Transfer pricing is one of the largest drivers of a company’s effective tax rate and is a hot topic due to the significant increase in transfer pricing reporting requirements – especially as BEPS and OECD measures are enacted across the globe. These extensive changes in international cooperation, as well as shorter deadlines, greater frequency, and closer scrutiny of transfer pricing in tax audits, have made transfer pricing the most significant tax issue for multi-national corporations.
Many organizations are still relying on customized spreadsheets and databases (and the extensive manual efforts of their tax team) to manage this increasingly complex process. It’s time to rise to the challenge and reimagine how your transfer pricing process can be improved using SAP EPM solutions and in this case study, SAP BPC [Note 1]. At Column5, we have successfully worked with a US listed International Pharmaceutical Company to deliver a transfer pricing automation solution that dramatically improves the transfer pricing “true-up” adjustment calculation process, delivers fast processing and puts the development and maintenance of the complex calculations involved in the hands of tax team users. This blog explains how we did that, the challenges faced, and the business benefits and innovation delivered.
This global pharmaceutical company has R&D and commercial operations in approximately 100 countries. Their transfer pricing true-up adjustment calculations mostly relied on very complex Excel models which were not flexible enough for the needs of the company. Expanding these models would have required significant amount of time and the functionality would have been very limited. Their reporting capability was also very limited due to the lack of an analytical tool to assist with this process. Due to the expansion of the company’s portfolio, the Excel based approach was proving to be unsuitable for the complexity of the calculations and the volume of data processed to calculate the adjustments. Additionally, the lack of integration between the Excel models and the destination transaction systems translated into a very time-consuming manual process with not much value added.
The Column5 team was brought in as EPM specialists to leverage the company’s existing investment in SAP BPC. The tax team was aiming to automate the generation of true-up adjustments for transfer pricing, add more granularity and deeper auditability to the processing and monitor the outcomes, bringing tax and financial reporting risks under control.
Integrated into the company’s technology platform, a fully automated transfer pricing solution based on SAP BPC has been built. The tool is integrated with the SAP BPC consolidation system, master data repository and SAP transactional systems and has helped them extensively during their fast-close year end process.
The calculation engine in the BPC transfer pricing model was developed using Column5’s DarCE (Darwin Calculation Engine – Part of the unique Darwin EPM solution of pre-configured SAP BPC applications – see www.darwinepm.com) which allows business users to take full ownership of their calculations by providing a simple user interface and avoiding the need for writing script logic or other code and which dramatically improves the performance of out-of-the-box BPC business rules. This solution has been key to delivering a flexible system that adapts quickly to the business’ new Transfer Pricing requirements without creating dependency on corporate IT while empowering the tax team.
Value Added for the Companies Tax team
The days of massive Excel models with complicated formulas and multiple external links are gone. Now, there is a solution in place that improves the visibility of calculations, timing and accuracy of numbers, avoiding manual intervention and tax reporting risk and which satisfies the auditors.
- The tax department’s focus is now on analysis and planning, because SAP BPC takes care of gathering the data, calculating the transfer pricing adjustments and sending the calculated transfer pricing results downstream into the SAP ERP landscape
- Centralized controls and visibility of the whole process, with the capability of producing a full audit trail of each step as required
- Flexibility to change any business requirement as new tax policies are implemented and to generate “what if?” analysis on the fly
- The tax department is now able to address any data related question with only a few clicks, because everything is centralised in the same platform
- The BPC transfer pricing model is aligned with IT strategy, and the BPC Transfer Pricing model is integrated upstream and downstream with different SAP systems.
- The tax team has full control over the calculations and they can change them without IT support, so the system can adapt to any future business changes.
- The BPC model has more product granularity than the Excel spreadsheets, so the business can analyse the data in more detail
- BPC enables a wide variety of reporting and analysis by leveraging Excel but as a reporting tool. Users now can easily develop different reports to fulfil the reporting requirements using data held in the BPC Transfer Pricing solution
The VP of International Tax at this US listed Global Pharmaceutical Company commented:
“We had to move away from our Excel models, they were cumbersome, inflexible and did not provide the control and auditability that we needed. The SAP BPC Transfer Pricing Model we have developed has given us a more robust Transfer Pricing solution that we can maintain and develop, and it has also allowed us to take our transfer pricing to a more granular level across our range of products. It has delivered significant improvements and we expect to enhance the solution further to bring significant additional benefits”
The SAP BPC Transfer Pricing model will be further enhanced to provide a platform for modelling and forecasting transfer pricing policies, so that Actuals and forecast data can be held in the same platform for enhanced analysis.
The company will also investigate the addition of SAP Analytics Cloud (SAC), which is closely integrated with SAP BPC, and which could provide a new set of reporting and analytical capabilities to monitor, report and compare different sources of data. Moreover, using the predictive analytics capabilities of SAC, the tax department would be able to anticipate and predict future transfer pricing numbers based on accurate actuals data.
By implementing the SAP BPC Transfer Pricing solution and integrating it into the company’s SAP landscape, the company has delivered significant additional value out of their transfer pricing processes, and with the potential of future enhancements the solution can keep adding value over time.
Want to know more?
If transfer pricing is an issue in your organisation we would be happy to demonstrate to you the capabilities of SAP BPC, DarCE and SAP Analytics Cloud and how they can deliver a cost effective, flexible and auditable Transfer Pricing Solution that’s administered and managed by the tax team.
[Note 1] Another SAP EPM tool, SAP Profitability and Performance Management (PaPM) which provides functionality such as profitability and cost allocations, driver-based planning, shared-services costing, cash-flow modelling, and funds-and liquidity-transfer pricing may also provide a solution in the TP area. To find out more about the PaPM solution you can visit: https://www.sap.com/uk/products/profitability-and-performance-management.html or contact firstname.lastname@example.org to discuss the best fit for you of the SAP solution options.
For more information on SAP BPC, Darwin EPM and SAC check out our website links or contacts us at: email@example.com