After BEPS action 13 was launched most multinational enterprises (‘MNEs’) experienced an increase in their Transfer Pricing (‘TP’) compliance burden. Local tax authorities focused on collecting information more than ever.
MNEs began to prepare TP documentation inhouse or outsourced this costly exercise to consultancy firms. Because this TP compliance burden is a recurring one, this exercise has a material impact on budgets and/or available time of tax staff at MNEs year after year. As a result, other important tax opportunities may not be addressed properly. Because time is usually scarce and can only be spent once, you may wonder if it is the best choice to spend your time and/or budget on TP documentation updates and being compliant.
Staying compliant, every year
As the compliance burden is recurring and, in most countries, increasing every year, it might become necessary to (re)consider the level of compliance with local regulations. A smart way to stay compliant is to take the already available TP documentation as a starting point for the next financial year.
The yearly TP documentation update process can be as follows:
1. Perform research on local compliance regulations and changes applicable to the relevant year;
2. Update textual parts of TP documentation with respect to business changes for the relevant year;
3. Update business relevant data (e.g. FTEs, business relevant financial figures etc.);
4. Update financial figures relating to intercompany transactions; and
5. Check if appendices are still valid or need to be updated as well (e.g. intercompany contracts, benchmark studies etc.).
Although this is a common way of working, the workload strongly depends on the type of MNE. For steady (conventional) businesses that are centrally organized, the TP documentation update can be as simple as just updating the financial figures because the business does not change during the year. However, for fast-changing companies (e.g. for businesses that grow through M&A or fast growing scale-ups) this update process can be more complex and time consuming because material changes in facts and circumstances will have to be taken into account in the updated TP documentation. Managing and adjusting multiple documents addressing different entities, regions, countries and using the right data while maintaining consistency will be more challenging the bigger the MNE is and the larger the numbers of countries and entities involved. Due to the impact of COVID-19 there will likely be material changes for almost all MNEs, forcing them to re-evaluate their existing business models and TP policies.
More work, less budget: software as a solution
Currently, most budgets, including those of tax teams, are limited due to the impact of COVID-19 on the financial health of these MNEs. At the same time the TP compliance burden has increased substantially and now requires annual global efforts. Budget restrictions will force tax teams to reorganize their workflows and at the same time remain in control of their TP compliance. The right software solution can be a profitable option for MNEs. The (partial) automation of the largely routine process of annual TP documentation updates will free up precious time and will enable a tax team to address more strategic TP issues that add actual value to the MNE.
All software solutions need to be properly implemented and this often involves high costs for outside consultants. Additionally, a limited level of control over the software solution may result in (substantial) additional external costs along the way. Therefore a high level of user control should be the most important condition for any in-house corporate tax team when selecting their software solution – preferably at the lowest possible time investments and costs.
Coperitas software solution – a great option
Quantera Global believes a MNE should be able to use its transfer pricing software independently without the involvement of a specific transfer pricing advisor. Furthermore, your chosen software should allow you to include all nuances that you consider relevant in your transfer pricing documentation. That is why Quantera Global supports the use of the Coperitas software solution. Coperitas is flexible, easy to use and provides full control to the user. In addition, it is independent. If you want to learn how we use the Coperitas software in our company, please contact us via r.slimmen@quanteraglobal.com. For more information about Coperitas or to request a free of charge demo, please visit www.coperitas.com.