Transfer pricing documentation update – time well spent?
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:
- Perform research on local compliance regulations and changes applicable to the relevant year;
- Update textual parts of TP documentation with respect to business changes for the relevant year;
- Update business relevant data (e.g. FTEs, business relevant financial figures etc.);
- Update financial figures relating to intercompany transactions; and
- 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. 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. And due to the impact of COVID-19 there will likely be such 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 because of 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. At the same time they will need to remain in control of their TP compliance. The right software solution can be a profitable option for MNEs in addressing this challenge. The (partial) automation of the largely routine process of annual TP documentation updates will free up precious time that enables a tax team to address more strategic TP issues.that may actually proof to add value to the MNE.
All software solutions need to be properly implemented and this may often come with substantial incidental costs of outside consultants. Also, a limited level of control over the software solution as a user may result in (substantial) additional external costs along the way. Therefore a high level of user control that will not require substantial time investments in order to be able to actually use the controls should have a clear preference for any in house corporate tax team when selecting their software solution.
Coperitas software solution
We truly believe in the MNE’s autonomy with respect to using and implementing TP software. That is why we have made our Coperitas software solution easy to use and with full user control. If there is capacity available inhouse, the largest part of the implementation of Coperitas can be performed by the MNE’s in house tax team. We will support you with the necessary training and technical support to become comfortable with Coperitas and get started. Of course, we are also happy to take the implementation completely out of your hands and offer you full implementation support. The choice is yours! And as the software itself, we are flexible and can adapt to your needs as and when required
If you want to have a chat about Coperitas or want to see how it works during a live demo, please contact us at info@coperitas.com.