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TP Advisers: How long is long enough?

Intercompany Agreements

15 February 2021

This is a sensitive subject for many TP advisers.

How long is long enough?

Of course, I’m talking about the duration of intercompany agreements.

Only this week, a Big Four TP adviser suggested that a 6 month notice period was ‘impracticably long’.

Maybe that individual hadn’t read the OECD Guidance on the TP aspects of Covid, which references a 5 year agreement, and how an agreement can ‘play out’ in terms of pricing and risk. The guidance also emphasises the need to consider periodically whether the terms of agreements need to be renegotiated.

Imagine you’re setting up an advisory business. You’re hiring staff and leasing premises. You’ve got just one client, which has agreed to pay fees which gives you a modest return on costs. The catch is that the client insists on a one month break clause.

How would you feel about that as a director? As the person on the hook for meeting payroll?

The inconvenient truth is that the length of notice periods does matter. Because it’s a fundamental commercial term.

We’re not saying that groups should overcomplicate things. Or create unnecessary admin.

We are saying that the legal implementation of TP needs to make commercial sense, and needs to respect the duties of legal entity directors.

And sometimes longer is better.

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Article by
Paul Sutton
LCN Legal Co-Founder

Free Guide: Effective Intercompany Agreements for TP Compliance