Almost a week ago I posted an argument to bring the transfer pricing function in house. In my discussions with TP professionals I heard some interesting feedback on the thought. The first that surprised me was a comment earlier this week on the original post:While that's certainly where I think the industry will end up, I believe it will be a long time before the bulk of Fortune 500 companies have their own transfer pricing departments. They aren't just looking at the cost of salaries, but the access to resources that the Big 4 have will take a long time to acquire. Not to mention that all 4 use proprietary transfer pricing software that is much better than anything publicly available. An additional consideration is the fact that controversy assistance will be much more expensive to outsource when you don't have a firm with extensive existing knowledge about your company's TP practices.And the second major surprise was in a conversation I was having with a candidate talking about a "client side" opportunity. This person said something to the effect of, "when a company pulls the function in house they always get it wrong." These both lead me to believe that this view is not uncommon among people in the consultancy. If this stance actually is widely held I disagree with it. In speaking with many people both in the consultancy and in law firms like Baker I've heard a lot of people say that they often have too many fact sets to keep straight. Being overwhelmed like this will guarantee that the consultancy is distracted, potentially confused, and less efficient than someone who is working with a single set of facts. It may be that these people are at the "bottom of the consultancy barrel," but I doubt that someone like that could rise to the ranks of Sr. Manager.I still think it's better to have the function in house.
Anonymous said...
I'm a consultant, but I also favor moving the TP function in-house when possible. In my experience, the Big 4 charge too much for inconsistent work. You can get competent advice from one person, and rubbish from another. Either way it is expensive. Most mid-sized multinationals could bring the TP function in house (by picking up an experienced Senior Manager) for far less than what they spend on consulting fees.
Additionally, it is a lot easier having an in-house employee stick around to make sure that the transfer pricing results get properly integrated in the company's accounting systems. I'm curious as to what resources the Big 4 have that in-house departments can't get. During my time with a Big 4 firm, I had the chance to use the proprietary software, but I found it cumbersome and incapable of handling odd situations. I can see how database expenses might be an issue for a small TP department. However, except for databases, I get by with Excel, Word, and occasionally, Minitab.
Anonymous said...
The problem with bringing the function in house is that the in house department gets too familiar with a single fact set, creative juices stop flowing, and they soon need to go to the consultancy anyway for new ideas.
The big 4 will always dominate transfer pricing because, esentially, that's where all the new thinking comes from.
Anonymous said...
I am guessing that is not either/or, but a bit of both. A MNE would probably understand the need for consultancy when e.g. designing a new setup and drafting a long-term set of policies. However, depending on the MNE structure and the jurisdictions in play, same understanding would hardly be found when e.g. rolling out a global documentation by simply filling out the gap between the global file and the local documentation needs. In the latter case in-house work seems to be a reasonable road to take.
And an Email from Friday:
Mike,
Thanks for the e-mail. My own thinking is that overtime most big companies will have internal TP personnel. The big 4 charge too much and a lot of the work in the Big 4 is delegated to individuals who do not see the big picture or do not understand the business of the client. There will always be a role for the Big 4 and firms like Baker but it will not be so much in TP documentation as in controversy.
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3 comments:
I'm a consultant, but I also favor moving the TP function in-house when possible. In my experience, the Big 4 charge too much for inconsistent work. You can get competent advice from one person, and rubbish from another. Either way it is expensive.
Most mid-sized multinationals could bring the TP function in house (by picking up an experienced Senior Manager) for far less than what they spend on consulting fees. Additionally, it is a lot easier having an in-house employee stick around to make sure that the transfer pricing results get properly integrated in the company's accounting systems.
I'm curious as to what resources the Big 4 have that in-house departments can't get. During my time with a Big 4 firm, I had the chance to use the proprietary software, but I found it cumbersome and incapable of handling odd situations. I can see how database expenses might be an issue for a small TP department. However, except for databases, I get by with Excel, Word, and occasionally, Minitab.
The problem with bringing the function in house is that the in house department gets too familiar with a single fact set, creative juices stop flowing, and they soon need to go to the consultancy anyway for new ideas.
The big 4 will always dominate transfer pricing because, esentially, that's where all the new thinking comes from.
I am guessing that is not either/or, but a bit of both. A MNE would probably understand the need for consultancy when e.g. designing a new setup and drafting a long-term set of policies. However, depending on the MNE structure and the jurisdictions in play, same understanding would hardly be found when e.g. rolling out a global documentation by simply filling out the gap between the global file and the local documentation needs. In the latter case in-house work seems to be a reasonable road to take.
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