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Intercompany Agreements (ICAs) describe the legal terminology for which financial support, products and services are provided within a group. ICAs can cover a wide range of situations, including back office and head office services, cost and revenue allocation, intellectual property licenses, etc. It has been recognized that intercompany agreements are a fundamental element of the respect of transfer pricing and the use of the management of the OECD (Organisation for Economic Co-operation and Development), beps (Base Erosion and Profit Shifting) by an increasing number of countries each year. This particular importance is monumental only for financial institutions and multinational companies. Even if such agreements exist, they are often poorly drafted, incomprehensible and obsolete and do not reflect the commercial reality of the group`s functioning. The value of intercompany agreements (ICAs) becomes, like many types of contractual agreements, often clear only when something goes wrong. With regard to internal group procurement, relevant intercompany agreements must, of course, be in line with the group`s transfer pricing policies with respect to the nature, conditions and pricing of the supply. International CFOs should ensure that legally binding intercompany agreements exist and that transfer pricing risks are minimized. If this is not the case, it is comparable to allow the tax authorities to access the group`s bank accounts so that they can withdraw what they deem to be right.

We see many intercompany agreements for which no price is indicated or the price is determined by a vague indication of comparable net sales or profits of the subsidiary. This approach may raise questions related to legal security and transfer pricing compliance. Finally, intercompany agreements must be legally binding, which means that the main provisions of the agreement must have “legal certainty”. While the tax reasons for properly developed intercompany agreements are sufficiently compelling (in many years, HMRC is networking well over a billion pounds of additional taxes from price transfer applications), there are also non-pilots. The regular introduction and updating of intercompany agreements can be a complex and costly process. This applies primarily to the description of the delivery and the price of the offer, so that these provisions must be objectively established on the basis of the terms of the contract. The terms of the intercompany agreements must be consistent with the legal and economic ownership of the relevant assets and the commercial reality of intragroup transactions. For example, an intragroup agreement in which a company claims to grant an intellectual property license that it does not actually have can create confusion and misleading accounting entries, rather than promoting transfer pricing and other business objectives of the group.

Intercompany agreements are legal agreements between related parties. They define the legal conditions under which services, products and financial support are provided within a group. Paul Sutton, founder of LCN Legal, explains why intercompany agreements between companies are so important. Companies with multiple divisions can benefit from intercompany agreements because they are able to transfer goods and services to a location in the business that will benefit the most, with no negative tax results. In addition, by separating transfers of goods and services resulting from intercompany agreements resulting from other transactions, they are able to help the company and its activities interpret and analyze inventory and sales information more effectively. Legal agreements should reflect an agreement that the directors of each participating company can properly approve in order to promote the interests of that company. This means that some proposed regulations can be problematic – such as agreements in which a particular company would suffer ongoing losses; In addition, the Committee on Economics and Policy of Economic Union and The Policy of Economic Union and The Policy of