As part of our series of checklists for creating, reviewing and updating intercompany agreements, we’ve published a new checklist covering business support services (including head office, back office, strategic management services, marketing services and other services not ‘resold’ to third parties). You can download it here.
If you have any feedback on how the checklist could be improved, I would be very grateful to hear from you, just drop me a line at firstname.lastname@example.org.
Similarly, if you think the checklist is useful, please do let me know, and please share it with anyone else you think might find it useful.
On a separate note; many thanks to everyone who provided feedback and support in relation to the intercompany agreements checklist we published last week for the distribution or resale of goods (available here) – I very much appreciate it.
As you’re probably aware, the IRS published some Transfer Pricing FAQs in April this year, in response to the perception that standards in TP documentation were declining, and to explain the impact on the related penalty rules. Based on the discrepancies between intercompany agreements and TP policies that we’ve come across, it’s hard to disagree with them about the need to raise standards. Let’s work together to fix that. Here’s what the IRS said in those FAQs about intercompany agreements in particular:
“Risk analysis should be consistent with intercompany agreements. Every business faces risks. From a transfer pricing perspective, risks must be identified and then allocated between the controlled parties. Intercompany agreements and the assignment of rights and responsibilities between the parties generally establish how risks are allocated. For example, under an intercompany agreement, a distributor may have the right to return all unsold inventory to the related supplier, thus shifting some risk to the supplier. The transfer pricing documentation should address such allocations of risk, how the risk allocations compare to the comparable companies used, and why the resulting pricing is consistent with the agreement. If an adjustment is made to the comparable companies based on risk allocations, the quantification of the risk and method for computing the adjustment should be clearly explained.“