Q&A: Setting Up Transfer Pricing Between Plants

SAP Help

Transfer pricing is a widely used functionality which sets a price between affiliated entities. It is typically setup for cross border transactions and need to conform with the tax laws in the respective countries. However, in SAP Transfer Pricing can also be set up between profit centers (and plants). In this regard it is used as an internal mechanism that treats every transfer between profit centers as a sale and helps facilitate full management reporting by a plant, or group of plants.

Watch this prerecorded Q&A with FI/CO expert Paul Ovigele, to learn the following:

  • What needs to be set up for Transfer Pricing between Profit Centers?

  • How is standard cost calculated for Profit center Transfer Pricing?

  • How does a Transfer Pricing Posting look in the profit center View?

  • What are the options to convert to Profit Center Transfer Pricing in S/4 HANA?

Speaker: Paul Ovigele, FI/CO Expert, ERPfixers

Is Profit Center Valuation affected by Profit Center Reorganization?

Profit Center reorganization allows you to merge, delete and change profit Centers and update the relevant master and transactional data objects accordingly. While PC Reorg does not directly impact PC Valuation a change in the Profit center Structure may be necessary before setting up PC transfer pricing.

What are the differences in Profit Center Transfer Pricing with S/4 HANA?

PC Transfer Pricing functionality itself, has not changed much with S/4. However, with the introduction of Single Valuation ledgers, you can designate one Ledger strictly for the PC Valuation View. This functionality is only available with S/4 HANA and not ECC.

Can Profit Center and Company Code Transfer Pricing work together?

Yes, you can have Profit Center Transfer Pricing, which adds a Markup between Profit Centers, and also have a different view (called the group View) for the same document that eliminates Intercompany profits. Also the profit Center Transfer pricing conditions PC00 and PCVP are included in the standard Intercompany pricing procedure (ICAA01).

Does Profit Center Transfer Pricing work with the New G/L?

Yes, PC Transfer Pricing works with the New G/L with all the same functionality. The main difference is that, with the New G/L, Profit Center Accounting is included as a Scenario in the New G/L as opposed to being in a separate table.

How do you manage existing inventory valuation prior to activating either PC transfer pricing or plant transfer pricing?

When you activate the PC Valuation View, one of the first things that you will need to do upon going live, is to calculate a standard cost in the PC view. This standard cost should include the profit center transfer price markup in the relevant receiving plants. This will therefore revalue existing inventory in the profit Center valuation with the transfer price included.

Can you still correct / update / change price for all valuations using MR21? 

Yes, when you carry out an MR21 change, you will see that there is an additional tab for the PC Valuation view. When you make change the price in the company code currency tab, you then need to click on the PC Valuation tab, and make the price change there as well.

Can you create a condition type that would be included in transfer pricing, but not in costing?

Yes, if you use the condition type that is designated as a Fixed Transfer price, this does not change the standard cost, only the actual value of the transaction. Note however, that even when the standard cost is changed by PC transfer pricing, it is not the legal standard cost that is changed. Instead it is a parallel standard cost that is updated.

Can you take the standard cost from the sending material master view?

Yes, this is the option of having a markup condition on the standard cost. If (say) the sending plant's material master standard cost is $10, and you have a PC transfer Price markup condition of 10%, then the receving plants stnadard cost (in PC view) will be $11.

Can you set up a mark down condition with a negative %?

Yes, you can set up a mark down with negative %.

We use the profit center field to represent product families.  Our transfer pricing is between SAP company codes.  With the profit center field not available for any other use, can we still use the transfer pricing solution that's being presented?

If your product families are set up as Material Groups, then yes, you can set up transfer pricing based on Material Groups, because this is an available field in the PC Access sequence.

How do we eliminate profit in WIP and inventory?

Elimination of Profit in Wip and Inventory is an outcome of Group Valuation Transfer Pricing and not PC Valuation Transfer Pricing. 

Does this functionality work for materials that are costed based on EBEW (sales order costing) or QBEW (project systems costing)?

Yes, the functionality is not dependent on the type of inventory. However, you need to make sure that the transaction crosses over an internal boundary (profit center, plant, division, etc.) so that the transfer price is triggered. Sales Order Costing is normally for customer sales and not internal sales.

