Deloitte Shared Services, GBS & BPO Conference Focus 9: Delivering operational transfer pricing within a GBS environment Rachel Taylor, Rajeev Samaranayake and James Tooley, Deloitte 21-22 November 2017 Vienna, Austria
Contents Operational Transfer Pricing introduction Why look at it now? What are the challenges to overcome? The opportunities in a SSC context
Operational transfer pricing Introduction 80% of global trade is now conducted between affiliated companies [OECD] Transfer Pricing is the process of establishing the price on goods or services that are traded or transferred between affiliated legal entities Operational Transfer Pricing is the process of reflecting the those pricing policies in your financial records
Operational transfer pricing Getting it right in the books why now? New regulations (BEPS) resulting in increased visibility and risk Deal with tax authorities Set transfer pricing strategy & model Increased scrutiny from tax authorities Direct interrogation of data Transfer pricing High operational transfer pricing process running costs Document your approach Record the outcomes in your books Lack of accuracy in calculating transfer pricing outcomes Technology is not being optimised
Operational transfer pricing BEPS facts and figures G20/OECD issued a 15 point action plan on Base Erosion and Profit Shifting' (BEPS) in response to global concern about how businesses are paying taxes to the countries they operate in Gaps & mismatches in the current international tax rules allow the shifting of profits to no- or low-tax jurisdictions Aim of BEPS is to ensure that profits are taxed where economic activities are carried out and value is created $100-240bn a year in corporate tax revenues lost via BEPS [OECD] Effective tax rates of large businesses likely to increase by 4 8.5% [OECD] BEPS project is the most significant rewrite of the international tax rules in a century
Operational transfer pricing The benefits of getting it right New regulations (BEPS) resulting in increased visibility and risk Deal with tax authorities Set transfer pricing strategy & model Better tax authority audit defence Data is optimised Transfer pricing Running costs are reduced Document your approach Record the outcomes in your books Greater accuracy in TP outcomes ETR and EPS can be improved Technology support of end to end process: speed, accuracy, visibility
Operational transfer pricing Case study illustration Client moving operations from local finance teams to a single finance shared services function Operating in c.70 jurisdictions globally currently heavily reliant on local resources Manual processes for transfer pricing being run with minimal technology support Current Challenges Proposed Solution Transfer pricing policies evolved over time Non-standardised processes split by tax team structure and organically developed across regions Impact: limited ability to centralise Data gathered from multiple systems using offline manual processes Manual data manipulation e.g. mapping of data to identify different product types Calculations performed in large complex excel files with low transparency Reliance on reactive one off adjustments Reviewed and optimised transfer pricing policies Standardised processes with a holistic view of combined Operational Transfer Pricing process Data gathered from a central source actuals from single data lake; forecasts from a planning system Automate calculations and minimise manual effort based on rules/logic Increased transparency from calculation results through to source in the OTP application Proactive management of Transfer Prices
Operational transfer pricing Case study illustration process flows Before Local Finance Group Tax Local Finance Group Tax Local Finance Manual Higher Cost Lower Value Higher Risk Book costs in ERP Request data Extract data, enter into Excel, adjust, email Excel Transform, consolidate, analyse, calculate, email Excel Review, approve and post Slow to execute After SCC - Finance SCC - Tax Group Tax SSC - Finance Automated Lower Cost Book costs in ERP Review and validate Analyse and adjust Review, approve and post journals Higher Value Lower Risk OPERATIONAL TRANSFER PRICING SOLUTION Rapid execution
Data integration Data integration Data integration Operational Transfer Pricing Case study illustration technology positioning Enterprise Applications Data Lake Analytics Applications Information Delivery SAP ECC Financial Planning Entry portal Reporting Strategic Planning Data Collection BI HR solution Other legacy systems Operational Transfer Pricing Solution [Calculation Engine] Operational Transfer Pricing Solution [Reporting] Metadata Management (DRM)
OTP technology solutions Larger businesses Medium / small groups Solution considerations ERP Vendors OTP Software Finance Software Custom BI Fit to requirements Fit to architecture Fit to strategy Template Manager Change effort TradeChain Benefits case Cost of ownership Supporting Technologies
Operational Transfer Pricing Case study illustration timeline and methodology Core Extended Year 1 Year 2 May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Setup and design Design OTP process, resourcing and technology Discovery Validate and agree Delivery Phase 1 Current process streamlined and enabled by technology Monitoring Cost allocations Sprint 1 Sprint 2 Sprint 3 Sprint 4 UAT Sprint 1 Sprint 2 Sprint 3 Sprint 4 UAT Delivery Phase 2 Extended functionality Adjustments Sprint 4 Sprint 1 Sprint 2 Sprint 3 UAT
Operational Transfer Pricing The case for change Automated Processes Standardised processes and workflow Reduces end-to-end process cycle time Ability to manage proactively in-year Leverage SSC resources Lower Cost Reduced manual effort within process Greater ability to match within desired TP ranges Better management of other taxes Reduced query / rejection of TP adjustments Higher Value Better decision making Improved visibility Advanced understanding of business change impacts Better stakeholder communications Lower Risk Reduce penalty exposure Traceability and audit trail of transactions Better reputational position Reduced post-year end adjustments Adaptability
Operational transfer pricing Summary of success factors 01 Understand the prize combination of process and technology wins 04 the Sow value all along path 02 Understand and articulate what s needed to achieve that prize 05 Enthuse your stakeholders 03 Break down the journey into manageable components 06 Prove and showcase success to help complete the roadmap
Questions?
Deloitte Shared Services, GBS & BPO Conference 21-22 November 2017 Vienna, Austria 21-22 November 2017 Vienna, Austria