Accurately scoping out intercompany transactions is the essential first step in creating, reviewing or updating intercompany agreements for TP compliance. Unless this is done correctly, the resulting agreements are likely to be gibberish, and your TP objectives may fail for lack of legal implementation.
The need for alignment between intercompany agreements and TP analysis of risk has been reiterated by recent IRS guidance addressing perceived defects in transfer pricing documentation (See the answer to Q4 of the FAQs, “Risk analysis should be consistent with intercompany agreements").
Sometimes it’s obvious what the legal nature of the transaction should be, and who the parties are. For example, central support services provided by a parent to its operating subsidiaries.
Sometimes it’s not so obvious. For example, profit split arrangements or procurement hubs.
We’ve created a new 15-minute video to help you cover the basics of scoping.