A calculation error and a double-posted TP adjustment. The result: profit overstated by approximately PLN 5 million and a reassessment during a tax audit. Sounds like an extreme case? For many organisations, this is a real risk stemming from manual errors in transfer pricing settlements. Operational Transfer Pricing (OTP) addresses exactly these challenges - by automating calculations, organising data and ensuring that the TP policy works in practice, not just on paper.
What is Operational Transfer Pricing?
In short: technology solutions built specifically for a company's transfer pricing settlements.
Operational Transfer Pricing (OTP) is a practical approach to the day-to-day application of transfer pricing within an organization - based on automated calculations, structured data and repeatable processes that enable ongoing monitoring of results while strengthening control over tax risk.
Implementing OTP solutions provides tangible support for managing transfer pricing matters within everyday business processes and automates repetitive elements of the work.
What is the scope of OTP automation?
The scale of possible improvements depends on the nature of the problem, the maturity of the organization’s systems and the frequency of a given process. In practice, the greatest value comes from optimizing activities that occur regularly and generate the highest workload.
The scope of OTP applications is broad and covers key financial areas - from profit and loss account segmentation, through cost allocation for services, royalty calculations and profit splits, to forecasting and pricing goods based on real-time data. OTP also supports data management (extraction and mapping of data from financial systems), analytics and result visualization (e.g. through dashboards), as well as TP Compliance - summarizing intercompany transactions for reporting purposes.
Possible solutions offered by PwC
One client was dealing with an extremely time-consuming and manual transfer pricing settlement process. TP adjustments were calculated manually using Excel files based on data exports from SAP. The process alone took up to two weeks of specialists' time and carried a high risk of human error. On top of that, the lack of repeatable logic for data segmentation and allocation keys limited the ability to monitor profitability on an ongoing basis and frequently contributed to delayed profit adjustments.
To address these issues, an OTP model was developed that automated the entire process. A standardized input data format was defined, along with fixed segmentation logic (e.g. by transaction type) and cost and revenue allocation keys - all embedded in a tool the client now operates independently. Data from SAP is automatically imported, validated and segmented, and the tool calculates target TP profitability and the required adjustments.
Following implementation, the time needed to prepare calculations dropped from approximately two weeks to a few minutes at most, and manual errors were virtually eliminated. The client gained the ability to monitor profitability and margin levels on a periodic basis throughout the year, reducing the need for year-end adjustments and improving control over results within the established transfer pricing policy.
Benefits and added value
OTP solutions organize the data used in intercompany settlements and support the effective implementation and ongoing monitoring of transfer pricing processes. Automation significantly reduces time and effort while minimizing the risk of manual errors. It enhances tax risk management by providing greater control over TP processes and their coordination.
The scale of these benefits is confirmed by market data. According to PwC analyses, implementing process automation can reduce data processing errors by up to 95%, and just 10 automated processes can deliver over 1,500 hours of savings per year - time that teams can redirect towards analysis and higher value-added activities. In a broader perspective, PwC estimates that by 2030, approximately 45% of global economic gains will be driven by product and process improvements resulting from the application of AI and automation.
Why now?
Tax audit challenges have increased significantly in recent years, with tax authorities increasingly focusing on highly detailed aspects of settlements. The Polish tax authorities are not only analyzing taxpayers' calculation errors but are also increasingly questioning the methodology behind TP calculations (e.g. the approach to P&L segmentation, and by extension the profitability calculation for individual transactions), using available analytical tools.
The beginning of the year is an ideal time to implement OTP solutions - results for the prior period are being analyzed and closed. This is the best moment to organize TP processes, improve analyses and enter the next year with a solution that works automatically and provides full control, while also serving as a significant safeguard in the event of a tax audit.
An equally good opportunity arises during a planned ERP system migration or upgrade - a growing trend as many platforms are reaching the end of their current lifecycle. Since data is being remapped and processes rebuilt anyway, implementing OTP at this stage is far simpler than introducing it after the fact - and it means having data readily calculated for TP documentation purposes from day one.
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