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“AI is proving to be very valuable in data-intensive work like benchmarking, but it’s not quite there yet for complex transactions or policy drafting,” was one of the observations at the ITR Global Transfer Pricing Forum 2024.

This year’s event brought together TP professionals and thought leaders in the space, offering a good overview of the evolving transfer pricing landscape.

The event highlighted some of the most important trends shaping transfer pricing today as we know it, from discussions on AI and data-rooted reporting to global regulatory initiatives with Pillar 1 Amount B and the upcoming EU TP directive, aimed at simplifying processes and reducing the compliance burden on taxpayers.

Let’s explore some of the most significant trends and takeaways from this year’s event.

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Trend #1: AI and transfer pricing - promising potential with challenges

AI is actively being explored as a tool to automate data-intensive tasks, such as benchmarking and anomaly detection. While AI shows promise in reducing manual workloads, particularly in documentation and monitoring, it is not yet sophisticated enough to handle complex transactions or policy drafting.

A significant challenge remains in the quality and quantity of the data available, as well as the need for secure environments to handle sensitive information.

Interestingly, a poll conducted during one of the sessions on AI revealed that 56% of attendees are currently not using AI in their TP processes. But a whopping 83% believe that AI has the potential to reduce the workload of both tax professionals and their advisors, enabling them to focus on more strategic, value-added work.

When asked about their readiness to adopt AI, the responses varied:

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Tax authorities are also beginning to explore AI and data analytics tools, which would change the way audits are carried out. While the extent of this adoption remains uncertain, it’s a clear indication that AI will play a significant role in the future of TP.

Key takeaway: For organizations to fully leverage AI, they need to invest in the right skills and data management strategies. Standardizing data processes will be key to ensure that AI-driven tools can deliver reliable insights.

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Trend #2: Technology and OTP - starting small and scaling up your OTP projects

Operational Transfer Pricing (OTP) is quickly emerging as a critical area for organizations looking to automate and streamline their TP processes.

But implementing OTP effectively requires more than just adopting new technology - it demands a strategic approach that involves collaboration across multiple departments, from tax and TP teams to finance and IT. This ensures that the right processes and data management strategies are in place to support the adoption of OTP technology. If you’d like to hear more on how you can do so, read our latest blog post here.

To further shed light on this, our panel discussion at the event by Pia Honkala, Co-Head of OTP at Aibidia, alongside Igor Groenewegen-Mackintosh, LLM, Global Head of Tax at Xebia, and Jean-Louis Barsac, Group VP at Valeo, provided a couple of practical steps for organizations considering kickstarting their OTP journey:

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1. Starting small - Identify pain points and low-hanging fruits that can be addressed with technology.

2. Aligning with TP frameworks - Ensure that the chosen OTP solution supports the existing TP policies and frameworks. This in turn supports compliance and the overall TP strategy.

3. Adopting a data-driven strategy - Use data to drive decisions and automate processes, reducing reliance on manual, error-prone methods. A good data management strategy is key to unlocking the full potential of OTP automation.

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On this, Pia Honkala, our Co-Head of Operational TP Product, further, adds:

"What we often see, is that companies would like to automate their existing process, as they are used to it and it has worked previously. What I'm always suggesting to everyone is to start from the end results, to think about the ultimate goal and after that plan the steps towards the goal. Automating an Excel file is not a solution.”

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Key takeaway: To fully automate OTP, companies need a comprehensive and integrated approach that brings together current processes, cross-departmental collaboration, and, most importantly, the right technology. Fragmented, point solutions are not enough to address the complexities of OTP.

This is also where Aibidia Operational Transfer Pricing Management (OTPM) solution comes into play, providing a centralized platform that simplifies and automates managing and analyzing OTP. If you’d like to see it in practice, find out more here.

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Trend #3: Compliance focus - navigating an increasingly complex landscape

With global tax regulations becoming more demanding, compliance has become a top priority across all jurisdictions. Companies are under pressure to demonstrate transparency and adhere to evolving standards. The EU TP directive and initiatives like Pillar 1 Amount B are designed to simplify compliance but also pose additional challenges in implementation.

The poll during one of the panel discussions highlighted that compliance and documentation are now the primary focus for tax automation efforts, with 43% of participants prioritizing them. This was followed by Pillar Two, 27%, and OTP, 16%. Despite efforts to simplify compliance, it still remains a challenging and resource-intensive area for many organizations.

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The upcoming U.S. elections could also influence the adoption of global initiatives like Pillar Two. A potential shift in administration might see the U.S. align more closely with these rules, adding to the uncertainty businesses face.

Globally, tax authorities are increasing scrutiny and using advanced data analytics, leading to more detailed audits and greater demands for transparency. Companies must ensure their compliance frameworks are strong and flexible enough to meet evolving local and global standards.

Key takeaway: To stay ahead of compliance requirements, companies should invest in technology that supports real-time reporting and transparency. With compliance as the top priority for TP teams, a proactive strategy is essential to manage this increasingly complex regulatory environment.

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Trend #4: Sustainability in transfer pricing is becoming an emerging priority

Sustainability is increasingly impacting transfer pricing considerations, especially as businesses adapt to new models, such as subscription-based services, and account for stranded assets.

The shift from a shareholder value to a stakeholder value creation model is driving companies to rethink TP strategies, especially as new business models like subscription services and concerns, such as stranded assets come into play.

A key discussion at the forum focused on the development of a Tax Sustainability Index, aiming to help companies assess and report on the alignment of their tax strategies with sustainability goals. This trend towards integrating sustainability into TP calculations reflects a broader movement towards aligning business strategies with long-term societal impact.

Key Takeaway: Companies need to consider how sustainability factors fit into their TP strategies and ensure that they are prepared to address the challenges of this growing landscape.

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Conclusion: Embracing innovation in TP

The overarching theme of this year’s ITR was the need to balance innovation with compliance. AI and technology offer significant opportunities to streamline TP processes and improve efficiency. However, as Jon Lacey, Director of International Tax Affairs at Microsoft mentioned during the event, “The number one priority as a tax department is compliance.”

To navigate the complexities of the modern TP landscape, organizations must adopt a dual approach that leverages technology while maintaining strict compliance standards. Embracing the upcoming innovation, ensuring proper governance, and aligning with the increasing demands of global regulatory standards, will be key to ensuring future-proof TP strategies.

Find out how Aibidia can help you automate your TP end-to-end here.

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