What is in fact Transfer Pricing main benefit

1. What is in fact Transfer Pricing main benefit?
It brings Multiple Valuations of the Same Material Flow in the Supply
Chain. Currently 3 valuation views are available:
 Legal valuation focuses on inter-company pricing agreements and legal tax
requirements. Allows you to represent profits optimally in the financial statements
of the company code for tax purposes and according to GAAP Standards.
 Group valuation focuses on eliminating intercompany profits (mark-up) and
acting as „one company". Allows strategic decision making by viewing data as if
the group acts as a single company code by eliminating internal profits
throughout the financial transaction flow.
 Profit Center valuation focuses on management prices agreed e.g., between
divisions (optional) or could be also market prices. Allows you to view the profit of
individual areas of responsibility as if they were selling entities not part of the
larger group.
You can do the Group and/or the Profit Center Views – i.e. you can do either one
or both.
An important part in the Multiple Valuations of the inventory is played by the
currency/ledgers set up. Before we get into that, let’s see what else it is needed to
achieve the multiple valuation of the inventory in the supply chain.
Prerequisites for Transfer Pricing:
Logistic

2.  Introducing a valuated stock in transit (SIT) that either belongs to the sending or
the receiving plant. In the images bellow are presented process variants
including the transactions and movement types which need to be used for cross
and intra-company stock in transit.

3. More details about movement types and scenarios which can be used for valuated
stock in transit can be found on the following link : Movement Types for Valuated Stock
in Transit - SAP Help Portal.
 New order types and movement types and configuration to support the process
 Ability to use this new concept either for cross-company processes or intra-
company code processes
 Setting up inter-company billing with EDI, see oss notes:

4. Note 31126 - Intercompany billing - posting to vendor account using EDI
Note 659590 - EDI: Stock transfer and cross-company sales
Accounting
 Activated on the Controlling Area level
 Material Ledger and Actual Costing must be activated
 Multiple currency set up - a maximum of three currency fields are available for
the operational inventory valuation of the materials. Before you implement the
profit center valuation or group valuation, you must therefore first check which
currencies are required for the legal requirements in the inventory valuation.
 Inclusion of cross-company profits (or markup) into the cost components
 Group and profit center actual costing parallel to the legal view

5. Month end closing
 CKMLCP needs to be executed in one run for all valuation areas where the
multiple valuation it is desired. Actual Costs can only be transferred between
plants that are settled in the same costing run.
Cross-Company receipts from plants outside the run will keep the standard price and
standard cost component split info from the sending plant.
Workaround, when a common run for the whole group cannot be managed:
1. Close organizations separately in CKMLCP
2. Create an (statistical) alternative valuation run AVR (CKMLCPAVR) for the whole
group to calculate fully connected group results with actual costs
3. Use AVR results for reporting

6. How to set up transfer pricing – Implementation hints
Maintain Currency and Valuation Profile
In the currency and valuation profiles you determine which valuation approaches are
managed in which currency in accounting. Currency types used for parallel valuation of
inventory:
For group and profit center valuation, you would manage the following valuation
approaches: Company code currency (10) in legal
valuation (0) - mandatory
Group currency (30) or Company code currency (10) in Group Valuation (1)
Company code currency (10) or Group currency (30) in Profit Center Valuation (2)
Customizing -> SAP Reference IMG -> Controlling -> General Controlling -> Multiple
Valuation Approaches/Transfer Prices -> Basic Settings -> Maintain Currency and
Valuation Profile (8KEM)
1.Legal valuation - company code currency (10) -> 10
Group valuation - group currency (30) -> 31
Profit Center Valuation -company code currency (10) ->12
2. Legal
valuation - company code currency (10) -> 10

7. Group valuation - group currency (30) -> 31
Profit Center Valuation -group currency (30) ->32
3. Legal valuation - company code currency (10) -> 10
Group valuation - group currency (10) -> 11
Profit Center Valuation -group currency (10) ->12
4. Legal valuation - company code currency (10) -> 10
Group valuation - group currency (10) -> 11
Profit Center Valuation -group currency (30) ->32
The last one doesn’t know if make sense for anyone, having Group Valuation in local
currency and Profit Center valuation in group currency, but it can be set up.

8. Basic Rules
You have to take the following rules into account when you maintain the currency and
valuation profiles because they are checked when you activate the currency and
valuation profile in the controlling area:
 Managing the company code currency (currency type 10) in legal valuation
is mandatory.
 You can decide whether the Profit Center Valuation approach and the
Group Valuation approach are managed in the company code currency
(currency type 10) or in the group currency (currency type 30).
 All valuation approaches you manage in accounting must also be managed
correspondingly in the material ledger.

