What’s the relationship between Intercompany Agreements and Functional Analysis for TP?


This was one of the discussion points which came up at the seminar we co-hosted with the Thomson Reuters ONESOURCE team last month. The focus of the seminar was the practicalities of managing Intercompany Agreements for TP compliance.

Intercompany agreements (ICAs) don’t replace or override functional analysis. The two go hand in hand. On a typical client project, our first step is usually to review the draft TP reports (or master file and local files), which should include the who-does-what functional analysis. This helps us understand the intended position, so that we can then design the legal structure, including the ICAs.

But it’s not a one-way process; the ICAs and the functional analysis should inform each other. If the ICAs don’t match the operational activities, they are probably wrong. If the functional analysis and purported allocation of risk is not consistent with the actual legal relationship between the relevant group companies, it has no basis in fact.

If you would like to take a step towards improving your Transfer Pricing compliance through intercompany agreements, you can get in touch by emailing us at info@lcnlegal.com or calling us on +44 20 3286 8868. We will be happy to help.