How does Prowess TraX Work?
Prowess TraX, or Prowess For Transfer Pricing TaXation, is
a service that enables you to find the arms length profit margin for
a target company from an appropriate set of peers. It provides access
to a large database of the financial performance of companies and an
interactive software that helps you find the most appropriate peers of
a target company.
A target company is the company for which you wish to conduct
a Transfer Pricing Taxation Case.
Prowess TraX draws upon the largest database available on the
financial performance of Indian companies. This ensures greater success
in finding the target company and its peers. Further, CMIE is happy to
add companies in the database for its Prowess TraX subscribers. This
makes Prowess TraX the most appropriate database to use for conducting
studies to find comparables and the arms length profit margin.
A Case can be completed in 13 steps. The Prowess TraX software
guides you through these step by step, one step at a time. The 13
Ascertain economic activity of target company
Find comparables using main product/service
Find comparables based on products produced/traded
Find comparables based on grouping of products produced/traded
Find comparables using product names as disclosed by companies
Find comparables using business segment-wise information
Filter comparables using annual financial statements
Filter comparables using related party transactions
Filter merged companies
Filter companies based on ownership
Add company by name
Remove company by name
Generate profit margins of target company and peers
Each step either finds companies or filters the available
companies to find those that are similar to the target company.
Each step is a Query on the database.
A Query is executed by using the interactive Prowess
TraX software. This software can be downloaded freely from
http://trax.cmie.com. Queries are purchased from CMIE. Queries are
consumables. They are consumed when they are executed. A Query can be
used to execute any of the 13 steps.
Most Queries involve selecting variables and their parameters to
filter the database to find companies that are comparable to the target
company. For example, when you filter the companies by sales between
Rs.200 crore and Rs.500 crore, you have specified the variable “sales”
with parameters “200” and “500”. This involves skill on the part of
the practitioner - in terms of selecting variables and parameters that
maximises the comparability of the companies filtered.
Executing a Query leads to the creation of two files - an
Output Sheet and a Data Sheet. The Output Sheet provides names of the
short-listed companies after filtering the database based on the Query,
and the Data Sheet provides the data for each of the companies involved
in the Query.
You may end the Querying process when, in your opinion, the
search for comparables has been completed. At this stage you should
run the final step - “Generate profit margins of target company
and peers”. Then you may decide to end the Case. When you do this,
the Prowess TraX software freezes the Case. Once you do this, the Case
cannot be edited. No more Queries can be executed for this Case, those
done cannot be undone and all the intermediate files (Output sheet/s
and Data sheet/s) are deleted.
Once you end the search process, a document is automatically
prepared in pdf format. This contains the complete details of all the
steps used, the variables and their parameters used at each step in
filtering the database, the companies selected and the companies rejected
at every stage. It also lists the final peer set, their profit margins
and the average profit margin of the peer set.
The pdf file can be used in your filings with the tax authorities
as a supporting document. If you know the target company and if you are
familiar with the product/services classification system, conducting a
Case should take about 30 minutes.
Prowess TraX provides several other useful features in the operations
besides speed and ease:
You can pause and re-start the Case if you cannot complete
it in one session.
You can run Prowess TraX from anywhere you can access
the Internet. Prowess TraX is not tied to an installation.
Every completed Case can be re-generated at any point
in time by loading and re-running the specifications. This ensures a
replicability of all Cases with full transparency of the processes and
A completed Case can be copied for a new Case to expedite
the execution of a new Case.