9.  You can only manage a profit center valuation if you are using Profit Center
Accounting. Transfer prices means 12 or 32 . Is possible to set up Currency
and Valuation profile only with group valuation 11 or 31.
 The currency and valuation profiles can only be changed as long as they
are not yet assigned and not yet active in the controlling area.
 If you are doing a conversion and ML is already active but only in legal
valuation, the cutover to parallel valuation is not yet supported by SAP
standard in S/4 HANA. Also, subsequent implementation of multiple
valuation approaches in a productive SAP S/4HANA system is not yet
supported, see notes:
2334583 - Introduction of new currencies / currency types in SAP S/4HANA - SAP ONE
Support Launchpad
2555648 - Currency setting changes with active Material ledger in SFIN & S/4HANA -
SAP ONE Support L...
Therefore, if multiple valuation approaches are required in your group, the
current recommendation is to introduce the multiple valuations in the ERP
system and then migrate to SAP S/4HANA. SAP Note 2882025 - Multiple valuation
approaches/transfer prices in SAP S/4HANA, on-premise edition.

10. Define Settings for Ledgers and Currency Types
Multiple valuation approaches are managed in same way as parallel currencies in FI, in
transaction FINSC_LEDGER. You can see the setting options for the multiple valuation
approaches in FINSC_LEDGER only if a Currency and Valuation profile is assigned to
at least one controlling area.
In SAP S/4HANA two options are available to store multiple valuation:
Mixed ledger or Multi-valuation Ledger - update the multiple valuation approaches in
addition to the legal valuation approaches in the leading ledger or a non-leading ledger
Advantages:
 Currency types of all Valuations can be assigned to the leading ledger or a non-
leading ledger, no additional ledgers will be needed
 No separate month end closing in ML
 Memory footprint optimized as we only one ledger will get updated with all
valuations
 Default for Migration

11. The currency types (for example, 11/31 or 12/32) are maintained per ledger and
company code.
 Up to and including SAP S/4HANA Release 1709, the valuation approach that is
managed in the material ledger must be in one of the first four currency fields.
Therefore, besides the two currencies set by the system (local currency and
company currency), only the first two freely defined currencies remain for a profit
center valuation or group valuation.
The example above it is for Legal and Group Valuation only, with the following setup:

12. Currency and Valuation Profile Material ledger currencies:
10 Company Code Currency – Legal
Valuation
10 - Company Code Currency
30 Group currency - Group Valuation 30 - Group currency
31 - Group currency, Group Valuation (minus the intercompany profit)
 You can use all freely definable currencies for operational inventory valuation
only as of SAP S/4HANA Release 1809.

13.  It is mandatory to maintain both currency types for each valuation approach in
transaction FINSC_LEDGER : 11 and 31 or 12 and 32.
Even if only one currency type is maintained for a valuation approach in the currency
and valuation profile, both currency types of a valuation are necessary for updating data
in Controlling. With the introduction of the universal journal, the data model has been
simplified and harmonized. The universal journal uses the ledger approach for general
ledger accounting and for all subledgers. Therefore, in ACDOCA, the currency types in
the company code currency and the group must exist for each valuation view.
Example:
The example above it is for all valuations, with the following setup:

14. Currency and Valuation Profile Material ledger currencies:
10 Company Code Currency – Legal
Valuation
10 - Company Code Currency
30 Group currency - Group Valuation
31 - Group currency, Group Valuation (minus the intercompany
profit)
30 Group currency - Profit Center
Valuation
32 - Group currency, PC Valuation
Important:
 The freely defined currencies that are maintained per ledger and company code
are always translated from the delivered valuation approaches.
Example: If the profit center valuation is maintained in group currency (32) in the
Currency and Valuation profile, currency type 12 is calculated from currency type
32. See SAP Note 2581071 - Currency conversion of a freely defined currency type
which is not defined as a local curr... for more details on how a freely defined
currency type of FINSC_LD_CMP is calculated if is not defined as local currency in FI.

15.  SAP recommends that you maintain the currency views and valuation views from
the Currency and Valuation profile as the 2nd or 3rd FI local currency in
transaction FINSC_LEDGER. The background is that currently only these FI
currencies are integrated with all other applications. You also need the integrated
FI currency, for example, if you want to execute manual postings in FI in the
multiple valuations.
Parallel single-valuation Ledgers – create a separate valuation ledger for the multiple
valuation approach
Advantages:
 Valuation is assigned to Ledger
 Option for new installations
 Easier authorization concept

16. A separate valuation ledger provides a transparent separation of postings and reporting
in the multiple valuation approach.
The Currency and Valuation Profile and the Material ledger currencies set up is the
same as for the example above.
Important: The separation of the multiple valuation views from the legal valuation in a
single valuation ledger is currently not completely possible due to a restriction in Asset
Accounting. For more information, see SAP Notes:
2554992 - Multiple valuation approaches/transfer prices: Permitted representative
ledgers in Asset A...
2882025 - Multiple valuation approaches/transfer prices in SAP S/4HANA, on-premise
edition
Material ledger and actual costing
Are both mandatory for transfer pricing.
The currency types in the material ledger are defined as before in customizing, in
material ledger types.
Customizing -> SAP Reference IMG -> Controlling -> General Controlling -> Manage

