Uncontrolled Opinions

Is there a role for AI in transfer pricing?

We believe the simple answer to this question is – yes – but with a few qualifiers.   In this conversation, we dive into what is AI, Generative AI and how next-word prediction can and may be used in a transfer pricing context.

While we are generally optimistic, we also discuss the pitfalls of AI, including hallucinations, and why outsourcing judgment in evaluating comparables could be a slippery slope. We do not believe AIs have agency (yet) and advocate for human oversight in deploying and leveraging AI-based automation tools.  

In this episode of Uncontrolled Opinions, hosts Mikhail and Silvana recap some of the highlights from the  NABE 2024 Transfer Pricing Conference.  Mikhail and Silvana explore several of the most interesting panels, including:

·         Geographic Market Adjustments in CPMs/TNMMs: Amount B and Beyond

·         AI will make DEMPE irrelevant

·         Business Acquisitions: Reconciling Transfer Pricing and Financial Reporting for Intangibles in the Context of Purchase Price Allocations

·         Risky Business: The State of the Risk Control Framework

·         The Importance of Intercompany Agreements to Transfer Pricing Economists

·         The GLAMorous World of Implicit Support in Financial Transaction Transfer Pricing

·         Realistic Alternatives: When, Why, and Whose?

(The links above are YouTube links with timestamps to the panels that are discussed in this episode)

What is “Control”?  Nope we are not talking about Janet Jackson’s song.  The raison d’etre in TP is pricing of “Controlled Transactions”. So, what is control?  

In this episode of Uncontrolled Opinions, hosts Silvana and Mikhail dive into the definition of  “control”  in the context of transfer pricing. We discuss the differences between “Control” and “Related Parties”. We also highlight different definitions and ownership thresholds for what constitutes control and/or related party.  We also examine the practical implications of these divergent definitions on transfer pricing benchmarking. 

01:08 Defining control in TP

01:51 Difference between “Control” and “Related Parties”

06:16 Regulatory definitions and how they can differ across countries.

11:15 Practical challenges in TP benchmarking

14:32 Opportunity for harmonizing definitions 

23:23 Practical implications and future outlook

Arm's Length Range: 

In this episode, Mikhail and Silvana dive into the intricacies of the arm's length range, the interquartile range, and various statistical methods used in transfer pricing. They discuss the importance of these concepts in their day-to-day practice and how the arm’s length range and statistical screening can help enhance reliability in a transfer pricing analysis.

In this Podcast, Silvana and Mikhail discuss the developments surrounding OECD Amount B guidance as it stands in March 2024.  We explore the scope and criteria of Amount B, emphasizing its focus on tangible goods and excluding digital goods and services. We review the three-step pricing matrix and the industry groupings within the draft. We review the current articulation of the “risk adjustments” proposed in the Amount B paper and discuss its merits.

00:00 Initial Reactions to the Latest Amount B Draft

02:59 The Promise of Simplified Guidance and Its Limitations

03:39 Tracing the Origins: BEPS, Digitalization, and Tax Challenges

10:23 Diving into the Details: Scoping Criteria and Practical Implications

18:15 Analyzing the Pricing Matrix and Industry Groupings

21:52 Addressing Qualifying Jurisdictions and Risk Adjustments

30:03 Concluding Thoughts on Streamlining Transfer Pricing Processes