01Taxation
Transfer pricing that looks ahead
FETP is a framework by Ajit Jain. It tests a transfer pricing policy against plausible futures, so the policy keeps pace with the business.
Written by Ajit Jain, founder of Averise. Last reviewed .
In brief
Foresight-Enhanced Transfer Pricing brings strategic foresight into transfer pricing.
At a glance
01A forward view, added Transfer pricing todayPast yearsCurrent functionsTodayFETP addsSignalsScenariosTriggersDocumentation looks back. FETP looks ahead.
02The four phases PerceiveProspectProbeTransformThe policyPerceive, prospect, probe, transform.
03The wind-tunnel result Four futuresPosition onePosition twoPosition threeRobustContingentBig betEach position, tested in four futures. Illustrative.
What we cover
Foresight-Enhanced Transfer Pricing
01
Why look ahead
Transfer pricing structures last for years.
- Technology that changes who takes key decisions
- New operating models, platforms and supply chains
- Intangibles whose development and control are moving
- Rules and audit practice that keep evolving
More detail
Transfer pricing structures last for years. Business models, technology and tax rules move faster.
When decisions shift to new teams, new systems or new countries, the functions and risks behind a policy shift with them. FETP helps a group see that early and plan for it.
02
The four phases
FETP runs in four phases.
- Perceive: scan for signals in rules, audit trends, technology and the business model
- Prospect: build a small set of plausible futures and map how functions, intangibles and risks could move in each
- Probe: wind-tunnel today's policy against every future
- Transform: sort each position as robust, contingent or a big bet, and plan the response
More detail
FETP runs in four phases. Each one builds on the last.
03
What a group receives
The outputs are short and practical.
- A signal register with sources and dates
- A scenario set, usually four futures
- A map of how functions and intangibles may shift in each scenario
- Wind-tunnel results for the current policy
- A position card for each material transaction, with triggers to watch
- Indicators for ongoing monitoring
More detail
The outputs are short and practical. They are written for tax, finance and the board.
04
Robust, contingent or big bet
Each position is sorted by how many futures it holds in.
More detail
Each position is sorted by how many futures it holds in. A robust position holds in all of them. A contingent position holds in some. A big bet holds in one.
Robust positions can be left alone. Contingent positions and big bets get triggers and a ready response.
05
When FETP is most useful
FETP adds most where a policy must last and the ground is moving.
- Before a restructuring or a new operating model
- When AI or automation changes who decides and who controls risk
- For IP-heavy, digital and platform businesses
- Before an advance pricing agreement or a long-term policy
- When entering new markets
06
Design thinking in transfer pricing
Ajit Jain also introduced design thinking to transfer pricing.
More detail
Ajit Jain also introduced design thinking to transfer pricing. A policy works when the people who run it can use it.
The approach starts with those users, in finance, tax and operations. It shapes the policy with them, tries it on real transactions and refines it.
Questions clients ask
What is Foresight-Enhanced Transfer Pricing?
FETP is a framework developed by Ajit Jain that applies strategic foresight to transfer pricing. It tests a policy against several plausible futures and prepares the group for change.
Does FETP replace transfer pricing documentation?
No. Documentation explains the position for the year under review. FETP sits alongside it and looks forward, so the next policy and the next file are easier to prepare.
What is a wind-tunnel test?
It runs the current policy through each scenario in turn. The result shows where the policy holds, where it needs adjusting and where it would need a rethink.
How far ahead does FETP look?
Usually three to five years. The horizon is set with the group and depends on the sector and the pace of change.
Who is FETP for?
Groups whose business model, technology or footprint is changing, and tax and finance leaders who want their transfer pricing policy to keep pace.
Sources
- Ajit Jain, Strategic Foresight in Transfer Pricing, International Transfer Pricing Journal, IBFD. The paper that sets out the approach.
General information, not advice on your facts.
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