Trade chain management and transfer pricing

The problem

In a group’s cross-border trade, a single consignment often passes through several legal entities – a domestic purchasing entity, an offshore trading entity, a domestic sales entity and so on:

• each entity keys its own purchase and sales documents, and quantities and values along the chain do not agree;
• intra-chain prices are set manually by finance, with little support for transfer pricing;
• intercompany balances are reconciled only at month end, and differences are hard to trace;
• there is no systematic self-check of how profit is distributed along the chain or whether it meets base erosion and profit shifting (BEPS) requirements.

How Tranexio handles it

1. Build the chain: a trade chain master document defines the participating entities, their sequence, currencies and counterparties, with the external purchase and external sale at either end.
2. Generate chain documents: purchase and sales contracts and orders for each leg are derived from the master document, keeping quantities and delivery dates aligned, while the goods ship directly from origin to final destination.
3. Price: prices for each intra-chain leg are calculated by transfer-pricing rules, with rules and parameters kept on file.
4. Settle and reconcile: invoices are issued step by step along the chain, payments flow back step by step, and intercompany balances are reconciled automatically.
5. Hedge and account: exposure along the chain can be hedged entity by entity, each leg is accounted for by its own legal entity, and related-party transactions are flagged automatically.
6. Self-check: BEPS compliance self-checks run against rules for chain continuity, non-negative profit and pricing method.

Key controls

The module is functionally complete; we recommend assessing its fit against your chain structure and tax arrangements before enabling it.