• +1 747 212 0206
  • +44 20 3286 8868
  • +86 21 2052 0623

Is it possible to ‘future-proof’ intercompany agreements?

Intercompany Agreements

21 September 2022

The short answer, unfortunately, is ‘no’.

That’s because no price-setting TP policy, and no agreement, can anticipate all possible eventualities.

So when circumstances change, the parties to an agreement (including an intercompany agreement) may need to renegotiate their relationship.

This need to consider the possible renegotiation of intercompany agreements was specifically recognised in the OECD’s 2020 guidance on the TP implications of Covid - and the same principles would apply to any unexpected conditions.

Having said that, it is possible to draft intercompany agreements in such as way as to minimise the likely need for amendments.

In general, intercompany agreements should be regarded as ‘framework agreements.’ They should create and document a legally binding relationship between the parties in terms of allocating risks, rewards and ownership of intangible assets, without being so prescriptive as to require amendment every time the group changes a product line.

In some situations, it may be appropriate to include ‘Netflix’ type pricing clauses, so that the relevant party (often the parent or central entrepreneur) can unilaterally notify changes to pricing policies, with the other parties being deemed to agree if they do not object.

But if the business environment or the roles of the parties changes in an economically significant way, the agreements will probably need to be updated.

Free insights

Get practical advice & insights on the Legal Implementation of Transfer Pricing for Multinational Groups

We won't share your details and you can opt-out any time. Learn more in our Privacy Policy

Article by
Paul O’Regan

Free Guide: Effective Intercompany Agreements for TP Compliance