Superfast transfer pricing benchmarking
By Frits Baltsen – March 20, 2019, Financieel Management
“We are unique in the world in speed and price,” says Hank Moonen, director of TaxModel.
For the first time, a software company has succeeded in fully automating the transfer pricing related benchmarking process. This is the Dutch company TaxModel. Moonen adds: “It saves 60 percent of the time on average, with 100 percent of the reporting needs covered.”
Action required by BEPS
The international tax rules are becoming stricter, especially due to the introduction of the Base Erosion and Profit Shifting (BEPS) regulations. These regulations were established after public debate sparked by the tax behavior of companies such as Google, Apple, Starbucks, Nike, and Amazon. The European Union and the OECD are tightening the reins and, among other consequences, the tax authorities will dig deeper in the upcoming years to ensure that companies can better substantiate the pricing of tax returns for the flows of international goods and services. This places new demands on reporting. In addition, the burden of proof for the correctness of the transfer prices will lie with the company.
Calculation of net margin
The Taxmodel software program can quickly process and report benchmarks for products and services for each country or region and calculate the reportable net margin for transactions.
Over 70 percent of the world trade is affected by transfer pricing, particularly if a flow of goods runs through affiliated companies within a group. Like a semi-finished product that is produced by a production company in Australia, it is assembled into an (almost) finished product, distributed via Singapore and Rotterdam and sold after processing in Belgium and Germany: each affiliated party involved within the group must establish a business fee so that the various tax authorities can easily test whether the fee is in line with regulations.
No profit shifting
Ultimately, a company must be able to use this data to prove to the tax authorities that it has used internal prices, within that group, that the company would also impose on third, independent parties. For example, a company can prove that it is not shifting its profits between countries where the tax rate is most favorable.”We can make every step in the benchmarking process 100 percent transparent and substantiate it so that the tax authorities know exactly how a company has selected the right benchmarks,” says Moonen. Then a business profit percentage is linked to the result of the benchmark process. The company does this by comparing data with transactions from the past. The method can be shown to the tax authorities and can serve to explain why a certain percentage has been chosen. The tool is based on multiple databases, with information from hundreds of millions of companies around the world.
Enormous time-saving possible
Moonen: “Our benchmark tool allows professionals to save a huge amount of time and make a quality improvement. Larger companies with a tax department now also have access to a tool with which they can do their own benchmarks. We can provide professionals, advice, and solutions (software). Along with the tool, we offer training courses in which we can teach someone without experience, in a short period of time, how to independently perform benchmarks.”TaxModel has more than eighty customers with whom the program is running or in the pilot phase, including Deloitte, PwC, Grant Thornton, Dentons, and Baker & McKenzie, but also some boutique and medium-sized companies.