Pricing intercompany loans at arm’s length straight from your SAP environment

Background

In February 2020, the OECD released chapter X of the OECD Transfer Pricing Guidelines. This chapter focuses specifically on the transfer pricing aspects of financial transactions. For term loans, the information in the document is broadly in line with what has generally been considered best practice. However, following best practice may create a substantial burden for corporate treasury. Among other things, the document outlines the importance of subsidiary specific credit ratings, transaction-based pricing and discredits the use of bank quotes.

Zanders’ cloud-based transfer pricing solution for term loans automates the full process. It determines a subsidiary credit rating in line with regulation and uses corporate bonds data from the secondary market to determine the arm’s length interest rate. Finally, the full analysis is detailed in an automatically generated transfer pricing report.

Purpose of integration

The rapidly changing and expanding regulatory environment requires corporate treasury not only to follow certain methodologies, but to document them and ensure they are aligned with the rest of the organization. In global companies, integrating solutions immediately in the SAP treasury environment consequently takes away most of these worries. Through integration, treasury does not only assure that intercompany transactions are in line with regulation, it also ensures that the same methodology and reporting is applied consistently throughout the organization and drastically reduces the chance for human error. On top of the above, integration frees up time for treasury to spend on core value adding activities.

SAP integration

For SAP Treasury and Risk Management users, Zanders now offers the possibility to price intercompany loans and deposits directly from the SAP environment. After the deals have been created in the system as usual, the Zanders TPS Cockpit in SAP offers the possibility to review the pricing status of eligible intercompany deals and trigger the pricing request to Zanders TPS via a webservice. The interest rate that is received back, is displayed to the user together with the split of underlying components. The user can then decide whether they want to include a sovereign risk component or liquidity spread. If the user wants to make a manual adjustment this can be added together with a substantiation of such margin. The adjustments by the users are stored in the SAP system for reporting, as well as transferred back to Zanders TPS, so that they can be included in the final pricing report.

Figure 1: Zanders TPS response displayed to the user

Finally, the pricing process is completed by updating the interest rate in the deal. If the related mirrored deal of the subsidiary exists in the system, it will be updated at the same time. As the deals in the system are updated, the pricing report is created in Zanders TPS.

The pricing procedure can be repeated at discretion, until the initial cash flow of the deal is posted.

Figure 2: Data flow between SAP and Zanders TPS

The solution is developed in SAP Partner namespace of Zanders and after the import of transport files only limited settings are required on the client side. Treasury deals are updated using standard SAP interface (BAPI), limiting any risk of compatibility issues between various SAP releases.

All communication is initiated from the side of the SAP system and relies on the SAP standard http Client.

Benefits to corporates

The transfer pricing solution and SAP integration offer a variety of benefits to corporates:

• Reduce your tax risk by pricing and documenting transactions in line with transfer pricing regulation
• Plug-and-play SAP integration with limited implementation effort
• Reduce the possibility of human error thanks to an integrated process
• Reduce your external tax advisor fees with subscriptions which are tailored specifically to your needed volumes