What is the SPRO for setting up accounts for Internal Goods Movements by Controlling Areas?

Controlling -> Profit Center Accounting -> Transfer Prices -> Settings for Internal Goods Movement -> define Account determination for Internal goods Movement

UNBW material (non-valuated) revenue can be posted using profit cntr transfer pricing method?

This needs to be tested, but it should be possible using the Fixed transfer pricing condition.

How is this different than setting up some pricing conditions and  adding to the pricing procedure of the STO and IC invoice?

Not all Profit Center Transactions are based on STO and IC invoices (for example, a material in one PC could be consumed on the Production Order in  another PC and generate a transfer price). In fact, if the profit Centers are in the same company code there will not be an IC invoice generated.

Can they set the display to show the transaction codes?

8KEZ - Basic Settings for Pricing; 0KEK - Define Account Determination for Internal Goods Movement; 8KED - Create Access Sequence; AKE5 - Create TP Condition Record.

What does "not cost elements" drive?

Internal Goods Movement Accounts are for the Profit Center valuation View alone and should not have a CO Account assignment, therefore should not be set uop as cost elements.

Based on the last slide, we are on S4 HANA , can we implement PC transfer price in S4 

If you do not have PC Valuation set up, it may be difficult to convert when you are already on S/4 HANA. This is a question you need to ask SAP, as they may have an SLO conversion process for this.

What about transfer price transaction between 3 plants?  How the settings should be done?

The setup usually involves a sending and receiving plant. As long as you set up the relationships between each transacting plant, that should be possible. Also, you may choose to use a field that is different from the "Plant" field, e.g material group, for this purpose.

Can this be used for Legal entity to Legal entity Transfer pricing for Tax purposes?  

For that purpose it is better to use the transfer pricing that is enabled with group valuation. PC transfer pricing is mostly for internal, and not external purposes.

Can you map the mark-up to a separate cost component in the standard cost?  Am thinking of how COPA is impacted in terms of looking at true profitability across all profit centers and using Valuation to map cost components to value fields so that the intracompany mark-up can be ignored.  Or is this not necessary with PC valuation?

That is not necessary with PC valuation because, in CO-PA, if you activate the PC Valuation View, you will have two different ways of reporting profitability across Profit Centers. The Legal view will show the profitability without the markup; the profit center view will show the profitability with the markup.

How does the system handle AR/AP auto reconciling done? Do you use IDOC process?

There is no need for AP/AR posting with the PC Internal Goods Movements. All the accounts are P&L accounts created for PC View only. If a transction crosses over companies and profit centers, then the normal Idoc process can be used with AP/AR, but this is more for the Company Code Transfer pricing than the Profit Center Transfer pricing.

Can you please elaborate a bit on the Group view possibility next to Legal view and Profit centre view you talked about?

The Group View is another parallel valuation View (separate from PC Valuation) that can be used to eliminate profit between company codes.

Do we need to implement New GL and Material Ledger/ Actual Costing in ECC6 before we Migrate to S4/HANA?

If you want to use PC Transfer Pricing in S/4 HANA it is best to implement it in ECC first, as there is no conversion tool for PC Valuation in S/4. New G/L implementation is not necessary to use this tool in ECC. In S/4, New G/L is automatically turned on.

How do you manage existing inventory valuation when activating transfer pricing?

A Costing Run in the Profit center Valuation needs to be carried out when you go live with a PC Transfer Pricing Solution. This will value all existing inventory in the PC Valuation View and include a Transfer price where relevant.

Do we need to still use classic PCA or is it sufficient to use within new GL solution? Is material ledger required for intercompany transfet pricing as well?

Either Classic or new G/L can be used with PC Transfer pricing. Material ledger needs to be activated.

Author: Paul Ovigele

Paul Ovigele has worked as an ERP financials consultant since 1997 in both North America and Europe, specializing in implementing the FI and CO modules along with their integrated areas for companies in industries such as consumer goods, chemicals, logistics, pharmaceuticals, apparel and entertainment. Paul has delivered numerous training sessions to finance professionals at both the functional and managerial levels, and he has presented at various SAP financials conferences around the world.

Module(s): Financial Accounting