Operational transfer pricing - case studies

Snapshots providing a spotlight onto the variety of ways our services have helped to improve the integrity of clients' intercompany accounting, increased operational efficiency, and reduced risk.

 

Pravin Ugalat

Pravin Ugalat

Principal, Economic & Valuation Services, KPMG US

+1 949-874-3549

Christopher Schulman

Christopher Schulman

Managing Director, Tax Ignition - Data & Analytics, KPMG LLP

+1 602-402-6190

At KPMG, our approach to operational transfer pricing enables you to select the best methodology to address your company's unique policy implementation needs.

  • Requirements Gathering
  • Modeling
  • Software Implementation
  • Managed Services

Requirements Gathering

Coordinating with Tax, IT, and Finance organizations to identify and document transfer pricing related requirements in support of implementations of Enterprise Resource Planning (“ERP”) or Enterprise Performance Management (“EPM”) systems.

 

Operational Transfer Pricing ERP Requirements Gathering (multinational FinTech client)

Project summary

Support of SAP S/4HANA implementation by gathering operational transfer pricing ERP requirements.

Client need

The Company was in process of implementing SAP S/4HANA with a third-party system integrator, however gathering requirements related to transfer pricing were not part of the program scope.  These requirements needed to be gathered and incorporated into the overall implementation program. The Company then needed to understand what options were available to meet any requirements gathered that were deemed as not feasible or out of scope of the SAP S/4HANA implementation. This was especially important since the company had also recently undergone a modification of its transfer pricing policies that necessitated more detailed source data to support downstream transfer pricing reporting.

How KPMG helped

KPMG represented the Company’s transfer pricing interests in the S/4HANA implementation program by performing the following assistance:

  • Facilitated numerous in-depth knowledge sharing workshops with various company stakeholders in Tax, Transfer Pricing, Accounting, Finance, and IT to gain a detailed understanding of required data sources, granularity, segmentation and calculations, required transfer pricing reporting, and the intercompany accounting process;
  • Prepared a matrix to document transfer pricing related requirements;
  • Coordinated with the third-party SI to perform a fit/gap analysis on all requirements to identify which requirements gathered would be met by S/4HANA and which would require an alternative operational transfer pricing approach; and
  • Prepared an operational transfer pricing technology roadmap for implementing the recommended technology, including estimated development timeline, implementation fees, and required client resource support.

Modeling

Designing, building, testing, and delivery of customized OTP models utilizing low/no code technologies and data visualization applications.

 

Transfer pricing calculation modeling (multinational medical device client)

Project summary

Operational transfer pricing model to perform year-to-date transfer pricing calculations and create legal entity forecast for a multinational medical device company.

Client need

The client wanted to consolidate multiple transfer pricing models, reduce risk of errors resulting from manual calculations, and have advanced reporting and scenario-planning capabilities. KPMG was engaged to build a single transfer pricing model with the ability to calculate cost share, cost allocation, limited risk distributor, and cost plus service calculations. 

How KPMG helped

KPMG delivered a customized, user-friendly transfer pricing model in Power Excel and Power BI with the following benefits: 

  • A single model that calculated monthly transfer pricing adjustments, layered transfer pricing into management forecasts, and provided the capability to evaluate multiple scenarios;
  • Flexible and scalable model inputs to accommodate changes to company structure and transfer pricing strategy;
  • Streamlined import of company financials using Power Query;
  • Advanced reporting capabilities using PowerPivot, including the ability to toggle between year-to-date actuals and full-year forecasting and between multiple scenarios;
  • Automated journal entry templates;
  • Import of model outputs into Power BI to gain insights from data visualizations.

 

Operational transfer pricing modeling and legal entity forecasting (multinational pharmaceutical client)

Project summary

Operational transfer pricing model and legal entity forecasting approach for a multinational pharmaceutical company utilizing Excel, SQL, and Tableau.

Client need

The Company required a legal entity forecast that included transfer pricing results to enable the calculation of its quarterly tax provision. The Company struggled with large data volumes from disparate sources and numerous contributors to its transfer pricing process who were spread across the globe. 

How KPMG helped

KPMG delivered an integrated series of Excel models leveraging a shared SQL database. The models calculated the Company’s transfer pricing and layered it into its legal entity forecast with transaction types including profit split, limited risk distributor, services, and royalties. The benefits of this custom approach included: 

  • Automated sourcing and aggregation of millions of records of data from multiple ERP/forecasting systems into a SQL database; 
  • Managed secure access provided to over 200 users in more than 50 countries; 
  • A single, standardized global model template to replace several manual limited risk distributors excel workbooks; 
  • Ability for the corporate tax team to manage transfer pricing rules and automatically update local finance users; 
  • Automated entity segmentation by function with flexibility to perform manual overrides;
  • Ability to set budgeted transfer prices by SKU and continuously monitor profitability throughout the year; 
  • The calculation of transfer pricing-affected legal entity forecasting including automated conversion of management forecast logic; 
  • Audit trail workflow capabilities with time-stamped preparer, reviewer, and approval user roles; and
  • Dynamic reporting including trend analysis, budget variance analysis with Tableau data 

 

Operational transfer pricing modeling (multinational technology client)

Project summary

Operational transfer pricing approach for a Fortune 500 multinational technology company utilizing Excel, Alteryx and Power BI. 

