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There are two sides to every story

Intercompany Agreements

1 August 2022

When implementing intercompany agreements for transfer pricing compliance, do you favour multilateral or bilateral ICAs? I’d be interested to hear your view.

The legal effect (the rights and obligations between the respective parties) should be the same in both cases. But there’s still a choice to make.

To my mind, the big factor in favour of multilateral agreements is the administrative advantage of covering each transaction type in a single agreement that applies to all parties. A series of bilateral agreements on near-identical terms is far more cumbersome, so, for me, a multilateral agreement is usually the way to go.

However, most MNEs and TP advisers that we work with prefer bilateral agreements. Their reasoning is that the group can then respond to information requests from a tax authority in a specific country in a more targeted way, without necessarily disclosing the totality of the equivalent arrangements in other countries.

Personally, I don’t find that argument very persuasive, unless there are particular sensitivities around disclosure. Whereas with multilateral agreements, although the administrative benefits may seem small on the first implementation, the ongoing advantage may be significant. And ultimately, anything that promotes simplicity and consistency is probably going to be very helpful, not least because it reduces the risk of errors in the future.

That’s my view. What’s yours?

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Article by
Paul Sutton
LCN Legal Co-Founder

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