Yesterday accountants Grant Thornton unveiled a blockchain solution inter.x to help enterprises to manage transactions between companies in the same group. It addresses two common pain points relating to transfer pricing and treasury management.
When a company sells goods or services to another within the same group but a different country, invariably the countries will have different tax rates. By manipulating the pricing of intercompany transactions, a group could position more of its profits in a lower tax rate jurisdiction.
In the past, this transfer pricing, or mispricing, was common practice until governments outlawed it by requiring the sales to use market prices. But there is still ample scope for manipulation because the market price may not be obvious for many transactions.
There have been a few high profile cases, with pharmaceutical company GlaxoSmithKline paying the U.S. IRS $3.1 billion in 2006. But the Indian government failed in a case against Vodafone when it sold its Indian call center to Hutchison.
Coming back to Grant Thornton’s inter.x, one of its purposes is to provide visibility into these intercompany transactions at a group level. Also, by logging the transactions on a blockchain there’s an audit trail, so the pricing of a deal can’t be altered later.
“The inter.x offering helps users shift their compliance concerns; they no longer need to focus on applying policies, and instead can focus on whether those policies make sense,” said Steven Wrappe, national technical leader of Transfer Pricing for Grant Thornton.
The solution isn’t purely about blockchain, nor is it limited to transfer pricing. One of the other benefits is the integration of ERP systems across the world, which enables data to be aggregated in real-time.
The company said in a statement: “Intercompany transactions are the fifth most common cause of corporate financial restatements. They are frequently the source of underlying fraud, manual errors, unnecessary bureaucracy and wasted time.”
Grant Thornton has been involved in other blockchain projects, including advisory roles for blockchain smart payments for Spain’s national payments network, know your customer for Spanish banks, and the European car transport consortium Vinturas.