17. Multiple Valuation Approaches/Transfer Prices -> Basic Settings -> Check Material
Ledger Settings. Under Assign Currency Types and Define Material Ledger Types
(OMX2)
Profit center valuation and/or group valuation should be assigned to a material ledger
type only in the currency maintained in the Currency and Valuation Profile.
Currency types 11 and 31 or 12 and 32 cannot be processed completely in parallel
along the value chain. For more details see oss Notes 2752721 - Material Ledger
supports up to 3 Currency and Valuation Types - SAP ONE Support Launchpad
2760935 - ML Type definition with respect to the group and profit center valuation
More details on Material ledger currency set up can be found also on the link: Material
Ledger Currencies - ERP Financials - Support Wiki (sap.com)
Controlling settings
In SAP S/4HANA, FI and CO are integrated under the same table - ACDOCA. However,
some CO transactions still expect the data in the old CO version format. For reasons of
compatibility, it is therefore necessary in SAP S/4HANA to maintain both versions for
multiple valuations and to assign the ledgers to these CO versions.
Customizing -> SAP Reference IMG -> Controlling -> General Controlling -> Manage
Multiple Valuation Approaches/Transfer Prices -> Basic Settings -> Define Ledger for
CO Version

18. Product Cost Planning
The multiple valuation approaches in Material Ledger can either be maintained
manually or determined using Product Cost Planning. Product Cost Planning offers the
option of determining standard costs for each valuation approach (legal, group,
profit center) and updating these in the Material Ledger. To determine the costs in the
corresponding valuation views, you can create corresponding costing variants in
customizing. The costing variant is assigned a costing type that determines which
valuation approach costing is calculated. The costing type similarly determines
whether the standard price of the corresponding valuation approach can be
updated by the costing variant.

19. Customizing -> SAP Reference IMG -> Controlling -> Product Cost Controlling ->
Product Cost Planning -> Material Cost Estimate with Quantity Structure -> Define
Costing Variants
Customizing -> SAP Reference IMG -> Controlling -> Product Cost Controlling ->
Product Cost Planning -> Material Cost Estimate with Quantity Structure -> Costing
Variant: Components -> Define Costing Types
When calculating the values for the profit center valuation view, pricing is to be taken
into account for profit center changes, in the same way as for the actual allocation. In
Customizing under Controlling -> Product Cost Controlling -> Product Cost Planning ->
Material Cost Estimate with Quantity Structure -> Define Costing Variants, set the Cost
Beyond Profit Center Boundaries indicator in the Quantity structure folder. This indicator
is displayed only if the costing type is set for profit center valuation.
The costing version controls which transfer price variant from Profit Center Accounting
is to be used as part of costing. Customizing -> SAP Reference IMG -> Controlling ->
Product Cost Controlling -> Product Cost Planning -> Selected Functions in Material

20. Costing -> Define Costing Versions.
The group costing saves the valuation differences from the legal and profit center
valuations in additional cost components for the cost of goods
manufactured. You must create these cost components for the cost of goods
manufactured in addition to the usual cost components (OKTZ). You must also identify
them as such on the detail screen for cost components for the cost of goods
manufactured using the Delta Company Code or Delta Profit Center field.
Setting up the cost component split
Actual costing reuses the cost component definition in product cost planning. The menu
path in IMG is Controlling- Product Cost Controlling – Basic settings – Define Cost
Component Structure (OKTZ).
The cost component for the intra-company profit is define by the checkmark Company
Code in the group Delta Profit for Group Costing
The change of the cost component structure is critical for implementations where actual
cost component split was already active before. Information and possible scenarios are

21. given in note Note 434873 - Actl cost component split - cost component structure
change.
Activate Cost Component Split in Controlling Area Currency
In this step, you specify that the cost components of the material costing, sales order
costing, or order BOM costing are to be updated both in the currency of the company
code, and in the currency of the controlling area. This processing requires that the All
Currencies indicator is set as the control indicator for the controlling area. Customizing -
> SAP Reference IMG -> Controlling -> Product Cost Controlling -> Product Cost
Planning -> Selected Functions in Material Costing -> Activate Cost Component Split in
Controlling Area Currency (OKYW).
More details on Actual Cost Component split can be found :Actual Cost Component
Split CCS - ERP Financials - Support Wiki (sap.com)
Activate transfer prices
The activation of the Currency and Valuation Profile for a controlling area is the final
step in customizing for multiple valuation approaches/transfer prices. Activate the
Currency and Valuation Profile only after you have made all the settings described
above.
Customizing -> SAP Reference IMG -> Controlling -> General Controlling -> Manage
Multiple Valuation Approaches/Transfer Prices -> Activation -> Multiple Valuation
Approaches: Check/Execute Activation (8KEP).
How Is the Value Flow Represented in the Supply
Chain?

