Transfer pricing is a complex matter that can be difficult for companies to navigate without guidance. Whether you’re a seasoned professional or just getting started in the field, there’s a good chance you need help managing your company’s transfer pricing activities—particularly when it comes to meeting your compliance requirements.
Some companies are asking whether a software solution is a viable approach for managing global transfer pricing compliance demands; either as a replacement for external consultants or as a tool to be used in combination with external consultants. How do you know which option is right for you? Keep reading to find out.
Transfer Pricing Software Vs. Consultants: Understanding Your Options
Transfer Pricing Software
There are a growing number of vendors marketing transfer pricing software as a tool to help reduce compliance costs. The software solutions generally focus on the drafting of transfer pricing reports, with some tools including data collection and analysis capabilities (e.g., data collection and storage, financial research, and data visualization). Automating business processes and functions is widely acknowledged as an effective way to improve efficiencies and reduce costs, especially within the accounting and finance departments.
Digital tools can be an especially useful resource for companies with relatively routine transfer pricing positions where transactions remain unchanged year over year. If your transfer pricing activities are routine and straight-forward, then a software solution could help to reduce your compliance costs. For instance, if your structure includes the same types of related-party distributors across multiple taxing jurisdictions, then software could help to automate the preparation of that documentation and drive efficiencies for your team.
However, if your organization’s transfer pricing operations are considered risky or complex, reporting has to be handled with such care that software may not add value to your process. (Tweet this!) For example, companies with significant intangible assets or complex business models may be too advanced to get much leverage from from software solutions, and likely require the strategic expertise offered by transfer pricing consultants.
There are other important factors to consider as well. How many reports are prepared annually? Can savings be redirected to hiring new staff or engaging with consultants to work on transfer pricing planning projects that don’t lend themselves to software? Does your organization have the internal resources to dedicate to learning and running the software properly? Have tax authorities audited your transfer pricing activities and if so, what have the outcomes been? Does your company have Advance Pricing Agreements (APAs) or other tax authority rulings governing your transfer pricing policies? These questions can make all the difference when choosing the best approach for your business.
Let’s talk about the transfer pricing challenges you’re facing and the different ways Valentiam can help you address them.
Transfer Pricing Consultants
If your company needs guidance on your transfer pricing strategy and how to stay compliant, an independent consulting firm is a better choice over software. Organizations hire transfer pricing consultants to help with everything from designing intercompany pricing models and preparing compliance reports to resolving disputes with tax authorities.
Consultants offer deep expertise that software lacks; they are also able to offer nuanced advice tailored to a taxpayer’s needs—something software is not designed to do. They understand the risks and requirements associated with various industries, which means they can offer a certain level of security for taxpayers with regard to potential audits, disputes, or double taxation—not to mention the peace of mind that comes with knowing your transfer pricing reports are compliant with industry regulations.
While some other tax processes are easily automated (e.g., preparation of country-by-country reports and similar tax return forms), the drafting of transfer pricing documentation is not. Reports typically require a substantial amount of input from management, consultants, accountants, and legal advisors. We believe that transfer pricing documentation is about telling a story: What’s the company narrative, and how does the data support it? Because transfer pricing documents are the primary means of defending a position to a skeptical tax examiner, getting the details right is more important than process efficiency.
A Combined Approach
For many companies, a combination of transfer pricing software and a consultant is the most effective approach. You can utilize software to streamline data collection and storage and to locate external benchmarks, then share the information with a consultant to craft reports. Software can make certain aspects of reporting easier and more efficient, while a consultant’s expert review will ensure reporting documents are accurate and in compliance with international guidelines. It’s a win-win.
Looking for a knowledgeable transfer pricing consultant for your business?
Valentiam consultants specialize in developing innovative, client-specific solutions to address transfer pricing challenges. We assist taxpayers to improve internal processes and data collection, streamline the preparation of documentation, and identify and implement software tools to help with this process. Our team comprises industry thought leaders with the know-how and expertise to ensure compliance and mitigate your organization’s tax risk. If you’re tasked with managing transfer pricing at your organization and feeling overwhelmed by the complex processes and regulations, let’s talk.
Schedule a discovery call with one of our seasoned advisors to learn more about our unique approach to transfer pricing planning and compliance.
Topics: Transfer pricing