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Transfer Price

Transfer Price is the price at which an item is transferred from one operating unit to another operating unit. Transfer price is also usually called as “Arm’s length Price” and is generally guided by the originating country’s accounting standards.
Logic for transfer price determination for shipping flows is explained in Figure . However, for procuring flow, you can specify whether the transfer price is same as the PO price in intercompany transaction flow. This means that an operating unit sells at the same price at which it procured the item to another operating unit. If you specify that the transfer price is not same as the PO price in the intercompany transaction flow, then system uses the same logic as depicted in . For procuring flow, you specify the pricing option (transfer price or PO price) separately for asset and expense items.

You can make use of the external API feature of the intercompany invoicing to develop your own custom logic for determining transfer price. For example, if you want to use the cost price as the transfer price, then build your custom logic to fetch the cost price. The name of the external API is MTL_INTERCOMPANY_INVOICES.get_transfer_price and the name of the file is INVICIVB.pls located at $INV_TOP/patch/115/sql. Ensure that the API returns transfer price along with currency code.
Please ensure that the transfer price is not 0. Oracle expects that the transfer price should be greater than 0. You will be able to create an intercompany AR invoice but will not be able to create an intercompany AP invoice resulting in intercompany reconciliation discrepancy. You need to set the profile “QP: Security Control” to ‘Off’, to generate logical transactions and for raising the intercompany AR invoice.

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Intercompany Invoicing Overview

Intercompany invoicing is done when one organization offers products / services to another operating unit. For example, when a customer order is processed through the order cycle and then invoiced, the selling organization records journal entries to accounts receivable, revenue, and as applicable tax and freight. The shipping warehouse records journal entries to its inventory asset and cost of goods sold accounts. When this scenario involves a selling organization in one business unit but a shipping warehouse in a different business unit, additional accounting must take place. The shipping organization needs to bill the selling organization at transfer price, and the selling organization needs to make the corresponding payment.
Note that intercompany invoicing is possible only between two operating units. You cannot invoice between two inventory orgs if they belong to the same operating unit.The intercompany AR invoice is the transaction used by Oracle to record intercompany receivable accounting for the shipping organization: debiting intercompany AR (at transfer price), tax, and freight and crediting intercompany revenue.
The intercompany AP invoice is the transaction used by Oracle to record the payable accounting for the selling organization: debiting intercompany COGS (at transfer price) and freight and crediting the intercompany payable account. Ideally, these transactions should happen automatically and as soon as possible after the shipment takes place. This can be done using the intercompany invoicing process within Oracle applications.
Oracle supports intercompany invoicing when:
  •  Shipping operating unit is different from selling operating unit and
  •  Receiving operating unit is different from procuring operating unit.
Basic Business Needs
Oracle Applications provides you with the features you need to satisfy the following basic business needs.
  • Enter sales orders from one operating unit and assign a shipping warehouse under a different operating unit.
  • Automatically create intercompany payable and receivable invoices to record intercompany revenue, payables and receivables.
  • Eliminate intercompany profit in the general ledger.
Major Features
Automatic Intercompany Sales Recognition
You can assign a shipping warehouse under a different operating unit to a sales order. The system automatically records an intercompany sale between the shipping organization and the selling organization by generating intercompany invoices.
Segregating Trade and Intercompany COGS and Revenue
You can define different accounts for Trade and Intercompany COGS and Sales Revenue to eliminate intercompany profits’ Transfer Pricing. You can establish your transfer pricing in intercompany invoices through Oracle Order Management and Shipping Execution’s price lists.

Extensible Architecture
At key event points in the programs, stored procedure callbacks have been installed, including invoice and invoice line creations, and the transfer pricing algorithm. You can insert PL/SQL code to append or replace existing program logic to fulfill your specific business requirements.

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Inter Company

More and more companies are doing business globally, and taking advantage of the operations and tax benefits that can be achieved by running operations throughout the world. These companies have multiple operating units and organizations around the world. When goods are shipped or received, the financial ownership through these organizations does not necessarily follow the physical movement of goods. Oracle Applications support three main logistics needs of global organizations – Central Distribution, Central Procurement and Drop Ship.
  • Central Procurement (P2P)
  • Central Distribution (IR ISO)
  • Drop Ship
    1.  External (O2C)
     2. Internal (O2C)
A corporation manages its global operations in various countries through a network of subsidiaries, separate legal entities, licensees and several associated label franchisee. This complex network of operations is necessitated to take care of local legal and fiscal environment, which prevail in each of those countries.
Consider the below example:
Vision Operations (V1) is based in USA. It has a 100 % owned subsidiary company called Vision Asia (VA). VA in turn has two subsidiaries – Vision Japan (VJ) and Vision China (VC). VJ has manufacturing facilities in Osaka (O1) and distribution center at Tokyo (T1). Due to tax advantages, V1 sources all the goods from china through VJ. Though the financial transactions between V1 and VC are routed through VJ, logistic movement of goods takes place directly between V1 and VC.
Continuing the above example, Vision Operations (V1) has another subsidiary company called Vision Singapore (VS), 100 % that it owns. Individual plants procure components from their own suppliers. VS centralizes all the commodity (like steel, Aluminum etc.,) procurement needs of Vision Operations across Overview of Intercompany Invoicing 1 world and procures the material on behalf of all VJ and its subsidiary plants and places purchase orders on its suppliers. However, material is directly shipped from the suppliers to all the manufacturing plants.

Fig1
A key requirement for the global implementation of Oracle applications in such a complex business environment is the ability to process “intercompany transactions,” where one business unit (across OUs)invoices another for transfer of goods and services. Often these intercompany transactions involve transactions related to general expenses, funds transfer, salary transfers, asset transfers, royalty payments and product transfers.
For example, the organization structure depicted in figure 1 can be modeled in Oracle applications as depicted in Figure 2.

Following are the key implementation points you need to look into:
  • Understand the corporation business entities and the relationship between them. Identify selling-shipping relationships and procuring-receiving relationships.
  • Understand Oracle multi org structure and the building blocks in data structure.
  • Breakup the business relationships into manageable process flow and map it to various entities in Oracle applications.
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Multi-org Security model

The organization models in Oracle Applications define organizations, their relationships, and the transactional flow among organizational structures. With the multi-org security model, you can customize Oracle Applications according to your business needs. In this topic, you learn about features of multi-org security model.

In the multi-org security model, each user within the organization is assigned responsibilities. These responsibilities are in turn attached to operating units (OUs) or inventory organizations. In this security model, the responsibility is the key because different responsibilities have distinct ways of securing the data contained in them.
For example, within general ledger (GL), data security is provided by the GL set of books (SOB). Additionally, each asset can be secured by setting up a hierarchy of asset books within an asset. Similarly, within manufacturing  applications and INV,  security is provided by inventory organizations (IOs) and for Fixed Assets (FA), security is provided by Corp Book.
The security for data Human Resource (HR) is implemented by the Business Group (BG). Similarly, data security for order management (OM), Accounts Receivable (AR), Account Payable (AP), Purchase Order (PO), Cash Management (CE), Project Accounting (PA), and Sales Compensation (SC) is provided by OU.

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HRMS with Oracle Financials R12

The organization information used in HR is as follows
1. Business Group
2. HR Organization
The HR organization classification used in oracle financials applications are as follows
1. GRE/Legal Entity
2. Operating unit
3. Company Cost Center(Used in financials DBI)
4. Auditable Unit(Used in ICM module)
5. Assets Organization (Used in Financial Payables : Assets)
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