How to improve the estimation of intra-firm prices for financial and tax reporting during economic downturns

Abstract

Abstract In this article, we propose an approach that can be employed to estimate prices in intra-group trade at times of economic turmoil, and to improve financial, management, and tax reporting by using current macroeconomic data to adjust historic benchmarks. We explored the use of a predictive model, that employs macroeconomic data, and in particular changes in GDP, to predict company profitability and arm’s length profit ranges. The results of our analysis show that there are correlations between changes in GDP and changes in certain P&L items of companies operating in Europe. While the relation might or might not be explained by a causal/inference model (Granger causality), it may have a practical use: to predict changes in the profitability of companies when company data are not available in real time (Shmueli, 2010).