Client need

The Company needed to replace its existing transfer pricing tool because it was slow, lacked documentation, and was difficult to reconfigure in response to business changes. The methodology needed to calculate transfer pricing adjustments to target profit at an entity and product level, which would affect its entire complex supply chain.

In anticipation of an upgrade to the Company’s ERP system, the new tool needed to be configured to source data from both the old and new ERP systems.

How KPMG helped

KPMG delivered a flexible and scalable approach to perform complex transfer pricing logic at a detailed level of granularity, with the following benefits: 

  • Significantly reduced end-to-end run time (from >10 hours to <1 hour); 
  • Assumptions and transfer pricing logic configurable through Excel to provide transparency and flexibility around previously ‘hardcoded’ logic; 
  • Ability to accommodate changes to trading structure and transfer pricing rules; 
  • Automated journal entry templates and standardized Excel reporting packages; and
  • Advanced reporting and visualizations in Power BI, including trend analysis and a detailed drilldown. 

Software Implementation

Providing OTP subject matter experience and project management for the implementation of OTP software applications, including gathering functional requirements and testing support.

 

Thomson Reuters OneSource OOXP implementation and support (multinational media client)

Project summary

Ongoing technical and developmental support for implementation of Thomson Reuters OneSource Operational Transfer Pricing (“OOXP”) for a multinational media conglomerate. 

Client need

As part of the simultaneous implementation of a new global transfer pricing structure and OOXP software, the Company requested assistance with:

  • Technical transfer pricing support to the OOXP implementation team; and 
  • Developing a methodology to validate the OOXP implementation. 

How KPMG helped

KPMG supported the Company’s OOXP implementation by providing several benefits, including: 

  • The design, development, and implementation of a database operational transfer pricing solution to validate the OOXP implementation of the new transfer pricing structure; 
  • Testing support through the development and review of new OOXP reports; 
  • Collaboration with the transfer pricing accounting team and the OOXP development team to select relevant data points from OOXP and other data sources to replicate intermediate allocation steps; and
  • Development of Alteryx workflows to produce multiple standalone Excel reports to be shared with stakeholders with filtering and drill-down capabilities to allow users to get insight into the allocation process.

 

SAP Operational Transfer Pricing Solution (multinational energy client)

Project summary

Operational transfer pricing technology implementation utilizing SAP HANA and BPC 10.0 to automate the calculation of year-to-date transfer pricing for a renewable energy multinational. 

Client need

The Company’s transfer pricing process was a significant manual effort in data collection and processing that left little time for analysis of results and was not flexible for business expansion. The Company needed to improve the quality and reliability of its process by reducing the manual manipulation of data.

How KPMG helped

KPMG delivered a solution utilizing SAP HANA and BPC 10.1 to automatically source data and perform complex transfer pricing logic with the following features: 

  • Calculation of intercompany services, cost charges and royalties, and limited risk distributors; 
  • Sequencing of multiple transfer pricing transactions in the appropriate order; 
  • Automation of journal entries; 
  • Complete audit trail to trace outputs throughout calculation back to original source data; and
  • Archiving function created for the historical data and historical configuration settings.

Managed Services

Serving as or supplementing the organization’s operational transfer pricing function, including operating transfer pricing models on a recurring basis to forecast transfer pricing, set transfer prices, monitor entity profitability, calculate transfer pricing adjustment journal entries, and communicate results to stakeholders.

 

Operational Transfer Pricing as a Managed Service (multinational technology client)

Project summary

Support of custom-built Hyperion Planning operational transfer pricing solution used to calculate year-to-date transfer pricing entries for a multinational technology company.

Client need

The Company wanted to replace its quarterly operational transfer pricing Excel model because it was difficult to scale and required significant manual effort to prepare during quarterly close. The Company wished to leverage its investment in Hyperion Planning, but required assistance liaising with the tax department to gather functional requirements and provide testing support. The solution needed to easily scale by automatically sourcing Hyperion Planning data to calculate multiple transaction types, including cost allocation, cost share, return on sales, royalty, and cost plus. 

How KPMG helped

KPMG supported the design, development, operation, and maintenance of a custom-built Hyperion Planning operational transfer pricing approach by combining Oracle and transfer pricing expertise. Specifically, KPMG efforts created the following benefits: 

  • Fact gathering and documentation of transfer pricing functional requirements; 
  • Provision of feedback on solution design and development sprints ; 
  • Preparation and execution of solution testing; 
  • Performance of multiple quarters of parallel runs; 
  • Documentation of solution logic and operational procedures; 
  • Assistance in operation of solution after go-live; and
  • Provision of recommendations for system enhancements after go-live. 

Additional resources


 

Why Operationalizing Transfer Pricing Is More Important Than Ever
In this article, KPMG authors provide perspective on how companies can better use transfer pricing processes and technology to address recent regulatory and reporting changes and prepare for additional changes to come.