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Oracle Transfer Pricing User Guide
Release 12.1
Part Number E13524-03
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Transfer Pricing Rules

This chapter describes the procedure for working with and managing Transfer Pricing rules.

This chapter covers the following topics:

Overview of Transfer Pricing Rules

Transfer Pricing rules allow you to specify methodologies for transfer pricing your product portfolio. A Transfer Pricing rule may contain a transfer pricing methodology defined for a particular product, or a set of methodologies defined for all products (Line Item Dimension Members) in a particular product hierarchy. In addition, it contains certain parameters used in defining option cost methodologies. See: Setting Transfer Pricing Rules.

The Transfer Pricing rule is a key component of the Transfer Pricing Process rule. The Transfer Pricing Process rule, which is used to launch the transfer pricing process, uses the transfer pricing methodologies contained in the Transfer Pricing rules to generate transfer rates. Consequently, before processing information for a new period, you need to review and validate the assumptions contained in Transfer Pricing rules. If new members are added to the Line Item dimension, you need to update the Transfer Pricing rule by defining appropriate methodologies for the new products.

The procedure for working with and managing the Transfer Pricing rule is mostly similar to that of other Oracle Transfer Pricing business rules. It includes the following steps:

As part of creating and updating Transfer Pricing rules, you can also define transfer pricing methodologies. See:

Oracle Transfer Pricing provides you with the option to copy, in total or selectively, the product assumptions contained within the Transfer Pricing, Prepayment and Adjustments rules from one currency to another currency or a set of currencies. See: Copying Assumptions Across Currencies.

Related Topics

Standard Navigation Paths

Creating Transfer Pricing Rules

You create a Transfer Pricing rule to define transfer pricing methodologies for your products.

Procedure

  1. Navigate to the Transfer Pricing rule home page.

  2. Complete standard steps for this procedure. See: Creating Rules.

Important: In addition to the standard steps for creating rules, the procedure for creating Transfer Pricing rule and version involves one extra step. After Standard Step 5, you need to select a product hierarchy. You can define methodologies at any level of the hierarchical product dimension. The hierarchical relationship between the nodes allows inheritance of methodologies from parent nodes to child nodes.

You can also continue defining a methodology at the lowest level of the Line Item dimension without selecting a hierarchy.

Caution: Oracle Transfer Pricing does not support multiple value set hierarchies and hierarchies with multiple tops. In addition, all the hierarchies need to be stored in flattened format for processing by the application. See: Working with Hierarchies, Oracle Enterprise Performance Foundation User's Guide.

Related Topics

Overview of Transfer Pricing Rules

Standard Navigation Paths

Defining Transfer Pricing Methodologies

Transfer pricing methodologies are always associated with a version of a Transfer Pricing rule. As a rule can have multiple versions, you can define various sets of transfer pricing methodologies under a single Transfer Pricing rule. The start and end dates of each version determine the set of methodologies available at any particular point.

The definition of transfer pricing methodologies is part of the Create or Update Transfer Pricing rules process where assumptions about transfer pricing are made for product-currency combinations. When you click Apply in the Create Transfer Pricing rules process, the rule and the version are saved and the Transfer Pricing rule selector page is displayed. However, the transfer pricing methodology has not yet been defined for any of your products at this point. Typically, you would start defining your methodologies for product-currency combinations before clicking Apply.

The Transfer Pricing rule supports definition of assumptions for combinations of two dimensions: Product and Currency. Consequently, before you start defining the transfer pricing methodologies for your products, you need to decide the way you want to input the parameters. You can select any one of the following two paths:

Once you have created a Transfer Pricing rule and a version, you can assign transfer pricing methodologies to product-currency combinations in either of the following two ways:

Prerequisites

Procedure:

This table describes some terms in the pages used for this procedure.

Selected Terminology
Term Description
Yield Curve Term Defines the point on the yield curve that the system references to calculate transfer rates.
Historical Term Specifies the period over which the average is to be taken for the Moving Averages method.
Lag Term Specifies a yield curve from a date earlier than the Assignment Date for the Spread from Interest Rate Code method.
Rate Spread The fixed positive or negative spread from an Interest Rate Code or Note Rate, used to generate transfer rates in the Spread from Interest Rate and Spread from Note Rate methods.
Model with Gross Rates This option becomes available when you select Account tables as the data source and allows you to specify whether modeling should be done using the net or gross interest rate on the instrument. This option is only applicable when the Net Margin Code is also set to one, for example, Fixed. Gross rates are typically selected while modeling the effect of serviced portfolios where the underlying assets have been sold but the organization continues to earn servicing revenue based on the original portfolio.
Mid Period This option applies to adjustable rate instruments only. It dictates whether the transfer rate is based on the last repricing date, current repricing period, prior repricing date, or some combination thereof.
Assignment Date This is the effective date of the yield curve.
Percentage/Term Points The term points that the system uses to compute the Redemption Curve method results. A percentage determines the weight assigned to each term point when generating results.
Add Dimension Values Allows you to select the products that you want to use as source values when you transfer price using the Unpriced Account method.
Across All Organization Units When this option is enabled, transfer price is calculated as a weighted average across all organization units for the matching product value and currency, and any optional migration dimensions selected in the Transfer Pricing Process rule. Otherwise, transfer price is calculated from accounts only within a particular Organizational Unit.
  1. Navigate to the version attributes page.

