that knowledge might be lost (i.e., “Key person risk”).

• Current electronic reporting and filing requirements (Country by Country Reporting, DAC-06, SAF-T) have considerably broadened the range of information available to tax authorities, and the speed they receive it;
• Tax authorities have never been in a better position to perform transfer pricing audits and to process information;
• Increasing focus by Tax Authorities on how transfer prices are set, not only the outcome of the pricing;
• Companies must take control and ensure that their transfer pricing policies are accurately reflected in the financial results, within an appropriate overall control framework;
• Significant quarterly or year end adjustments on intercompany transactions may evidence weak controls and create undesired outcomes from a tax, customs, and VAT perspectives.

Improving your OTP framework has many benefits, most notably:

• It has the potential to significantly reduce operating costs, given a combination of factors, including; reduction in payroll due to lower manual effort required, lower indirect or second order tax effects, lower tax penalties due to increased accuracy, etc.
• Automation significantly reduces manual efforts and process turnaround time, reduces the risk of manual errors through process controls and increases traceability and audit trails.
• Clearly defined and established OTP processes more easily cope when transfer pricing team members change.
  More impactful analytics and reporting through data visualisation.
• Higher accuracy and reliability in external reporting.
• Significant time saving which can be spent on tax strategy and analytics.

OTP is an integrated process that not only helps with identifying and initiating the transfer pricing analysis of a potential intercompany transaction, moving through the pricing analysis onto recording and reporting it, but also ensures robust ongoing monitoring, maintenance and analysis of the overall process.

The monitoring of intercompany transactions ensures compliance with the transfer pricing policies and the company’s strategic tax goals through reconciliation and validation. This can be coordinated with the invoicing flow of the intercompany transactions which is typically carried out on a monthly or quarterly basis to ensure that there is timely consideration and action to update and analyse key inputs and outputs of the end-to-end process.

There are a broad range of technology solutions available in the market ranging from ERP solutions to OTP specific software, finance software and custom-built options. Different companies have very different needs and choosing the right technology tool and solution can be a complex process.

When assessing what OTP technology solution might be most suitable, it is important to consider a number of key criteria:

• Ability to scale and deploy quickly, regardless of geography or sector;
• Overall flexibility and ability to adjust to specific needs, even after initial pilots and template creation;
• High performance and user-friendly, able to handle large data volumes while still being responsive;
• Amount of existing local general ledger systems within the company;
• Ability to handle complex calculations and rules without creating too great technical complexity
• Cost of ownership;
• Current IT landscape; and
• Number of people involved in the OTP process globally.

Tax calculation results are highly aggregated and documented in static reports, requiring these deliverables to be manually updated each time data is refreshed and minimising end-user functionality to dynamically interact with reported data.

A good data visualisation tool draws out a story from a set of data, removing the clutter and noise whilst highlighting the most pertinent information to the user. These dashboards would drive a multitude of benefits:

• A wider scope for enhanced data insights;
• Analysing the data in a better way;
• Faster decision making;
• Making sense of complicated data; and
• Increased accessibility.
  

Visualisation solutions can be leveraged with either direct integration with data sources, or manual upload of source data, to create web and mobile-enabled dynamic dashboards and to provide enhanced data insights, enabling end users to efficiently make strategic business decisions.

Visualisation is becoming an increasingly effective tool in the ‘Age of Big Data’ to make sense of large sets of data.

Whilst there are many different options, Deloitte uses a standard framework approach when helping its clients with improving their OTP processes can help guide an organisation’s TP team to make TP automation a success, using the following steps:

• Map
  First, mapping out current processes, including identifying all key interfaces with other stakeholders and identifying people responsibilities
• Gap
  Identifying gaps or issues in the current process, then determining which parts of the process to automate and identifying any potential challenges in effecting change
• Design
  Having established this baseline, the next phase is to design the target state for the OTP model going forward. In this phase, it would be established who is best placed to perform each task, determine target timelines and assess what tasks are low value-add or repetitive which could be automated
• Transition
  Transition from current state to target state would be determined and evaluated. This involves creating a transition plan and managing change activities such as handing over existing tasks to new process owners, defining new RACI matrices and updating the target state to take into account practical aspects encountered during transition
  

We offer half day and full day workshops with you and the relevant key stakeholders within the business to walk you through the steps above and ultimately set out the roadmap in order to achieve your goals.