Transfer Pricing Function Benchmarking Report

Transfer Pricing
Function
Benchmarking Report
Obtain real insights from industry professionals to
navigate the brave new world of BEPS
2016 Survey Report

INTRODUCTION
Tra n s fe r P r i c i n g F u n c ti o n B e n c h m a r k i n g Re p o r t
2
The transfer pricing (TP) regulatory environment is changing more quickly and profoundly than
ever before. To help corporate tax departments adapt to change and find practical strategies
to accomplish key responsibilities, I partnered with Informa plc, the creators of TP Minds, the
world's largest global conference series exclusively dedicated to transfer pricing issues. The
plan was to conduct some research on how other tax professionals are preparing for an
unprecedented era of increased tax risks and tax compliance burdens.
As a result, I felt compelled to take the initiative and catch a glimpse of what other in-house
transfer pricing experts believe could be the key ingredients of an effective TP function. The
survey sets itself apart from others for three reasons: it focuses on operational transfer pricing,
it is not specifically about OECD’s BEPS initiatives (as some of us suffer from BEPS fatigue) and
it is designed by in-house tax professionals.
As a bonus, some of the questions are useful, in terms of self-assessment, in measuring the
level of effectiveness of the respondent’s transfer pricing function. Each participant received a
score with an estimation of their organization’s TP practice level of maturity and effectiveness.
TP practices with effective processes, easy access to key resources/data and strong risk
management practices, generated top assessment scores.
I hope you find this survey interesting and useful.
Juan Carlos Ceballos

TABLE OF CONTENT
Introduction ________________________________________ 2
Survey Statistics ____________________________________ 4
Methodology _______________________________________ 6
Survey Results ______________________________________ 7
General Questions _______________________________ 7
People and Budget _______________________________ 7
IT Solutions Employed ____________________________ 11
Major Operational TP Challenges ____________________ 13
TP Framework: Systems, Processes and Controls ________ 19
Peer Survey Scores ________________________________ 21
Conclusion __________________________________________ 23
About the Author ____________________________________ 24
3

SURVEY STATISTICS
Top Industries Surveyed
Business Services
Industrial Goods
Health Sector
Insurance
Automotive
Food and Beverage
Telecommunications
Other Statistics:
Median of Revenue = $13 Billion
Median of Employees = 42,000
Employees for each full-time TP
professional ranges from 6,000 to
25,000 with a median of 14,000
US and UK based companies
represented about 55% of the total
survey participants
Five Fortune 50 companies participated
in the survey
4

5
SAMPLE OF SURVEY
RESPONDENTS

METHODOLOGY
6
This survey was completed by 31 multinational companies online. It was mainly promoted
in various LinkedIn groups between March 13, 2016 and May 26, 2016. Responses received
from advisors, government employees and other individuals not representing multinational
companies were excluded from the analysis.
This document contains general information only, and neither Informa plc or the author is, by means of this
communication, rendering professional services. Before making any decision or taking any action that may
aﬀect your business, you should consult a qualiﬁed professional adviser.

SURVEY RESULTS
People and Budget
General Questions
7

S U R V E Y R E S U L T S
8
People and Budget
Five stars = strongly agree. One star = strongly disagree.

9
People and Budget

What are your biggest concerns, challenges and complaints when working with TP
consultants?
Selected participant responses:
Copy and paste
I have to struggle with them to obtain exact recommendations
Cost, scope creep, and quality of work
Many don't have any in-house experience so the advice is not practical or expectations
on how easy it is to obtain certain information are unrealistic, sometimes I even feel that
consultants think in-house people don't know or understand anything
Their business is to create dependency with the client
They don't bear the costs of their advice if not supported in an audit
They don't know our business and I am not always convinced they want what is best for
us vs. giving us what is best for them.
Not practical enough, too theoretical, don’t live in the "real” world
The Bottom Line
10
Generally speaking, respondents consistently complained about high costs, scope constantly
increasing, and deliverables not properly vetted. Perhaps the concerns of industry professionals
are linked to the clients’ TP practice maturity level or diﬃculty in switching advisors (i.e., lack of
leverage or negotiation power).
Needless to say, if you have an advisor that is practical; has consistently provided high quality
deliverables; and can stand behind each of his/her foreign partner’s work; be sure to keep him/her
as advisor!

11
IT Solutions Employed

If a genie granted your wish for software (or glorified spreadsheet) that would
simplify your key TP responsibilities, what would that solution look like?
Main Themes:
Real time tracking of all intercompany flows by transaction or geography
Segment income and cost of sales by SKU and product line
Measure actual results with policies (e.g., cost-plusprofit margins, etc.)
Reduce data mismatches, support reconciliation, and improve internal tax controls
Ability to quantify system profits in the entire value chain by business, entity or
transaction type
Ability to create automated prospective and retroactive TP adjustments
Simplify expense allocation processes and automate the generation of TP documentation
reports
Generate supporting files for audit defense purposes
The Bottom Line
12
In most cases, TP entries are manually calculated and prepared in Excel. As a result, a software that
interfaces with ERP systems to automate all or even part of the operational TP function would be
very welcome. In a growing company, this activity is error prone and very time consuming to
perform for every legal entity.

