23rd annual health sciences tax conference - ey · 23rd annual health sciences tax conference...

23rd Annual Health Sciences Tax ConferenceIntercompany effectiveness: a road map for improving transfer pricing operations

December 10, 2013

Disclaimer

Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.These slides are for educational purposes only and are not intended, and should not be relied upon, as tax or accounting advice.

Intercompany effectiveness: a road map for improving transfer pricing operations

Disclaimer

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. For more information about our organization, please visit ey.com.This presentation is © 2013 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party.Views expressed in this presentation are not necessarily those of Ernst & Young LLP.


Introductions

Presenters

Brian FrancisErnst & Young LLP5 Houston Center1401 McKinney StreetSuite 1200Houston, TX+1 753 750 [email protected]

Hadley LeachErnst & Young LLP200 Clarendon StreetBoston, MA+1 617 585 [email protected]

Keith LowenharErnst & Young LLP5 Times SquareNew York, NY +1 212 773 [email protected]

Fearghas CarruthersVice President, TaxShire PharmaceuticalsLondon, UK

Marge GauthierDirector of Global Tax PlanningBausch & LombRochester, NY


Agenda

IntroductionsBackgroundIntercompany effectivenessLooking ahead — the future operating modelQuestions?


Background

Top 10 signs you have an intercompany problem

1. You’ve laughed at anything on this list.2. Your arm’s-length margins were set at the roulette wheel. 3. When you asked the finance director in Toronto why he changed the transfer

price, he said he was probably possessed.4. A recent UK tax audit included evidence from employee tweets and LinkedIn

profiles contrary to documentation.5. You start your day with “God grant me the serenity ... .”6. The controllership treats transfer pricing like an unemployed uncle who lives

in the basement. Everyone knows he’s down there but doesn't want to talk about him.

7. Your transfer pricing year-end adjustments resemble the gross domestic product of some developing countries.

8. You’ve been asked again why product can’t be transferred at cost.9. Your company just hired Mike Tyson to lead internal pricing negotiations.10. The chief financial officer thinks BEPS is a small private school in Brussels.


Key considerations — current landscape and intercompany operations


Base erosion and profit shifting (BEPS)

Tax law changes

Customs and value-added tax reporting

Taxing authority audits

Globalization

Business competition

Year-end true-ups

Effective tax rate (ETR)

Internal controls

Headcount reductions

Accelerated financial close

Business performance

External

Internal

Mounting pressures Key questions to ask

What stress does external pressure place on the current operating model?

Are there internal pressures also driving a case for change?

Who are the stakeholders, and how are they impacted?

Do you have visibility into the current process?

Intercompany effectiveness

Intercompany transactions

Key intercompany operating model elements and interdependencies

Improvedbusiness value

People and organization

Process

Operational strategy and performance measurement

Data and technology

Legalframework

and structure

Pricing

Policies and operating guidelines


Connecting across the transfer pricing process life cycle


Planning,budgeting and

forecasting

Intercompanytransactionprocessing

Testing and compliance

Transfer pricing monitoring and

reporting

Transfer pricing process life cycle

Forecasts are used to set prospective transfer prices and intercompany charges in alignment with transfer pricing (TP) policies.Transfer prices are adjusted based on new forecasts to achieve target operating margins by end of year.

TP monitoring occurs on a frequent enough basis to determine adjustments and ensure operating margin targets are met.Intercompany profit elimination occurs at a level that adequately supports financial, tax and management reporting.

Intercompany pricing conditions are designed based on policies.Transactions are automated and data attributes are captured to support TP monitoring, tax analysis and intercompany eliminations for financial reporting purposes.

Documentation of monitoring is maintained to evidence execution of controls for testing.TP compliance documentation is finalized annually to meet local country TP regulations and requirements.

Benefits of intercompany effectiveness

Business valueETRIndirect tax costsCash flowAvoid higher costs associated with sales misaligned to incentive structures and/or lack of visibility into product costs and profitabilityReduce resource costs with centralized activitiesAlignment of operational strategy and business operations with TP requirements

“Material” complianceEnsuring margins are in line with target margins reflected in the TP documentationBEPS report

EfficiencyReduce hours spent on execution of TPManage controversy processes more efficiently (e.g., standard processes, data)


Looking ahead — the future operating model

Key considerations in developing the future operating model

Vision

Strategy

KPIs and Goals

What is the company's vision for the business? Expansion into new markets or focus on core competencies? Are market conditions impacting the direction of the sector?How does leadership view the alignment of tax policy?

How is the business executing on the company's vision?Acquisitions or carve-outs? New countries? New products?Does the operating strategy support an entrepreneurial, decentralized model or headquartered, centralized model?

How is the business goaled and measured?What are the key performance indicators (KPIs)?Are there any conflicts or friction between the business KPIs and intercompany TP policies?


How is the business organized? Reporting lines structured?How is finance organized? Reporting lines structured?Who has responsibility for setting and monitoring transfer prices? Determining other intercompany charges?Would greater centralization of price setting and monitoring align with the business and finance operating model?

What individual responsibilities are established for setting and monitoring transfer prices? Other intercompany charges?Are these full- or part-time roles? What level of TP training, communications or guidance on policies is provided, and how?How well is change embraced within the culture?


Organization

People


How well defined, documented and understood are TP processes?How well aligned are these processes with planning, budgeting and forecasting for both finance and operations?What indirect tax interdependencies need to be managed?Are there opportunities for simplification or standardization?

How well do enterprise resource planning and other enterprise systems support TP requirements? Is relevant data captured? What level of reporting is supported?What tools are available to support the automation of setting, monitoring and adjusting transfer prices?How can work flow or other process management tools be leveraged to provide visibility across functions?


Processes


Technology

Key takeaways

Questions?

23rd annual health sciences tax conference - ey · 23rd annual health sciences tax conference...

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