The modern business environment consists of ever-increasing market volatility, regulatory oversight, and public scrutiny. This climate makes optimizing your organization’s operational transfer pricing practices more critical than ever.
However, companies are challenged by a lack of standardization, suboptimal data availability, and highly manual, outdated processes. This can lead to gaps in targeted profitability and insufficient traceability and audit trails. But there’s a better way. Here’s how operational transfer pricing software can create new value for your organization.
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What Is Operational Transfer Pricing?
Transfer pricing is an accounting method used when divisions within the same company need to charge one another for goods or services rendered. This practice helps establish the price to charge between divisions, subsidiaries, holding companies, or similar entities within the same larger enterprise. Intellectual property such as patents, research, and royalties can also fall under the purview of transfer pricing.
Transfer prices are typically based on the standard market value for the good or service. But when planned strategically, operational transfer pricing can lead to meaningful tax savings.
For example, large multinational companies use this method to reallocate earnings among affiliates within the parent company. The parent company can choose to charge a higher price to divisions in high-tax countries and a lower price to divisions in low-tax countries. This practice shifts the company’s profits to low-cost tax jurisdictions and, as a result, lowers the company’s overall tax burden.
Add Value with Transfer Pricing Software
Operational transfer pricing represents a strategic approach to tax planning that helps businesses achieve their goals. However, the process can be exceedingly complex and fraught with challenges and risks.
Transfer pricing places a significant demand on your current tax planning workflow. It also opens up your organization to increased scrutiny from regulatory agencies and tax authorities.
To face these challenges, you’ll need a well-managed and strategic transfer pricing process. This task is made easier by modern software. New tax-focused software offers powerful, automated, cloud-based solutions to help streamline your transfer pricing process. Here are a few key ways that operational transfer pricing software can benefit your business.
Cloud-based operational transfer pricing software allows your tax team to easily gather your company’s worldwide data. Even if you’re still using older enterprise systems or Excel spreadsheets, new software solutions let you compile your company’s tax data on a single platform. With all of your company’s data collected within a single source, you can streamline your tax activities, have confidence in your data, increase intercompany transparency, and reduce operational costs and risk.
Transfer pricing software provides a robust platform that brings you a complete picture of your company’s tax data. This allows you and your tax team to improve compliance by helping you better understand the story your data is telling tax authorities. Benefits include:
- Standardized protocols and stronger controls
- Improved traceability and audit trails
- Lowered risk of transfer pricing audits by tax authorities
Unfortunately, some companies still perform many tasks such as data entry and calculations manually. But relying on error-prone manual processes for complex and data-intensive tasks opens your business up to additional risk. Persistent data errors can lead to inaccuracies and variances in your transfer pricing process.
Automating key steps in the transfer pricing process may be the single most important way to increase your efficiency. Advanced operational transfer pricing software that employs automation will:
- Improve your data integrity
- Increase your turnaround speed
- Provide fast yet precise processing, even with large volumes of data
- Allow you to collect and analyze records to create operational transfer pricing reports
Having all your tax data in one place represents a powerful tool. And with cloud-based software, you can stay up to date with real-time adjustments. With the ability to view and manipulate real-time data quickly, you’ll ensure that your operational transfer pricing processes are relevant and accurate without having to wait until the end of the close cycle.
Advanced software solutions allow you to explicitly define profitability ranges and include profit goals. And with increased data visibility, you can adjust your transfer pricing strategy as the market environment and tax regulations change.
Make the Change in Your Transfer Pricing with Longview
Transfer pricing is an integral piece of the tax puzzle that can significantly reduce the annual tax burden for multinational corporations. Although transfer pricing represents a complex and sometimes risky endeavor, advanced software solutions provide an easy, cost-effective tool that can help you optimize your transfer pricing process.
Longview Transfer Pricing reduces your audit risk and empowers your team to make adjustments faster, more accurately, and with greater visibility.