Streamlining transfer pricing with automated tax calculation and entity management

The client required a single solution that would unify the rules and methods for pricing transfer transactions between enterprises. The transaction rules, methods, and tax calculations were previously kept, applied, and completed manually in Excel, which incurred substantial time and resources.

Also, the client needed to speed up the monitoring of transactions between various business units by acquiring a separate solution that would keep the information of all business units and legal entities.

N-iX has developed a transfer pricing platform from scratch. It comprises rules and methods that enable selling goods and services to other legal entities at a minimum market price and with a minimum tax. The platform contains complex business logic related to financial and tax accounting as well as the legal regulations of multiple countries, and is capable of handling large amounts of data. It allows conducting economic analysis based on a number of indicators, including:

• Transfer pricing method — comparable uncontrolled price, cost-plus, resale-minus, transactional net margin, and profit split.
• Profit level indicator — a measure of a company's profitability used for comparison with the tested party.

The system calculates the potential target rate for a related party transaction depending on the transfer pricing method, profit level indicators, and other financial values. This enables users to conduct a transaction at a minimum market price and determine potential tax savings.

We have developed a feature for generating legal agreements to simplify the process of signing them once all parameters were calculated. Users can quickly select all required parameters (such as transaction type, seller and buyer names, etc.) and generate the agreement in PDF format.

To ensure 100% accuracy of all calculations, we have considered dependencies among the platform’s elements. We have also implemented a large number of validations, such as checking changes for adhering to existing parameters (date range, tax details, etc.).

The second solution developed by N-iX was the entity management platform. It includes all information about companies’ business units and legal entities and tracks their history. For convenience, we have implemented bulk import of legal entities. The system displays the ownership percentage for each legal entity, as well as the roles and positions of employees. It also includes information about companies’ financial years with the due date of tax payment, as well as the tax rate. These features are crucial for tax planning done by the transfer pricing platform.

We utilized the multi-tenant approach when developing both solutions. It ensures more efficient and cost-effective use of resources by enabling a single software instance and database to serve multiple customers (i.e. tenants). We have also established the CI/CD pipeline, development and deployment processes, as well as integration and unit testing from scratch.

N-iX has helped the client develop two solutions, namely, a transfer pricing and an entity management platform. Both solutions have provided the company with several significant advantages:

• Automated the calculation of transfer prices (the prices of goods and services that are exchanged between companies under common control), as well as tax planning and predictions of tax rates for transnational companies, making the processes faster and more cost-effective;
• Streamlined the monitoring of transactions between parties with the entity management platform that combines all required information about companies;
• Accelerated transaction execution by developing a feature that allows to quickly generate legal agreements;
• Ensured efficient resource usage and decreased maintenance costs associated with software development by implementing multi-tenancy;
• Boosted the speed and efficiency of the software development process by establishing a CI/CD pipeline, development and deployment processes, and integration and unit testing.