As transfer pricing economist, I fully subscribe to the notion that transfer pricing is considered both an art and science. I grew up as a classically trained pianist with an affinity towards mathematics and a dream of working in a “corner office”, which seemingly justifies my current role. I love the application of mathematics and statistical approaches in transfer pricing, and the analysis of business activities and intercompany flows, to understand the allocation of system profit, appeals to my creative nature. Transfer pricing is more than mere number-crunching. It requires good judgment, out-of-the-box thinking, and sometimes, raw opinion.
Nowhere is opinion more prevalent in transfer pricing than in benchmarking searches. Transfer pricing comps are a critical piece of determining irrefutable arm’s length pricing, and yet obtaining them has always required subjectivity on the taxpayer’s part. The problem, of course, is that if taxpayers have to rely on judgment, then so do tax authorities, and that means that transfer prices can be challenged based on little more than educated guesses.
Like the OECD, the International Monetary Fund, and the United Nations, among other groups, I’ve always thought that transfer pricing benchmarking should be based on more data points—in other words, less art, more science. Comparable companies shouldn’t be so hard to determine, and the selection process should be free of bias.
For years, I’ve wondered how economists and taxpayers can work around this pivotal flaw. I’ve brainstormed with leading transfer pricing experts, read numerous regulatory guidance papers, and brought up the issue at global tax conferences. The culmination of such powerful, collective feedback and the advancements in technology have finally allowed us to begin tackling this problem.
Today, I’m thrilled to share that Exactera is changing the way we search for transfer pricing benchmarks with the launch of AI-powered ExactMatch. This extraordinary module adds efficiency to comparable company searches, and it eliminates benchmarking subjectivity by basing transfer pricing comp searches on functional comparability, not limited to standard industry classification codes. ExactMatch searches through multiple data sources and evaluates comparability based on the functional definition of the tested party using natural language, ensuring a better comp set and a stronger arm’s length position for taxpayers.
As we all know, tax authorities aren’t making benchmarking any easier by adding unique requirements, like financial positions or geographic locations, to the descriptions of acceptable comparable companies. And ExactMatch overcomes those hurdles, too. With advanced filters, layered on top of functional comparability scoring, ExactMatch can find those needles in haystacks, in just minutes, eliminating the limitations of human reader fatigue.
Transfer pricing will always be part art and part science—and for me, that’s what keeps it interesting. But for the benefit of taxpayers and the efficiency of all practitioners around the world, ExactMatch tips the benchmarking scales in favor of science. And whether I’m at the piano or back in my corner office, it’s easy to see that’s exactly where it belongs.
Find out more about ExactMatch. Schedule time with an expert here.
