Our five-step process for creating or reviewing template Intercompany Agreements

This article appears in the March issue of our International Corporate Structures Newsletter.

When putting new Intercompany Agreements in place, one of the key tasks is to create appropriate template agreements for each relevant type of supply. As with any other project, a clear process is essential to avoid unnecessary errors and delays.

At LCN Legal we use the five-step process outlined below. It is applied for each type of intra group supply which is to be documented within the relevant group.

Step 1: Scoping

The first step is to confirm the basic scope of the intercompany supply which needs to be documented. This includes the subject matter of the supply, the proposed pricing and payment method / practices and the anticipated supplier(s) and recipient(s) within the group. The identity of each proposed party is relevant not just as a name on a contract; it may also indicate what level of risk and recourse each party is able to bear.

As part of this step, the proposed effective date of the new agreements should be ascertained (if known), and of course the deadline for having the new agreements in place.

Step 2: Identifying stakeholders and key issues

The next step is to identify all the stakeholders for the relevant group (both internal and external) which will need to be consulted. Clearly, the Finance, Corporate Tax / Transfer Pricing, and Legal / Company Secretarial functions will often form part of the core team. Other stakeholders may include VAT, Treasury, HR, Treasury, Regulatory, and the relevant Business Units, as well as the boards of the relevant group companies. Any known issues which may affect the form or content of the agreement(s), such as regulatory or corporate governance issues, should also be identified.

Step 3: Reviewing related documents and assets

This step entails identifying and reviewing all related documents, and identifying all relevant assets. These would often include:

• Group structure charts
• Transfer Pricing reports / policies / country by country reports and Masterfile, as required by BEPS measures (if available)
• Existing Intercompany Agreements in place governing the relevant supply
• Existing Intercompany Agreements governing related supplies (which may need to be differentiated from the current one)
• Ownership / intended ownership of intellectual property and recipients of licenses
• Other relevant agreements in the supply chain (inbound and outbound)
• House style for internal briefing notes and board papers

Step 4: Preparing rough draft of the template agreement

In general, the draft should be kept as brief and as easy to read as possible. Often lengthy documents and complicated formulations mask a lack of understanding of the important issues, as well as making it harder for all concerned to review them quickly. The draft should be circulated for comment by the core team and the wider stakeholders, as appropriate.

Step 5: Preparing the final draft template agreement

This may often be accompanied by a briefing note / board paper for proposed signatories.

Once the form of the template agreement has been finalized, consider how it should be put in place between the relevant group entities. This may involve the use of electronic signatures, which can form part of our service at LCN Legal.