IT and TP

The Tax function is often the last department in the Corporation to be offered new Information Technology tools, simply because tax can be complicated for IT support to understand and IT can be too complicated for Tax to understand! Here are two IT solutions that can enormously increase productivity and reduce tax risk.

Part I: Harry Potter and the SharePoint® Platform

L. Harry Potter: Daddy, if you want your company’s Transfer Pricing information to be transparent across the organisation, would my invisibility cloak help?

When you’re reading a story to your children, sometimes you need to suspend belief. It might sound like a world of make-believe, but there is an information-sharing solution that enables me and my worldwide colleagues to collaborate effectively, work with only the documents and data that concern us and keep a check on our intercompany relationships. Anything else is invisible.

SharePoint® is a collaboration platform from Microsoft that allows this, and much more. It is ideally suited to cross-functional, cross-geography activities like Transfer Pricing (TP). TP is all about relationships – intercompany relationships e.g. service provider/service recipient, principal/commissionaire, and organisational relationships e.g. HQ Finance/Regional Finance, Legal/Tax. 

Annual TP documentation tells the story. It’s where the rubber meets the road. A year’s worth of intercompany relationships need to be matched against intercompany transactions and a report produced that proves to the tax authorities that all intercompany transactions are at arm’s length.

The first issue is: has all intercompany activity been identified? By the time of the documentation exercise, it may be too late to find out that the engineering department in Germany has been spending time last year at a factory in France. As our large corporation does not let us know when a change happens (and we don’t ask the execs to complete timesheets), we need some evidence of who’s doing what for who.

Case Study I: A recent Russian audit required us to support an historical $1M management charge from the HQ. Going back four years, we pulled anonymised flight and phone logs (by cost centre) from the travel and telecomms systems. There was our evidence. Going forward, we used quarterly logs to alert us to new intercompany relationships and recorded them in a SharePoint® list.

Case Study II: A marketing subsidiary in Russia has the job of promoting as well as selling all brands in their territory. Almost by chance we discovered indent sales, for one brand, from the Swiss principal direct to a Russian third party. Nobody knew that an intercompany commission was due to the Russian subsidiary. Going forward, we extracted and analysed all third party indent sales from the Swiss principal, to ensure that all necessary commissions were being paid. The new intercompany relationship (Russia OOO providing marketing services for Swissco SA) was added to the master SharePoint® relationship list.

SharePoint® allows the TP department to monitor and control all intercompany relationships, ensuring they are checked, agreed, documented and correctly accounted for. Intercompany relationships can be presented in a geographical vizualization.

By the end of the year, SharePoint® presents the Finance Directors (FDs) with a first draft documentation package, based on all intercompany relationships identified during the year. For his legal entity the FD can see all intercompany services and goods, whether received or provided, in the year. If nothing has changed, the first draft report is based on the prior year report, updated with the latest financials. The FD checks, edits and approves the report, of which there is only one version, in a globally accessible SharePoint® document library. The status of the documentation preparation process is visible to him/her and they can see which tasks have been completed and which have not.

In the appendix are intercompany true-up invoices and here’s where the invisibility cloak comes in: only the true-up invoices that have touched his legal entity are visible to its FD (whether they have issued the invoice or received it). All other invoices are invisible to that FD. The invoices are stored in our SharePoint® document library only once.

Another section of the appendix contains legal agreements. Our beloved Legal Department handles the intercompany legal agreements. Rather than getting involved with the Legal document storage system, I have taken the PDFs and uploaded them to our own TP document library in SharePoint®, because I am interested in different aspects of the agreements than those which Legal is. Against each agreement, I have stored the Profit Level Indicator information and linked it to the latest comparable study for that function and region. I have also stored some third party agreements (that we use to provide a CUT/CUP) and linked the respective intercompany agreement to them.

I automatically receive a notification when a legal agreement is nearing expiry, enabling me to launch a workflow to get a new one raised and signed off. And according to the document retention policy, all old documents are stored as a SharePoint® archive for at least seven years. Again, the invisibility cloak allows each FD to see only the agreements with his/her own legal entity.

Case Study III: The other day, when I was working on a royalty rate, I recalled a third party royalty rate of 2.76% but could not, for the life of me, remember where it came from. I was delighted when SharePoint® allowed me to search for ‘2.76’ in all our agreements and I found exactly the agreement I was looking for.

SharePoint® permits text searches in all your documents to find a name, number or phrase you are interested in.

Comparable studies are also stored in a SharePoint® document library and are included in the appendix of our TP documentation. Since I have entered the ‘years sampled’ against each study, I am reminded automatically when a refresh is due, according to our TP policy (every other year in our case).

The functional analysis is a blend of functions, assets and risks provided to or received from both intercompany partners and third parties. The intercompany relationship SharePoint® list is the starting point and generates a standardised narrative for each item.

The tricky part of the story comes when we look at the economic analysis. We start from the statutory accounts that are stored as PDF in our TP document library. Then I compare that to the financials that I have extracted from the corporate consolidation system. We get our consolidation system to segment the P&Ls and calculate the required adjustments – but more on that in ‘IT and TP’ Part II. When I have finally arrived at an accurate P&L, I store the segment spreadsheets in SharePoint® for each entity, brand and source along with data on the PLI achieved. This data is easily embedded into the economic analysis section of the documentation.


We now have the bones of a Transfer Pricing report, which has been pulled together using SharePoint’s® “Document Set” capability and routed to all necessary actors for edit and approval.

The local finance directors, whose auditors are feeding scary bedtime stories about TP in their jurisdiction, are now up-to-date with recent local TP developments, because they’ve seen it on the RSS newsfeed on our TP intranet SharePoint® site.

