Introduction: Transfer prices and their role in the modern economy
The transfer price, the price of goods, services and intangible among the relationship entities within a multinational company, one of the most important tax regulations of the last decades is likely. From the first attempt at price control in intragroup transactions in the 1930s, aimed at responding to the growing complexity of multinational corporations (MNC) and the fight against early exhaustive fiscal practices that developed in a complex erosion of the Base of the OCD and the prof Fair taxes in the country in the creation of countries in countries. Every day, both companies and tax authorities analyze millions of intragrupal transactions, with a single objective: to ensure that companies make fair tax contributions to countries where they produce goods and services.
The transfer price implies a variety of analysis that is reduced to 5 methods recommended by OECD guidelines, and widely used by governments around the world. Transfer prices methods are used to determine the arm length price for transactions between relationships (such as divisions or subsidiaries of a multinational company). The most used methods are divided into Transactional benefit methods and methods of transaction. These methods are described in the OECD transfer price guidelines and local tax regulations.
Traditional transaction methods Real into specific transactions and try to determine the price as if the transaction had occurred between unrelated parts. Those methods include Comparable non -controlled price, resale price method and more cost method.
Transactional benefit methods include the transactional net margin method and the gain division method.
The choice of the method depends on the nature of the transaction, the availability of data and what method provides the most reliable result in determining the price of arm length. In practice, TNMM And the cup methods are among the most used due to their flexibility and applicability to a wide range of transactions.
Comparative evaluation study: search for independent comparable
All the methods mentioned above, they expect CUP, require information on the levels of profitability of independent companies. The most common approach to determine this is through a comparative evaluation study: a research process aimed at establishing the levels of profitability of independent companies involved in the same business transaction. In practice, a comparative evaluation study involves compiling statistical data sets with a financial indicators or independent companies that operate within the same industry.
In other words, the researcher must identify comparable independent companies and analyze their financial indicators to determine the profitability range of arm length. This process generally consists of two main steps:
- Creation of initial data data using specialized databases such as Orbis, Amades, Compurity and filtering data based on several criteria such as industry classification, geographical market, company size, etc.
- Refine this data set to ensure that comparable ones have the same business, function and risk profile.
The second step implies manually investigating each company in the data set. This process includes reviewing the company’s website to evaluate key commercial parameters, such as market conditions, commercial strategies and geographical relevance. According to this analysis, a decision is made on whether the company is comparable to the analyzed transaction.
In other words, the researcher must collect relevant information about each company and make a professional judgment on their level of comparability.
To emphasize the importance of manual research in a comparative evaluation study, it is crucial to highlight that decisions on whether comparable potential is included in the final data set directly in the margin range considered the length of the arm. This margin, in turn, has a direct impact on the price that is considered at the length of the arm.
Manual element in the study of comparative evaluation
The manual element allows a nuanced understanding of commercial models and operational strategies, and detailed research of the commercial situation analyzed. At the same time, the manual element has many inconveniences. In practice, these manual searches almost always involve multiple researchers to accelerate the process, which can bring slight differences in the approach and trial.
The search process is highly repetitive and can take a week of human work hours. As a result, researchers may experience fatigue, increasing probability or errors.
In practice, the thesis challenges of leading to the need for complete work review or disputes between companies and tax authorities, since both parties can challenge the comparative evaluation studies of others, and consistently, the duration of arm prices.
The industry’s response to this challenge has been the unification of data and multiple verification layers for both information and its sources. The main statistical data suppliers have developed their own manual search results and strive to keep the descriptions of their company updated.
While these efforts are valuable, a transfer price professional can never depend solely on this information for two key reasons: (1) The company’s descriptions may not be specific enough for the analyzed transaction, and (2) the data must be updated from the date of the comparative evaluation. These factors ensure that the manual component remains essential, which requires significant human participation.
AI AI OF MANUAL SEARCH
With the advance of AI models, there is now a practical possibility to automate the manual search process in comparative evaluation studies. While it coined the central principles of comparative evaluation, AI has the potential to replace human participation in this aspect of the process, efficiency and precision of significant improvisation.
In addition to freeing humans from a highly repetitive task and, often, indiri ibinable (believe me, I am a junior consultant who works in an important transfer practice), the manual search promoted by AI can bring several accessories to the transfer of transfer prices:
- Consistency: The performance of an AI model tends to be more stable compared to humans, which can be tired from rehisitive tasks.
- Variability elimination: Traditional comparative evaluation studies to involve multiple researchers, which can lead to light differentials in the applied approach. Ai can eliminate profile of this variability.
- Speed: The process can be completed much faster with AI, a significant life that improves efficiency
The formulation of a task for an AI model makes the process highly technical and eliminates possible distortions caused by human perception. The task becomes clear and objective, similar to writing a computer program for the AI model. If a human executed the same algorithm, the instructions would be clear for some without previous experience to understand. In other words, an AI model would perform the task with the lowest possible bias.
In the work of professionals, the bias of their experience and the tendency to issue judgments about the source of information or the description of a company before completing the study. This can sometimes lead to the exclusion of unique or emerging companies from the set of comparable ones, although, in fact, they can be comparable relevant.
In fact, assigning manual search in a comparative evaluation study to an AI model is a very challenging task for several reasons:
- Rapid development of AI models: The accelerated development of AI models results in frequent changes in their behavior, which makes it difficult to predict their performance in time.
- Hallucinations of AI models: IA models sometimes provide incorrect answers or generate information that does not align with real world facts.
- IA model performance stability: The consistency and reliability of AI performance can fluctuate, which is a critical challenge to integrate AI into professional tasks.
These challenges are widely recognized as problems of the entire industry for AI projects based on large language models.
Quantum TP (https://www.quantumtp.xyz/) is a company based in California focused on automating transfer prices processes, with its assistant to the comparative evaluation study as one of its first products. Our test results have shown a significant increase in the speed of comparative performance evaluation studies, which allows the entire process to be completed in approximately one hour. We are currently testing their tools and complying with the results in comparative evaluation studies made by humans. Quantum TP has confirmed that our approach is effective: large language models (LLM) are capable of performing the manual search required for comparative evaluation studies. Our company now offers a beta version or its product to the customer for the tests.
I build my transfer career from an important consulting company to transfer the price manager in large corporations. I could feel my own how exhausting is the comparative evaluation study for Junior consultants, who have to work the week doing one thing: search for companies on the Internet, write descriptions of their business and document results. I also know, the challenging is to manage Junior consultants who do this work, maintaining their motivation and caressing the search quality. I also know, how important a comparative evaluation study is in the transfer prices analysis. I have seen a number or examples in which the tax authorities defy comparative evaluation studies, and accused of significantly additional taxes. In light of everything, I am excited to create a tool that helps automate the process and help in the best possible way to make a right decision to choose a transfer strategy for a company. I believe that AI will make transfer prices professionals less routine, efficient and allow them to concentrate on creating the best transfer price strategies, ensuring that each country receives a fair part of taxes.
Written by Nikolai Portnov.
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