In honour of LCN Legal's imminent 5th anniversary, here's a list of 5 things people often forget when it comes to putting in place the Intercompany Agreements (ICAs) which multinational groups need for Transfer Pricing compliance:
1. Intercompany agreements (ICAs) are essentially forward-looking: they are promises to act in a certain way in the future. Functional analysis for TP is essentially backward looking – it’s about who has done what over a certain period. That’s why ICAs are essential for defining the desired ongoing operation of the group, and not just recording it.
2. ICAs are not just about Transfer Pricing. They also affect matters such as customs duties, international funds flow, VAT, and enforceability of intellectual property.
3. The signature of ICAs should not be regarded as a ‘rubber stamping’ exercise. The signatories (officers) of each participating company need to consider the interests of that individual company, and not merely the interests of group.
4. ICAs are like software. They need to be updated and maintained regularly, otherwise they stop working.
5. An ICA is not much use unless you can find the signed copy when you need it. That’s why effective archiving and retrieval systems are essential.
N.B. We offer 'toolkits' of template ICAs to help multinational groups achieve legal substance in their Transfer Pricing compliance. Click here for details.