An intercompany agreement (ICA) is a signed contract between two or more associated entities. These agreements usually include the terms & conditions of controlled transactions. These contracts differ from regular contracts in that they involve two or more entities within the same group. No third parties are involved. Therefore, the main advantage is that the contracting parties of an ICA have the same goal, namely, what is best for the group.
The importance of intercompany agreements
A common mistake made by companies is the lack of importance they attach to ICAs. At first glance, the intercompany agreement appears to be a mere formality. However, these agreements are of great importance as multinationals usually devote considerable resources to preparing transfer pricing policies and documentation. However, these policies are of little use unless they are implemented. The ICA is necessary to implement the transfer pricing policy and formalize it in a legal contract.
When a tax authority wants to assess the validity of the underlying transactions, an intercompany agreement is crucial and the starting point of a transfer pricing analysis. We can therefore conclude that there are many reasons to have (good) intercompany agreements.
What to keep in mind
What to keep in mind: tips for intercompany agreements
- Avoid errors and discrepancies in the agreement so your company does not run into any legal problems.
- Ensure consistency between the intercompany agreement, transfer pricing documentation, transfer pricing policy and financial outcome of the policy.
- If there are changes in the business this likely should impact the transfer pricing policy.
- Update agreements following revision of transfer pricing policies or updated benchmarks.
- Ensure that the agreement incorporates market standards.
- Avoid tax audits, fines and penalties from tax authorities.
The service Quantera Global has to offer
In conclusion, it is very important that the ICA is in line with reality, consistent with transfer pricing documentation and in line with market standards. Quantera Global can assist your company in drafting these agreements. And we ensure that all these important aspects are included in the agreement. Depending on your wishes, we can work with your inhouse legal counsel or an external legal counsel in preparing such intercompany agreements or conduct a review.