13
Major Operational TP Challenges

14

15

16

What is your main fear or frustration about your top day-to-day responsibility?
Specifically the #1 biggest challenge related to your top responsibility as in-house TP specialist.
Selected participant responses:
Inconsistent TP practices across the organization
Not enough resources (people + budget + IT solutions) to do things well
Working in a company that is rapidly expanding into new countries, it's difficult
to stay on top of the local differences in transfer pricing (and tax)
Avoid working in silos in the management of the TP lifecycle
I'd say fighting data (sorting, mapping and validating) due to our multiple ERPs
Constant changes to the organization without timely consideration of the TP
Struggling for audit defense files
Further improvements to systems and policies to support accounting principle
differences
Getting support from other departments
The Bottom Line
Biggest frustration = lack of resources = lack of good data + people + budget + IT solutions
.
17

What TP challenges or responsibilities typically cause your company to
shell out the most money every year?
Key Themes:
Data quality
Outsourcing large documentation projects
Double taxation
Audit defense
Tax reserves
The Bottom Line
18
Generally speaking, TP challenges causing significant financial costs to a company
are broad and diverse. Such challenges could be attributed to the lack of specialized
personnel in-house as well as the complexity of the organization, industry, audit
history or structure of the intercompany transactions. The company’s risk tolerance
to tax matters and its level of maturity with regards to its operational transfer pricing
function could also play an important role. However, respondents repeatedly stress
that audit defense and outsourcing large projects to advisors represent the biggest
financial costs to their company.

19
TP Framework: Systems, Processes and Controls

20
Five thumbs up = well deﬁned and documented processes and controls.
TP Framework: Systems, Processes and Controls

Peer Survey Scores
21
As mentioned above, some of the questions were useful in terms of self-assessment, in
measuring the level of eﬀectiveness of each respondent’s transfer pricing function.
Each participant received a score with an estimation of their organization’s transfer
pricing function level of maturity and eﬀectiveness.
The lower quartile of the assessment results was 17, the upper quartile 21 and the
median 19 points. The minimum score for a participant was 2 points and the best score
reported was 31 from a maximum of 41. Accordingly, the maturity level of the transfer
pricing function was based on the following scale:
0-13 Points - A work in progress
14-22 Points - In the development stage
23+ Points - In the maturity stage
It is worth noting that the answers to one survey question showed a strong connection
to high assessment scores. Not surprisingly, it was the level of perceived sophistication
of an organization’s governance and risk management practices with respect to transfer
pricing. In particular, survey respondents were asked to qualify their own company’s TP
governance practices from 1 to 5. The highest standard was 5. The next graph depicts
the trend described above. Each dot in the graph represents the actual score of a survey
respondent.

While more resources allocated to the transfer pricing function did not guarantee
high assessment scores, most survey takers with scores above the lower quartile
reported that at least they employed two transfer pricing specialists (full time) and
spent more than $700k in annual advisor fees.
If you would like to take the TP practice assessment, please contact JC Ceballos at
www.linkedin.com/in/ceballosjc
22

CONCLUSION
23
In the current global environment the tax matters of multinational companies are
coming under unprecedented levels of scrutiny from tax authorities, nongovernmental
organizations (NGOs) and independent media outlets. There is no doubt that the bar
has been raised for transfer pricing compliance work. Therefore, taking action to
minimize tax risks, increase transparency and enhance the effectiveness of TP
practices is more important than ever.
Based on the survey results, factors such as effective processes; easy access to key
resources/data; and the company’s risk tolerance and risk management practices; all
have more influence on the effective execution and control of transfer pricing policies
by multinationals.
While, for some companies, improving their transfer pricing practices might mean
implementing new software, for others, that may be unrealistic or unnecessary. Other
companies may require aligning tax compliance with senior executive and board
expectations in order to build a business case for change. Having said that, if you are in
the process of identifying better ways to navigate the brave new world of BEPS,
I suggest you review this transfer pricing function benchmarking report carefully,
identify an action plan, and value its potential benefits.

ABOUT THE AUTHOR
© copyright: 2016. All rights reserved.
24
acquired by Thermo Fisher (NYSE: TMO) in 2014 to build an in-house TP department
due to the merger of Invitrogen and Applied Biosystems. As an in-house professional, JC
has most notably simplified the execution of TP policies; streamlined the profit review
analysis process; prepared documentation in-house; and coordinated with outside TP
consultants on special projects involving licensing intellectual property, APAs, audit
defense and cost sharing agreements. Prior to joining his current in-house role, he
spent eight years as a transfer pricing advisor at Deloitte and E&Y.
Juan Carlos Ceballos has broad experience in developing,
implementing, documenting and defending worldwide
transfer pricing strategies for tax and finance departments
of multinational companies. He is passionate about using
transfer pricing to manage tax risks. In 2009, he joined the
newly created Life Technologies Corp (Nasdaq: LIFE), later

Transfer Pricing Function Benchmarking Report

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