  2. Select a currency or product from the list of values, depending on whether you want to define transfer Pricing methodologies for the entire product portfolio, one currency at a time; or for all the currencies supported in your system, one product at a time.

  3. Click Go. The system displays a list of all the products (for which you can define assumptions) or currencies (that are active in the system).

  4. Click Update corresponding to the product-currency combination for which you want to define the Transfer Pricing Methodology.

  5. Select the appropriate data source: Account Tables or Management Ledger Table.

  6. Select the required Transfer Pricing method.

    Important: The Transfer Pricing methodologies available depend on the selected data source. See: Successful Transfer Pricing Combinations.

    Depending on the transfer pricing method selected, certain required and optional parameter fields are displayed. You can update these fields as required. See: Required Parameters for a Transfer Pricing Methodology. See also:

  7. Specify the desired Option Cost methodology. This option is available only when the data source is Account Tables. Here is how you can go about specifying an Option Cost Methodology:

    1. Select Run using Monte Carlo Option Cost Method. The Target Balance drop-down list is displayed.

    2. Select the required balance type. You can select any one of the following as the designated target balance for option cost calculations:

      • Par Balance

      • Book Balance

      • Market Value

    See: Transfer Pricing Option Cost, Oracle Financial Services Reference Guide and Transfer Pricing Process Rule and Option Costs.

  8. Click Apply.

    The version attributes page is displayed.

    At this point you can:

    The new assumptions are saved and the Transfer Pricing rule selector page is displayed.

Note: Oracle Transfer Pricing provides you with the option to copy, in total or selectively, the product assumptions contained within the Transfer Pricing, Prepayment, and Adjustments rules from one currency to another currency or a set of currencies. See: Copying Assumptions Across Currencies.

Guidelines

Availability of Transfer Pricing Methodologies

The availability of transfer pricing methodologies depends on the data source that you select: Account Table or Management Ledger Table. The following table describes the Transfer Pricing Methodologies available for each of these data sources and displays whether that methodology requires the selection of a Transfer Pricing Interest Rate Code.

Note: The Interest Rate Code LOV is filtered by the selected Currency.

Successful Transfer Pricing Combinations
Transfer Pricing Methodology Data Source: Account Table Data Source: Ledger Table Interest Rate Code
None Yes Yes  
Cash Flow Weighted Term Yes   Yes
Cash Flow Duration Yes   Yes
Cash Flow Zero Discount Factors Yes   Yes
Moving Averages Yes Yes Yes
Straight Term Yes   Yes
Spread from Interest Rate Code Yes Yes Yes
Spread from Note Rate Yes    
Redemption Curve Yes Yes Yes
Unpriced Account   Yes  

Note: Not specifying assumptions for a node is not the same as selecting the None methodology also known as the "Do Not Calculate" method in the Adjustments rule). Child nodes for which no assumptions have been specified automatically inherit the methodology of their closest parent node. So if neither a child node nor its immediate parent has a method assigned, the application searches up the nodes in the hierarchy until it finds a parent node with a method assigned, and uses that method for the child node. However, if no parent node has a method assigned then the application triggers a processing error stating that no assumptions are assigned for the particular product/currency combination. However, if the parent node has the method None assigned to it then the child node inherits None, obviating the need for calculation and for a processing error.

Required Parameters

You cannot define a transfer pricing methodology successfully, unless you specify the required parameters. The following table displays the parameters associated with each transfer pricing method and specifies whether they are required or optional. The optional parameter fields display default values. However, you may decide to change the values for the optional parameters for certain methodologies, such as, the Redemption Curve or the Unpriced Account methods.

