What Is A Inter Company Agreement

Intercompany contracts remain a fundamental element of transfer pricing compliance; Whether or not this is a crisis period, they should be consistent with the behaviour of the parties involved. Given that the activities and risks of related firms may change to meet business needs in these uncertain times, it is essential that tax payers consider whether to change one of the terms of their intercompany contracts (as permitted by law). This article provides a framework for consideration and questions that need to be asked in the context of intercompany agreements. The tax authorities are not convinced that Pierre Plastic complies with transfer pricing laws. It intends to examine (i) whether the allocation of risks, assets and functions on which transfer pricing agreements were based is consistent with actual agreements and (ii) whether the associated companies have agreed to the transfer pricing agreements. Without intercompany agreements, Pjotr Plastic must now provide further evidence and convince the tax authorities that its transfer pricing position is in fact what it claims – potentially a lengthy and costly discussion. It could have been avoided… The following example illustrates what can happen without a transfer pricing agreement: an intercompany agreement (also known as an “intragroup agreement” or “transfer pricing agreement”) is a contract (signed) between two or more related companies. This contract governs the terms (CG) of controlled transactions, such as the provision of goods or services from a company linked to another associated company. Nevertheless, there are basic requirements that must be included in each intercompany contract: companies are not able to benefit from intercompany sales. It is therefore expected that the companies or departments of a parent company will pay for intercompany transactions by a specific method. The purpose of the intercompany agreements is to define how transfers take place and to determine, on the basis of financial results, what measures are needed for all parties involved.

Whether the terms are changed in an existing intercompany contract or conditions are developed for a new contract, you should consider the taxpayer`s agreements with third parties and check whether there have been any recent changes to those contracts.

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