Presented by Paul Ovigele
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. In SAP, Material Ledger can be used to enable multiple Valuation Views that can include or exclude the impact of transfer pricing and intercompany profit. In this regard it is used as an internal mechanism that treats every transfer between different company codes as is they occurred within the same entity, by eliminating intercompany profit and reporting in a common currency.
Watch this recorded webcast with FI/CO expert Paul Ovigele, to learn the following:
- What needs to be set up for Transfer Pricing between Company Codes?
- How is standard cost calculated for Profit center Transfer Pricing?
- How does a Transfer Pricing Posting look in the Group Valuation View?
- How is profit in Inventory identified in an Intercompany Posting?
- What changes have been made to the Transfer Pricing process in S/4HANA?
Q&A
Q: If my local currency is different from group currency which currency type is better to be activated in profit center valuation either Profit center valuation - legal currency is better over profit center valuation - group currency or vice versa?
A: It is typical to activate Group Currency for Profit Center Valuation, because, when you use Profit Center Valuation, it is expected that the reporting will be done from an Enterprise standpoint, and not for a single division. Note that, in S/4HANA you will have the choice of activating both Local (12) and Group (32) Currency for Profit Center Valuation.
Q: How do you configure the legal valuation accounts to permit elimination in Group Reporting, BCS, or any other consolidation tool? This is due to legal valuation being the source for consolidation (rather than the group valuation). Additionally, it was mentioned that obtaining mark-up values on inventory. How can this be captured to permit eliminations of I/C inventory on hand at period-end?
A: The configuration of accounts for elimination is usually done in the consolidation tool (Group Reporting, BCS, etc.). Group Valuation View aids this process further if there is a need to elimination intercompany profit in inventory (since the Profit in Inventory is not a separate account in the General Ledger).
Q: If we activate Group Valuation in ECC, does it work retroactively?
A: No, Group Valuation does not work retroactively in ECC or S/4HANA.
Q: Do we need Group Currency in Order to activate Group Valuation? For example, if we have all company codes with the same currency, do we still need Group Currency?
A: No, you do not need Group Currency in order to activate Group Valuation. You can activate Group Valuation with Local Currency. Having said that, it is prudent to activate Group Currency anyway, in case you acquire a company in a different country at a later point. It is dificult to assign Group Currencies after the fact.
Q: What happens if I need to change standard cost in Group Valuation? DO I also need to change standard cost in Legal valuation?
A: From a technical standpoint, you do not need to change the Standard Cost in Legal Valuation if you change the Standard Cost in Group Valuation, because they use different Costing VAriants. However, it is prudent to update them at the same time.
Q: We already have an intercompany cost component. If we activate Group Valuation and the Delta Cost Component, can we still use our current intercompany cost component or will it double-up our cost?
A: The Delta Cost Component will not double up your cost even if you already have an intercompany cost component. This is because the Delta Cost Component is statistical, i.e., it does not get added to the cost component total. It only shows you the ammount of intercompany profit that is contained in the other cost components.
Q: How does Group Valuation work when you use Central Finance?
A: It is possible to use Group Valuation with Central Finance as long as you set up the configuration and perform the mapping correctly. Obviously it is easier if your source system is an SAP system that already has Group Valuation. If your source system is not an SAP system or/and does not have Group Valuation, then you would need to establish how profit in inventory is eliminated when it is transferred into Central Finance.
Q: Once the currency types are configured and data is posted in sap is it possible to change the currency type later on?
A: Changing the Currency Type after the fact can only be done using an SAP service called SLO (system landscape optimization) otherwise there could be severe data inconsistencies. In S/4HANA I do not believe you can change the Currency Type after the fact.