Intercompany agreements

  1. Write it down. Although some countries in principle accept verbal agreements, they are pretty d… hard to document when asked by the tax authorities.
  2. Remember to date and sign the agreement. If you feel the back-date the agreement. Don’t. Best alternative is always to codify what may have already been agreed prior to the date of the written agreement.
  3. If the agreement is between two parties, but may extend to other group members, e.g., between a central service provider and a principal, where the services are delivered directly to other group members, remember to have the contract reflect this. Also, give it some thought if more agreements are in place. As any other time in life, we only want to pay for stuff we have asked for.
  4. Define the objective of the contract as good as possible. Consider how you would write an agreement with the mechanic fixing your car.
  5. Define the pricing of the objective of the contract as good as possible. Could be a price or a methodology to compute the price. Remember this is really where the arm’s length principle comes into play. If you use allocation keys it’s ok to default to revenue, but you have to justify it to someone at some point in time. And what about the profit?
  6. If you want to adjust the on-account payments by year-end, remember the adjustment clause.