Required Parameters for a Transfer Pricing Methodology
Transfer Price Method Yield Curve Term Historical Term Lag Term Rate Spread Assignment Date Mid Period Term Points Dimension Values
Cash Flow Weighted Term                
Cash Flow Duration                
Cash Flow Zero Discount Factors                
Moving Averages Optional Optional            
Straight Term           Optional    
Spread from IRC Optional   Optional Optional Optional Optional    
Spread from Note Rate       Optional   Optional    
Redemption Curve         Optional Optional Required  
Unpriced Account               Required

Related Topics

Setting Transfer Pricing Rules

Overview of Transfer Pricing Rules

Standard Navigation Paths

Creating Conditional Assumptions

Defining the Redemption Curve Methodology

Defining the Unpriced Account Methodology

Copying Assumptions Across Currencies

Defining the Redemption Curve Methodology

As part of the process for defining the Redemption Curve methodology, you must select as many Term Points from the Transfer Pricing Yield curve as you desire and allocate the percentage weighting for each of those points.

Prerequisites

Procedure to Add Term Points:

The steps involved in adding Term Points are listed below:

  1. Click Select Term Points.

    The Select Term Points page is displayed.

  2. Select the Transfer Pricing Yield Curve Points as required.

  3. Click Apply.

    The Transfer Pricing methodology page is displayed.

  4. Update the percentage value for each Term Point.

    Note: The sum of all the percentages for all Term Points must add up to 100. To remove a Yield Curve Point from the Percentages/Term Points table, click the corresponding Delete icon for the Yield Curve Point. Click Recalculate to total the percentages again.

Related Topics

Defining Transfer Pricing Methodologies

Standard Navigation Paths

Defining the Unpriced Account Methodology

When defining an Unpriced Account methodology, you need to select the Line Item dimension members (products) whose weighted average transfer rate will be assigned to the product being defined.

Prerequisites

Procedure to Add Dimension Values:

The steps involved in adding Dimension Values are listed below:

  1. Click Add Dimensions.

    The Add Dimensions page is displayed.

  2. Search and select the required Line Item dimension members. Specify whether weighted average of transfer rates has to be taken across all organizational units or for accounts only within that organizational unit.

  3. Click Apply.

    The Transfer Pricing methodology page is displayed.

Related Topics

Defining Transfer Pricing Methodologies

Standard Navigation Paths

Copying Assumptions Across Currencies

This functionality provides you with the option to copy, in total or selectively, the product assumptions contained within the Transfer Pricing, Prepayment and Adjustments rules from one currency to another currency or a set of currencies.

Copy of assumptions across currencies enhances the usability of Oracle Transfer Pricing in a multi-currency environment. For example if you have 10 currencies enabled in the application, you need to input only one set of assumptions and then copy these assumptions across all enabled currencies, instead of having to input 10 full sets, thereby saving a significant amount of input time.

This functionality also reduces the risk associated with data input errors as you need to audit inputs for a single set of assumptions before executing their cross-currency copy.

Prerequisite

Define Transfer Pricing, Prepayment, and/or Adjustments rules related product assumptions. See:

Procedure

Use the following procedure to copy assumptions across currencies:

  1. Navigate to the appropriate (Transfer Pricing, Prepayment, or Adjustments rule) version definition page.

  2. Select a View: All products for one currency or All currencies for one product. Although you can copy assumptions across currencies in either view, typically assumptions are copied in the All products for one currency view.

  3. Click Go. Depending on the selected view, the application displays a list of all the products or currencies for which you have defined, or can define, product assumptions.

  4. (All products for one currency view) Select defined product assumptions either individually using the check boxes corresponding to each product (or Node on the hierarchy) or in total using Select All.

  5. (All products for one currency view) Click Copy Across Currencies.

    Note: In the All currencies for one product view, select one source currency for the selected product, then click Copy Across Currencies to navigate to the Copy Across Currencies details page.

  6. On the Copy Across Currencies details page, select the listed currencies either individually using the corresponding check boxes or in total using Select All.

  7. Specify an interest rate code for each selected currency. This is necessary because each interest rate code is specific to a single currency. When copying product assumptions across currencies, you must define the interest rate code for each target currency to replace the interest rate code used for the source currency assumptions. For Transfer Pricing rules that use the Redemption Curve method, users should pay careful attention to the structure of the Interest Rate Codes selected for the Target currencies to ensure they contain all of the Term Points used in the definition of the source assumptions. If the selected target Interest Rate Code structures are missing required Term Points, the UI will display a notification regarding the missing Term Points, and assumptions cannot be copied until the user takes corrective action.

  8. Click Apply to initiate the copy process and to return to the version definition page.

    Note: You can review the results of the copy process from the version definition page by selecting a different currency and following the usual navigation to view or update assumptions. The application displays new assumptions for each product that was included in the original source selection. The copy process replaces pre-existing assumptions for any product-currency combination that is included in the target selection.

  9. Click Apply on the version definition page to save the assumptions to the database.

Related Topics

Overview of Transfer Pricing Rules

Standard Navigation Paths