Artificial Intelligence and Transfer Pricing

October 2, 2023

The digital economy has led tax administrations globally to become more aggressive in eradicating tax base erosion and profit-shifting activities carried out by multinational companies. Recent progress in the advancement of Artificial Intelligence (AI), with the introduction of software, serves to comply with the Transfer Pricing requirements despite its complexity. 

Technology Application 

In order to achieve strict Transfer Pricing compliance, save costs, and improve the efficiency and quality of their products, some Transfer Pricing consultants are employing technology.   

The Incorporation of Artificial Intelligence 

By implementing artificial intelligence into the Transfer Pricing compliance process, many consultants can process data faster, calculate accurately, analyze prices (without human error), improve efficiency in their transactions, and achieve efficient results in their deliverables. Some benefits of AI include: 

Improved Data Analytics 

Multinational companies perform either numerous related-party or third-party transactions. These transactions generate a large amount of data that requires large man-hours to process. Conversely, artificial intelligence tools can process data quickly, identify useful trends, and provide relevant information.   

Artificial intelligence tools can also be extremely advantageous in the comparative Transfer Pricing analysis. Artificial intelligence can halve the time spent manually identifying suitable comparables by leveraging its machine learning algorithms. 

Improved Risk Assessment 

Due to its ability to identify data trends and detect outliers, AI has become a necessary value-add to the Transfer Pricing risk assessment process, avoiding pitfalls such as incorrect or incomplete disclosure.  

Multinationals are also employing AI tools to ensure that the Transfer Pricing compliance deadlines are met through the use of applications providing periodic reminders. 

Conversely, human expertise cannot be replaced by machine learning. A highly experienced consultant in front of the tax authorities is definitely a greater value-add compared to a data processing system. Artificial intelligence has a complementary nature.