Leveraging Enterprise Software to Address Transfer Pricing Challenges
The reasons to invest in enterprise-wide operational transfer pricing software are many and varied, although they usually relate to a need to tackle familiar challenges, such as the need to perform cost or shared service allocations more efficiently. Some companies require significant data cleansing to prepare for change or are focused on improving reporting capabilities and controls.
In the case of Celanese, a global chemical and specialty material company headquartered in Irving, Texas, it had been managing transfer pricing maintenance and testing on Excel. As a goods-intensive manufacturing company, it has tens of thousands of stock-keeping units (SKUs) that it needs to maintain with accurate transfer prices. This meant it needed to spend significant amounts of time pulling and checking data then updating Excel models, leaving little time for analysis.
Nicole Williams is the director of Global Transfer Pricing at Celanese. She explains: “Like most companies, we ran a fairly lean tax department and used manual processes that took a lot of people many hours. As a company, we were looking to the future and planning to grow, so we wanted to get an efficient transfer pricing process in place so that any changes could be accommodated easily.”
Celanese was already highly focused on automation and digitization. As part of this overall program, the tax team was asked to highlight current pain points, as well as the problems it wanted to address with technology. “I was in a fortunate situation that I did not have to go to leadership with a business case, it was more that it was brought to me,” recalls Williams.
Kicking Off a Two-Phase Project
Having secured a budget to implement Longview Transfer Pricing from insightsoftware, Celanese embarked on two main phases within the project. They designed this approach get the software up and running as quickly as possible, bearing in mind the limited resources available within the tax team and the competing priorities for their time.
The first challenge was to work through a significant data cleansing exercise. This was made easier by the fact that the company already used Longview Tax, so there was some metadata that it could reuse to help speed up the process. It completed this in Q3 2020, and the company moved into the second phase, which it completed in Q1 2021.
One of the company’s overarching goals in operational transfer pricing was not just to automate inefficient Excel processes, but to make them better and enhance the value they delivered. The benefit of going through phase one was that the company became familiar with the capabilities of the project team at insightsoftware, who also had a chance to learn about Celanese’s processes.
These synergies and efficiencies helped the company move smoothly into phase two. Celanese uses SAP as its global enterprise resource planning (ERP) system and maintains transfer prices for tangible goods at a material level as well as at plant level. The company updated prices on a monthly or quarterly basis, and the aim was to move towards a more automated process to free up the team from having to make manual changes.
Another early benefit of implementing Longview Transfer Pricing was that a geographically dispersed team working on the process could all use the same enterprise application. Previously, different groups were using different models, and variable processes to pull data. Today everyone uses the same consistent tool and processes, which streamlines the transfer pricing process significantly.
The biggest lesson learned from the project relates to data and understanding exactly what the company was trying to achieve when implementing Longview Transfer Pricing. The objective to create better processes required the tax team to have access to more granular data. This involved them working with several teams to understand whether the level of detail was available, then validating data along the way.
Because the company was working within a tight timeline, it was managing multiple processes at the same time, including designing the solution, training users, and validating data. It used the automated data cleansing and aggregation tool Alteryx to test and validate workflows, which was key to the success of the project.
Another success factor was to have robust training and documentation in place, so that the company could roll out the new transfer pricing system effectively. This was particularly important because the output from operational transfer pricing is part of the data provided to the company’s financial statement auditors. Having the documentation that shows where data has come from in the company’s systems is essential.
The last lesson learned is that once in place, transfer pricing software provides additional capabilities such as scenario planning and forecasting. The tax team can now be confident that they can answer questions at any time about potential transfer pricing and provisioning adjustments, for example.
Outcomes and Benefits
The overall benefits delivered by the system include risk mitigation, achieved by replacing Excel. Any human errors caused by mis-entering data or including the wrong formulas are eradicated. The second benefit is that all the relevant knowledge held inside the tax teams’ heads are now included in a consistent transfer pricing process. “We wanted to take away as much subjectivity from the process as possible,” says Williams.
The third benefit is the freeing up people hours, because the tax team no longer has to spend time investigating exceptions or manually entering data.
Having established the basic transfer pricing process successfully, Celanese will add other costs into its model such as those for shared service centers. It also plans to deliver additional training on the system to new and existing employees, and to explore more of the capabilities of the software as the company grows and transforms in the future.
Being able to incorporate changes, such as acquisitions, into the operational transfer pricing tool will be hugely valuable to the company in the years ahead. It will be easy to add additional entities or set up new transfer pricing policies without having to worry about how the tax team will cope. Instead of being behind the curve, the tax team will be able to address such challenges head on, says Williams.
Finally, Williams observes that the biggest hurdle she faced when introducing enterprise software for transfer pricing was “embracing the art of the possible.” She explains, “I’m a traditional tax person and I’ve been doing transfer pricing for about 10 years. I knew there was a better way to manage it than with Excel, but not really what the end result would look like. Partnering with insightsoftware was what really got us there. And once I got past that hurdle and understood what was possible, I felt this huge burden lifted off my shoulders.”
Using Longview Transfer Pricing offered Celanese the following improvements to their transfer pricing process:
- Automated efficient Excel processes that enhance the value they deliver.
- Their geographically dispersed team can all use the same enterprise application.
- Better processes allow their tax team access to more granular data.
- Robust training and documentation in place meant they could hit the ground running.
“I felt this huge burden lifted off my shoulders when we began using Longview Transfer Pricing.”