The latest episode of „hsp live at 11“ featured Tobias Polka, a chartered accountant, and Lisa Hägele, a consultant and transfer pricing expert, both from the Düsseldorf-based auditing firm ADKL AG. Lisa is primarily responsible for Transfer pricing documentation and has a wealth of experience in this field; she also covers topics such as digitalisation and labelling. She has taught the module Transfer pricing documentation in Opti.Tax has tested it and shares her impressions in a conversation with Paul Liese.

Tobias Polka is a chartered accountant and tax adviser. He has been specialising in transfer pricing for around 16 years. For many years, the subject was largely overlooked, as it was rarely, if ever, scrutinised during tax audits. This has changed completely in recent years. That is why Tobias joined forces with Paul to enable the taxonomy-based preparation of transfer pricing documentation.

Tobias explains that, in recent years, transfer pricing documentation has become an essential part of tax audits. The issue of cross-border transactions and the assessment of their reasonableness has now become a key focus of tax audits. According to Tobias, the tax authorities do not even enter into discussions about prices and profit margins. Instead, by reversing the burden of proof and exercising their power to make estimates, the auditors avoid having to follow the chains of reasoning.

This comes into play when a company fails to fulfil its obligations to cooperate. These obligations ultimately became apparent in the transfer pricing documentation. ADKL AG therefore begins by training its consultants and clients to prepare transfer pricing documentation that is both consistent and comprehensive. Until now, Word and Excel had been used to prepare the documentation. To test the new tool developed by hsp, Lisa Hägele was thrown in at the deep end. This abrupt move allowed the experienced consultant to compare the new tool directly with the tools she was used to.

Creating transfer pricing documentation using a new tool

Lisa’s task was to use the tool to prepare transfer pricing documentation. She began by navigating through the programme to set up a structure for the company. This is where she had her first positive experience: the tool proved to be intuitive and clearly laid out. „You can’t go wrong with it,“ says Lisa. She adds that the programme is self-explanatory. Tobias Polka adds that consultants draw up an organisational chart of the company before starting the actual documentation. This can also be done using the tool, where the service relationships between related parties can be mapped out just as easily and quickly. As a result, the software builds a structure in advance, ensuring that no detail is overlooked in the end.

In Word, you’re faced with a blank page with no guidance whatsoever, which makes getting started on preparing transfer pricing documentation incredibly difficult. The tool’s guidance, on the other hand, allows the consultant to start preparing the documentation straight away. Lisa adds that this makes getting started much easier, particularly with new clients. With existing clients, consultants are often familiar with the company and can form a rough idea of what the transfer pricing documentation will look like. This is almost never the case with new clients.

Smart software thinks for itself

Tobias notes that, in practice, incomplete documentation often leads to distortions of the facts. Detailed, accurate information is therefore required. During the development of the software, care was taken to ensure that users are guided appropriately. For example, in the functional and risk analyses, there are questionnaires in which recommendations are calculated in the background whilst the user is answering the questions.

At this point, Lisa is asked what had been holding her back for years from switching to specialised software. According to Lisa, the biggest obstacle was the change itself and the perceived constraints that come with using a new programme. She was used to Word and knew exactly where to click. In hindsight, however, it turned out that the user guide was actually the biggest advantage over Word.

Paul now opens the software and demonstrates how it is set up; this can be seen in the recording from 18:20 onwards.

Intuitive documentation with live charts

The presentation makes it clear that the live chart function makes the preparation of transfer pricing documentation an intuitive process. Related parties are highlighted in contrasting colours so that their relationship to the parent company can be identified at a glance. Missing information is indicated by an exclamation mark icon. The upcoming Opti.Tax Cloud shows users exactly what to expect here. Paul creates a question and links a person. In a real-life scenario, this person would receive an email inviting them to collaborate on the documentation directly within the Opti.Tax Cloud.

Tobias notes that, whilst the documentation of the facts initially only records the facts themselves, it is already possible at this stage to lay the foundations for subsequent argumentation. In this context, he considers the option to export standardised Excel templates to be particularly helpful. These can be made available to clients, who in turn can enter data from their own ERP systems into the Excel template and make it available to the consultancy. The consultancy can then easily import and utilise the data in Opti.Tax.

Fewer media breaks when working together

A tax auditor was consulted during the development of the tool. This led to the idea of enabling the data source – that is, the Excel file – to be stored within the tool itself. This allows the auditor to trace the entire data flow themselves. This ensures transparency and avoids the need for a number of queries to be put to clients. Furthermore, this openness ensures that tax inspectors have greater confidence in such documentation and can see that the data is valid and that the company is cooperating.

Paul is now demonstrating within the software how the enquiry process works for clients. The person receiving the message can compose a reply directly within the web interface. Files can also be attached. As with the other interfaces, the reply is linked to the correct taxonomy. One less media break, as there’s no need to copy text out of an email and paste it into the programme.

Another valuable feature relates to functional and risk analysis. Depending on how the individual attributes are categorised, the software awards points and calculates an average for each company. As an example, Tobias cites a long-established company that initially carried out all its operations at a single site but has become increasingly international over time. With the outsourcing of sales, production and similar functions to other countries, certain business areas and functions within the value chain have been outsourced. The value contributions of the individual companies must be measured on the basis of the value chain. The total profit is then distributed. Companies that perform only standard functions receive a very small, standardised profit.

The company that combines the key opportunities and risks and also owns the key assets receives the residual profit. Whilst internationally a distinction is made only between routine companies and full-stage companies, in Germany there are intermediate stages, known as hybrid companies. These must be correctly identified in the documentation. As there can be many nuances involved here, the tool offers significant added value, as these can be mapped out in full detail. It should be noted that these percentage breakdowns are, for the time being, merely indicative trends intended to provide guidance.

Despite the availability of software, consultancy remains relevant

Tobias Polka is firmly convinced that the software helps the counsellor, but that the professional remains absolutely essential. This is because only the counsellor can address the specific details of each individual case. Particularly when figures are provided by clients, these must be checked again by the consultant to ensure they are plausible.

Paul demonstrates another special feature with the completion of transfer pricing documentation. If, for example, the parent company is based abroad, the transfer pricing documentation is required in a different language. To this end, the DeepL language engine has been integrated into Opti.Tax. With just a few clicks, transfer pricing documentation is generated in the selected language in a matter of seconds.

Having the courage to embrace progress pays off quickly

Tobias Polka encourages his colleagues to take the plunge and give specialised software a go. After all, there are plenty of benefits to be had. Lisa Hägele adds that, of course, you have to get used to new software. However, she sees so many advantages over Word and Excel that she agrees with Tobias’s recommendation.

Next week, Paul Liese will once again be hosting the „hsp live at 11“ livestream. The focus will be on the major June update, with news about Opti.Tax Cloud.