If there are any queries from tax authorities, a SharePoint® workflow can be initiated to ensure that the query is handled in a controlled fashion, involving the people who need to be involved. There are numerous other Transfer Pricing processes that can be formalized into workflows.

For special projects, a SharePoint® site is established to store all documents, minutes, calendars and contacts who are involved with it. The site becomes a ‘one-stop shop’ where colleagues can go to inform themselves about the aspects of the project they are interested in. Once they have been invited to the site, colleagues have no excuse to claim they are uninformed.

Case Study IV: In our Corporation, we have one VP for Tax and Treasury. A local colleague in the Treasury group was feeding criticism of our transfer pricing up to the VP. Rather than confront the colleague, we decided to collaborate. I invited her to the Transfer Pricing Committee SharePoint® site, so that she could see all the minutes, attendees and forthcoming meetings and raise any issues formally through her superiors. Her issues were dealt with at the successive Committee meetings. And she was invited to attend the meetings. The problem soon went away.


SharePoint® has a capability of ‘scraping’ data from the ERP system, using a function called ‘Business Connectivity Services’. Since our organisation is in the middle of a global SAP implementation, with some legal entities still on legacy systems, we extract data from both the old and new systems into a common SharePoint® structure that enables us to see the resale minus and cost plus percentages being applied to arrive at TPs for each SKU, across the globe. We are also able to load the consolidation system data into SharePoint® via an SQL database, refreshed on a monthly basis and covering actual, forecast and budget data. Thus we can predict any adjustments necessary to the TP setting parameters to achieve the required full year outcome. Company secretariat data is also loaded into SharePoint® so that we know legal entity ownership, accounting dates and entity creation/liquidation information.

Every corporation is unique and there is no ‘one size fits all’ solution to transfer pricing systems. The trick is to analyse the information available and build a SharePoint® solution to fit the corporation.

Before arriving at a confrontation with a Tax Authority, it is necessary to achieve internal collaboration. Tax Authorities are information-sharing: you and your colleagues should be doing the same.


Part II: Leveraging Hyperion


Oracle’s Hyperion is the leading corporate consolidation package. It stores all your subsidiaries results and consolidates them into a group financial result. But it can do much more than that – it is can assist the Transfer Pricing (TP) function with powerful modelling capabilities. And you don’t need to buy a new software package – it’s all available out-of-the-box (OOTB), with the right setting up.


Hyperion is a multidimensional data cube. Typical dimensions are period (year/month), scenario (actual/budget/forecast/plan) and entity. Trial balances (TB –  P&L and Balance sheet) are uploaded from subsidiaries’ financial systems in a standardised Chart Of Account (COA) format. Although I have usually seen figures uploaded according to Corporate GAAP, for TP purposes it is more helpful to have results uploaded in both local statutory and Corporate GAAP formats and to have a dimension GAAP (local_stat/Corporate).


Hyperion can collect much more than the TB. Non-financial data such as headcount is a typical data item to be collected, to allocate HR costs. But you could collect any allocation driver (key) that you use to allocate management charges to the legal entities, e.g. number of PC users to allocate IT desktop support, number of patents to allocate your IP department, etc.. If you ask, you will find that many HQ services collect such data already in offline spreadsheets. And they do it for budget and forecast too.

Case Study V: Our contract manufacturing entity is required to pass all volume and price variances to the principal. Unfortunately Hyperion does not collect variances from the Operations – they are produced on extremely complex spreadsheets that are virtually impossible to reconcile back to the COGS reported. I persuaded the Finance function to add variances to the Hyperion upload, which had to reconcile to the COGS declared. Now I had the capability of automatically calculating the intercompany contract manufacturing charges according exactly as the legal agreement specifies.

Once the allocation drivers are in Hyperion, you can use the allocation function to automatically spread the costs to the legal entities. But before you do that, examine the structure of the HQ services you want to allocate out. There will probably be a senior executive layer (with a separate cost centre) and site costs whose costs need to be allocated to the ‘frontline’ cost centres first, to create a fully loaded cost that is comparable to the fee that an external service provider would charge. Essentially there will be two passes of allocations that can all be performed in Hyperion.


The results of the allocation can be posted into new lines of the P&L e.g. HR allocation in / HR allocation out, but be sure to create rules that enable you to see the counterparty, for easy tracking. It is also useful to create a new dimension ‘TP adjustments’ so that all results are visible in one place. You could spend the whole year working with these allocations and issue an invoice in the 12th or 13th month.


You may find that the finance support for some HQ services is already making an allocation in the management accounts, but the methodology might not be OECD-proof.


Hyperion also helps when controlling the profits made by distributors and manufacturers. By implementing rules and formulae, the cube can not only segment the P&L, but also create the adjusting entries required to achieve the desired Profit Level Indicator (PLI) result. A rule can be created to enable what-if scenarios such as the effect of achieving the median PLI or the top or bottom of the interquartile range.


Leveraging the TP capabilities of Hyperion is going to add an overhead to the processing required. It may be optimal to extract the raw data into a separate TP cube once the legal entity TBs have been fully loaded and checked.


Use these hidden capabilities will enable speedier and more accurate controlling of actual, budget and forecast results, with fewer surprises at year end.


SharePoint and Hyperion are two powerful tools to assist the Transfer Pricing Department in their daily struggle to collaborate effectively and streamline processes. Your IT department will have an IT strategy which may not involve buying software packages, but building on what has already been bought.


“Not all problems have a technological answer, but when they do, that is the more lasting solution”. Andrew Grove, former Chairman & Chief Executive, Intel,



Mike Potter is an experienced in-house Transfer Pricing Manager, SharePoint® Specialist and Prince2® Project Manager. He has a son called Harry. He can be contacted on +44 208 123 364. Follow Mike on twitter @intercompTP