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Mohammed_Yaseen
Associate
Associate
1,689 Views

Summary

When planning target architecture based on business capability assessments, the Transfer Price Management capability under the SAP RBA (Reference Business Architecture) model lists the SAP Profitability and Performance Management solution in addition to SAP S/4HANA. This leads to the requirement to understand how the products are relevant in terms of capability fulfillment and what is relevant for specific target architecture.

This article provides an overview of related evaluation and decision criteria related to solutions to support Transfer Price Management.

Business Requirements

The Transfer Price Management capability is defined in the RBA model as the ability to set prices to allow affiliated companies to trade with one another. This capability is also sometimes referred to as Operational Transfer Pricing.

Transfer Price Management or Operational Transfer Pricing is used by companies when goods or services are transferred within the organization across responsibility areas. These areas may be different areas of management responsibilities (such as Profit Centers or Plants) within a legal entity or different legal entities entirely (such as Company Codes). Transfers between legal entities are normally done at arm’s length, meaning that formal contracts, external regulations and taxes are applicable. Transfers within legal entities normally use transfer prices to recognize value addition and performance or management reporting considerations.

The economic basis for transfer prices is normally cost-plus, on a standard price basis. However, in some cases, it may even be based on external benchmarks such as market prices for similar material or services.

Solution Options

The following solutions are available for the definition of target architecture with the SAP Intelligent Suite.

  1. SAP S/4HANA
  2. SAP Profitability and Performance Management

Characterization of the Solution Options

SAP S/4HANA

SAP S/4HANA is at the heart of the SAP Intelligent Suite solutions for Finance. It serves as the system of record for Finance and is mandatory target architecture to support all core finance processes.

SAP S/4HANA provides the Material Ledger as the basis of transfer price management. The types of valuation supported are the following.

  • Legal Valuation
  • Group Valuation
  • Profit Center Valuation

The approach to transfer price management in SAP S/4HANA is detailed in SAP Note 2882025.

SAP also delivers parallel valuation capability with Universal Parallel Accounting in SAP S/4HANA. This approach is distinct from the Material Ledger based approach listed above and requires evaluation for customer suitability. SAP Note 3191636 provides scope information.

SAP Profitability and Performance Management (PaPM)

SAP PaPM provides functionality for modeling an end-to-end operational transfer pricing calculation, using predefined data coming from manufacturing process with production plans, bill of materials and unit costs. During intercompany recharging process there is a calculation of VAT, Markups and Duty Taxes as well as the Tax Adjustments. Markups, tax rates and duty fees are applied for each product through different calculation types.

SAP PaPM contains sample content for Operational Transfer Pricing.

In all cases, please refer to the latest SAP product collateral available on these topics to stay on top of current releases. A good starting point is the Finance and Risk Hub.

Criteria to determine the most suitable target solution

As mentioned in SAP Note 2882025, The subsequent implementation of multiple valuation approaches in a productive system, that is, a system with existing transaction data in the table ACDOCA, is not currently supported. Likewise, the implementation of multiple valuation approaches during the SAP S/4HANA migration is currently not possible (that is, the enhancement of Customizing with regard to parallel valuations in the steps of the Customizing migration). Therefore, the current recommendation is to implement the parallel valuations in the ERP system, and then perform the migration to SAP S/4HANA if multiple valuation approaches are required when moving to SAP S/4HANA with a brownfield approach.

Please note that this is a current limitation as at the time of the creation of this article and should be reviewed when specific evaluations are done.

The SAP PaPM solution can be proposed for customers that desire the Transfer Price Management capability but are not able to implement it in core SAP S/4HANA for the above reasons or find limitations in the capability offered in the core.

Conclusion

Transfer Price Management is offered in core SAP S/4HANA and should be the first choice of architecture for customers needing the function.

However, customers that will not use a greenfield approach to SAP S/4HANA can benefit from the use of PaPM as the target architecture to support Transfer Price Management, as there could be limitations they face in enabling this functionality in the core as enumerated earlier.

Implementation of Transfer Price Management in core SAP S/4HANA is dependent on the overall design of finance and logistics components. Customers that are looking for a more flexible approach somewhat de-linked from the configuration in SAP S/4HANA but still drawing on the data and structures therein can also consider PaPM as target architecture.

Comments
MartinMysyk
Product and Topic Expert
Product and Topic Expert

Interesting blog post Mohammed. It goes to show that the world of Enterprise Architecture also involves many aspects on how a businesses run internally and externally.

udo_werner2
Explorer

Hi Mo, just wanted to add that many companies use transfer prices in SAP without both of the above solution options, that is, without parallel valuation and without PaPM. Just modeling an IC sales process with a price condition such as cost plus IC surcharge gives you already transfer pricing. Above solutions just add transparency for reporting and controlling  (parallel valuation) or planning and simulation capabilities (PaPM).

Version history
Last update:
‎2023 Dec 27 9:19 AM
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