Yesterday’s TP world
- During design, implemention and maintenance of the company’s business model in most cases the company’s ERP system is not configured in such a way that relevant intercompany transactional data can be automatically generated or specific high risk intercompany transactions can be monitored realtime.
- Often TP work is a manual process from data gathering through analysis and beyond.
- Many multinationals still save documents on the hard drives of local computers and / or local servers without central access.
- TP process owners have to use MS Word/ Excel and possible SharePoint if there is a central data storage.
- Spreadsheets are usually found at critical points in the audit trail and are often designed by non-specialists with no system expertise. There is most likely no dedicated IT support to the tax function.
- Working with complex Excel sheets that contain (TP specific homegrown) formulas is risky as for the effectiveness of a control framework you have to rely on work performance and accuracy of your SMEs and preventive and detective controls to manage (e.g. operational) risks.
- Manual processes due to human error increases tax risk – data is manipulated outside the system and need tax controls to properly manage – but causes also workforce inefficiencies as getting access to the relevant transactional data is a cumbersome and time consuming exercise.
- TP adjustments are in the rule done at Year End as a lump sum. Only sophisticated companies have a periodical forecasting process and conduct price adjustments to avoid substantial Year End adjustments.
- TP planning, implementation and periodical assessment(s) are normally done on a profit and not on a transactional basis (consolidated versus individual).
- The inherent risk is in practice often that what has initially designed and contractually agreed is not in line (anymore) with the (current) factual reality. The financial data could disclose what is really occurring from a business model perspective.
For example, more local risks could for example exist due to (new) services, supply of goods, sales support, amount of employees and their skill set / roles.
The new tax world: anticipate what users would want
- Many countries are implementing the BEPS recommendation, i.e. master- and local file and CBC reporting due to the new regulations. These regulations will heavily increase the TP compliance work, but will also highlight bugs and errors which were not visible before.
- Twelve countries have currently implemented CbCR on the BEPS-recommended date (1/1/2016): Australia, Belgium, France, Ireland, Italy, Japan, Mexico, the Netherlands, Poland, South-Africa, Spain and the United Kingdom. [time stamp February 2, 2016]
- Canada, China, Denmark, Estonia, Finland, Germany, Greece, Luxembourg, New-Zealand, Norway, Russia, South-Korea and the United States have taken implementation steps but not yet formaly introduced. [time stamp February 2, 2016]
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