22.  Standard Costs created using three separate costing variants that work from a
common BOM (in case all three valuation will be used Legal, Group, profit Center
valuation). The BOM provides a link between plants that trade with one another
for planning purposes.
 Cost components recognize delta by company code and profit center at
intersections
 The costing variants fill three valuation views in the material ledger.
 The Material Ledger: captures the link between sender plant and receiver plant
as the goods movement for the stock transfer order is posted

23. Where:
Company Code Currency – Legal Valuation
Group currency, group valuation – Group Valuation minus the intercompany
profit/mark-up.
Group Currency, profit center valuation – the profit of individual areas of
responsibility in group currency.

25. Additional information's and troubleshooting on Actual Costing- Material Ledger
you can find on the link:
Actual Costing - Material Ledger CO-PC-ACT - ERP Financials - Support Wiki
(sap.com)
 SAP Managed Tags:
 SAP S/4HANA,
 SAP S/4HANA Finance,
 FIN Material Ledger
Labels:
 Technology Updates
 Actual CostingMaterial Ledger
 inventory valuation
 Material Ledger Parallel Valuation
 Multiple Valuation of Inventory
 S4HANA RIG
 S4HANA Transfer Prices
 SAP S4HANA 2022
10 Comments

26. former_member559351
Discoverer
02-23-2023 4:15 PM
0 Kudos
Hello alina-cristina.vranceanu
Great blog & detailed explanation. One correction I feel is that "Actual Costing" is not
mandatory for Multiple valuation approaches, only the Material Ledger is Mandatory I
believe.
AlinaVranceanu
Advisor
02-28-2023 1:12 PM
0 Kudos

27. Hi, Actual Costing it is prerequisite for Transfer Pricing with Multiple Valuation.
I assume you refer to multiple currencies in ML, for this you do not need Actual Costing,
but for Transfer Prices, it is mandatory.
former_member845391
Member
03-08-2023 11:05 PM
1 Kudo
Hello,
On your post -> "Actual Costing it is prerequisite for Transfer Pricing with Multiple
Valuation", I have successfully prototyped Multiple valuation approaches - Transfer
price for Legal and Group Valuation. It works perfectly without actual costing activation.
Regards

28. former_member557042
Explorer
04-04-2023 2:32 PM
0 Kudos
Hi Alina-Cristina Vranceanu: Thank you very for your sharing. My customer has a doubt
about profit center Transfer Pricing problem. The product is sold from LT01 company to
LT02 company, and the corresponding profit center A is the same as the picture
showing. The customer hopes that the profit center A(cross companies) will not be
affected by inter-company price increases and that the cost component of LT01 will be
automatically brought to LT02 company. I want to know if this is the actual situation in
S/4HANA? Could you please give me some opinions and comments? Many thanks!

29. MPS4HANA
Active Contributor
05-23-2023 11:50 AM
0 Kudos
Yes, "Actual costing" is not mandatory for multiple valuation approach. We have
configured multi-valuation without actual-costing as per client requirement
MPS4HANA
Active Contributor
05-23-2023 11:52 AM
0 Kudos
Hi Andrew, did you simulate the set-up in sandbox?
former_member557042
Explorer

30. 06-26-2023 4:47 PM
0 Kudos
Not yet.
Eyad
Explorer
07-04-2023 5:36 PM
0 Kudos
At first many thanks for your great explanation.
We activate the transfer price concept and it is working fine but the issue if we try to
issue do any transaction related to materials "ex. MIGO" a screen appears to only press
ok, this screen makes a huge issue in the daily process and delay the process, is that a
mistake in our configuration? can you advice if this issue can be solved by anyway.
Thanks for your support

31. I584168
Advisor
08-03-2023 5:10 PM
0 Kudos
Hi Eyad,
I believe you have active the "Condition Analysis" (GS_TPVAR1-DIALOG) in transfer
price variant maintenance (8KEZ).
If you deactivate it, you'll switch off the pop up's for every material movement.
I hope this can help you.
Best regards,
Filipe
former_member850348
Discoverer
08-22-2023 4:47 AM
0 Kudos

32. Dear All,
Any suggestions on how to implement transfer pricing for a manufacturing industry
client who is planning to implement transfer pricing for their logistics department which
provides vehicles to other departments, TM & PM modules mentions they use activity
rate ( per kilometer) to charge to other department with order settlement. SAP is not
supporting transfer pricing for activity types, may i request any suggestions on this
please.
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