Digitization of Transfer Pricing

In today's News Analysis on Tax Notes, Lee A. Shepard writes about the disruption in Transfer Pricing Compliance caused by transaction digitization. Shepard predicts the demise of large big four accounting departments dedicated to economic analyses and developing country-by-country reports as part of their transfer pricing advisory.

Shepard is on the mark that the routine functions of accounting firms will face reductions in size caused by the increased automation of transfer pricing calculations. As global operations become more and more digitized, enterprise resource planning software will incorporate software classes dedicated to gathering the information required to establish pricing calculations. At the same time, software is being developed to gather public information to make ad hoc comparables calculations sufficient to satisfy transfer pricing audits. If planned and designed well, the systems could incorporate customs classification and valuation classes together with supply chain management software that (combined) would return a precise pre-sale or delivery price for the good or service. Well-developed software could also simplify mergers and acquisitions, large-scale deals, antitrust inquiries, and similar economic model heavy cost and price analyses.

Nevertheless, rumors of the demise of the Big Four transfer pricing department may be greatly exaggerated. Roles will remain for lawyers and economists in particular. Not only will tax authorities continue to raise controversies over the price and comparables selected by the firms represented by the Big Four — and whether the taxpayer was providing data supporting a (likely disputed) arms length transaction — but there will remain also planning and advisory opportunities, particularly at the intersection of indirect taxation, transfer pricing, and customs valuation.

How to optimize your cross-border arms-length pricing, your customs duties, your value added taxes — and integrating the analyses into a singular framework that allows the globally operating manufacturer and supplier of services to properly forecast short-term costs and long-term profits — will remain bread-and-butter activities. The only difference going forward is that better software will allow for more complex models to more accurately reflect cost, price, risk, value, duty, and tax.

A link to the well-written article is here: https://www.taxnotes.com/tax-notes-today/compliance/news-analysis-transfer-pricing-compliance-disrupted/2018/04/09/27y64.