Case study: Transfer Pricing Analytical Toolkit

Client

Global Accounting and Consulting Firm

Project

Transfer Pricing Analytical Toolkit

Executive Summary

An established global accounting and consulting firm helps multinational companies to maximize the benefits of being multinational while ensuring compliance with all tax codes. One service they provide is in the area of transfer pricing valuation. Transfer pricing valuation is a detailed and time consuming process, and our client sought to improve the efficiency, quality, and profit of this service. The ARISING Group was engaged to automate the research and accounting aspects of their transfer pricing analysis. The ARISING Group built the Transfer Pricing Analytical Toolkit, an engine that pulls data from four financial data bases, cross-analyzes multiple companies on 65 business ratios and produces 14 reports. Manpower requirements were reduced from 5 days to 7 seconds per company analyzed.

Background

Multinational companies use their various subsidiaries in different tax jurisdictions to provide services such as research and development, manufacturing, distribution, and administration. The parent company and the various subsidiaries buy and sell the results of these functions through inter-company transfers.

“Transfer pricing” is the value placed on these transfers within an organization and is used as a means of allocating costs to various profit centers. How these items are priced affects the parent company’s compliance to local tax codes, debt ratios, cash reserves, etc. Transfer pricing schemes generally follow one of three cost accounting approaches: (1) market price; (2) cost-based price, generally the marginal cost of funds; or (3) negotiated price, a price determined through negotiation by buyer and seller. Historic cost, on the other hand, is normally used for reference only, and is generally not used in internal pricing.

Business Challenge

The accounting firm had lost 18 months attempting to develop an automation program to speed up their valuation process. After a year and a half their home-grown program was still non-functional. A senior partner at the firm had promised to present their process to International partners at their annual convention in 3 months. The ARISING Group was called in to “fix” the program. After reviewing the existing code, the ARISING Group engineers decided that the best course of action would be to scrap the existing fragmented program and build a new one from scratch. Accuracy, stability and time were of the essence.

How ARISING Helped

The ARISING Group software development team met on site with the senior partners in the transfer pricing department and gathered all of the functionality and business requirements. The ARISING Group then successfully designed, built and tested the valuation toolkit. The accounting firm was extremely pleased to have the completed application in time for their International convention. After viewing the ARISING Group’s Transfer Pricing Analytical Toolkit in action, a Canadian economist commented:

“What a powerful and elegant tool you have created... congratulations!”

– Canadian Economist

ARISING provided

  • Robust, reliable architecture
  • Expandable modular design
  • User-friendly logic and interface
  • Massive savings in time and manpower

Value Delivered

The ARISING Group produced a toolkit that saves enormous amounts of research and calculation time, allowing CPAs to handle many more transfer pricing consulting projects. Loss from human input errors is mitigated by the automation that pulls information directly from financial databases. The ARISING Group’s quick delivery gave the CPA firm a clear advantage over their competitors by being the first in their industry to have this technology.