Uniform and centrally prepared transfer pricing documentation enables automation.
In recent years, more and more sophisticated tools for automating transfer pricing documentation have appeared on the market, promising an easier and more efficient way to prepare the necessary documentation. However, the implementation of automation does not in itself guarantee efficiency and the expected benefits of the investment. Next, we will discuss the factors that we recommend that companies consider before implementing automation tools.
Clear transfer pricing model
A well-designed transfer pricing model and related guidelines are an essential prerequisite for automation. Automation tools often require clear instructions and rules for different types of transactions, such as the parties to the transaction, their roles, pricing, and its validation methods. Therefore, we recommend discussing the transfer pricing model with an expert before implementing documentation automation tools to ensure that the transfer pricing model is arm’s length. The clarity of the transfer pricing model facilitates both the implementation process and the automated preparation of documentation in the future.
Clear processes and responsibilities
Regardless of whether the documentation is prepared by our own resources or by external experts, an effective documentation process requires clear procedures and division of responsibilities within the Group. It would be important to determine, for example, who collects intra-group transactions from the reporting system and who has the best knowledge of the content of internal transactions and is able to verify the accuracy of the information described in the documentation. Learning how to use automation tools also requires in-house resources, so defining responsibilities in advance is crucial to achieving the efficiency gains they can provide.
Efficient data collection
One of the key tasks of the transfer pricing documentation process is data collection. Automation tools rely heavily on data from intra-group transactions, i.e. transactions, to determine the descriptions, pricing principles and other relevant factors to be included in the documentation. Efficient transaction data collection and identification of different transaction types from the data ensure that all relevant transactions are reported correctly in the documentation.
Automation of transfer pricing documentation requires clear background processes
The utilisation of automation in the preparation of transfer pricing documentation is significantly easier when the transfer pricing model and the processes behind the documentation are harmonised and centrally prepared. However, unifying documentation does not only mean writing documentation text – it is the result of a clear transfer pricing model, processes and data. It is also worth noting that the group may need to change the provider of the automation tool for one reason or another, or even return to more traditional manually prepared documentation. It is also good to be aware of the threats and opportunities of implementing such a change already when planning the automation of documentation.
Transfer pricing documentation automation is the future of most groups – make sure your group is ready for it!
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