An opportunity at the intersection of transfer pricing, customs, and indirect tax.

• Author: Harpaz, Joseph

Within your glob++al supply chain, transfer pricing, customs, and indirect tax are undeniably connected. Each step in the global supply chain is intertwined--from setting the transfer price and customs import valuation to goods receipt and invoicing. As a result, changes in one link affect the next, which illustrates the value created when these functions work together.

Within most multinational companies, transfer pricing, customs, and indirect tax are managed independently. There typically is little overlap in their day-to-day processes, but these three functions have much in common.

Every tax executive wants to build a cutting-edge tax department that supports the global growth of their company, ensures compliance in every country in which it operates, and reduces expenses. But with overwhelming economic, regulatory, and operational factors all at play, is this possible? It is, if you take a holistic look at your tax processes, particularly a special opportunity that lies at the intersection of transfer pricing, customs, and indirect tax.

COMMON DATA, DIFFERENT USES

From an information collection standpoint, transfer pricing, customs, and indirect tax are similar. The data each function gathers is virtually the same; it's just put to use differently. This is where a siloed tax operation is most detrimental. The negative effects of working independently are immense--including redundant work, lack of standardization, countless error-prone spreadsheets, and the need to support multiple systems.

To build that cutting-edge tax operation we all strive for, a common strategy is needed to collect and consume data more rapidly and use it to streamline operations and build analysis and insight that will take tax functions to the next level.

GETTING CROSS-BORDER PRICING RIGHT

In addition to operational cohesiveness and data sharing, a cutting-edge tax department also must understand the challenges it faces in optimizing cross-border pricing across the supply chain.

Intercompany prices for sales and purchases are a primary instrument to allocate profits among business entities across the globe to compensate them for their respective functions performed, assets employed, and risks borne. Accordingly, a measurable and accurate allocation of profits is essential for a company to achieve its overall income tax objectives.

However, customs duties are assessed on each import transaction as a percentage of the intercompany price regardless of entity...