It goes without saying that the COVID-19 pandemic is the major concern of nearly all multinational enterprises (MNEs) at the moment. Radical containment measures continue to be put in place by governments around the world in efforts to slow the spread of the virus. Many of these measures center on the concept of ‘social distancing’ and have included closing businesses and organizations, cancelling events, prohibiting international and domestic travel, and quarantining cities and even regions. COVID-19 containment measures have disrupted business as usual, from manufacturing plant shutdowns to creating information inefficiencies and collaboration challenges at MNE headquarters and across global entities. These business disruptions create challenges for effectively managing transfer pricing information and workflows.
Companies are instructing whole departments to work from home, and the traditional workplace is increasingly reserved for jobs that cannot be performed remotely. This presents challenges for MNEs, especially at the headquarters level, such as keeping information and workflows organized, and maintaining effective communication and collaboration between stakeholders and ‘gatekeepers’ in different departments of global entities.
These challenges are pronounced in MNE transfer pricing teams due to the global nature of intercompany transactions and the local country functions, assets and risks, which are the factual foundation for analyses. Transfer pricing processes require a large amount of information that is commonly housed in disparate IT systems, databases, and in the minds of key personnel (and often on their local hard drives). If demand continues to weaken, companies will increasingly shed workers, and sooner or later this could lead to the loss of knowledge and information that is critical for maintaining effective transfer pricing processes and documentation. MNEs would be wise to think about and invest in transfer pricing information and process management systems, since these effectiveness-improving systems increasingly act as continuity management systems -especially in the current climate.
One such global transfer pricing management platform is Trans-Portal, which is designed to solve the common challenges of MNEs that have in-house transfer pricing capabilities. These challenges include:
1. Limited resources to timely complete large numbers of documentation and Country-by-Country reports
2. Inefficiencies with gathering and sharing information across departments and entities
3. Shortages of capacity and resources required to monitor and adjust transfer prices during the fiscal year
4. Difficulties organizing and tracking the status of projects
5. Lack of an effective process to measure risk and prioritize transactions and risk management initiatives
6. Maintaining a state of readiness for transfer pricing audits in various countries
All six of the above in-house transfer pricing challenges are exacerbated by the COVID-19 pandemic. Trans-Portal is a comprehensive and customizable solution to organize global documentation, automate data collection, monitor actual transfer pricing results during the fiscal year, analyze risks, efficiently create and update master and local files, track and manage progress, collaborate globally with colleagues, and validate results and documentation. The COVID-19 pandemic is a spotlight on the need for MNEs to enhance their online capabilities to manage all these transfer pricing processes remotely as personnel work from home and do not travel.
In-house transfer pricing challenges will be further stress tested during the post-pandemic economic recovery, when many MNEs will have undergone significant organizational changes, including within tax and transfer pricing. Many such transfer pricing teams will struggle to find and put the intercompany pieces together into documentation reports to maintain statutory compliance, and when under audit, to explain the MNE’s global allocation of profits — and losses. Looking at the glass as half-full, one advantage of the current slowdown in business activity is personnel in MNEs may now have more time to improve and bring greater certainty to their global transfer pricing management processes in preparation for a more uncertain future. Now is the time for MNE tax departments to proactively improve their global transfer pricing management processes with cost-effective solutions to ease compliance burdens and enhance their ability to reduce risk.
This article was written by Guy Sanschagrin and Doug Schwerdt of WTP Advisors.
Have a question? Contact Guy Sanschagrin.