Importance Of Intercompany Agreements
Here you will find an overview of our current range of services related to intercompany agreements for multinationals. Paul Sutton, founder of LCN Legal, explains why intercompany agreements between companies are so important Legal agreements should reflect an agreement that the directors of each participating company can duly approve to promote the interests of that company. This means that some of the proposed agreements may be problematic, for example. B agreements in which a particular undertaking would incur current losses; be exposed to liabilities or treasury assets that it does not have the financial means to honour, or to “donate” assets or securities, in particular in the case of a parent undertaking. Finally, intercompany agreements must be legally binding, which means that the key terms of the agreement must be “legal certainty”. However, there are fundamental requirements that must be included in any intercompany contract: therefore, any inconsistency between the intercompany agreement and the actual circumstances of the transactions would be an immediate red flag for tax auditors to dig deeper. It is therefore necessary to ensure that the agreement complies, during the design phase, with the functions actually performed, the risks involved and the assets implemented and reflects the true economic substance of the underlying activity. Typically, an agreement (including intercompany agreements) establishes the legally binding relationship between the parties by providing a written document describing the essential understanding of the business relationship, the allocation of risks as well as the underlying terms and obligations of the covered transaction. With regard to the content of intercompany agreements, we highlight three key principles: over time, many MNS have struggled to keep their intercompany contracts informed and ensure that they are properly respected. The volume of contracts, the evolution of directives, the high turnover of staff and many other factors often make updating these agreements a challenge. In the Controlled Transactions section of the Action 13 final report, which describes the necessary annexes for the local file, there is an enumeration point inviting companies to “register copies of all essential intercompany agreements concluded by the entity”. To include them in the local file, they must be present and be up to date/correct. This too sounds very simple, but can be very difficult in practice.
Even before the first submissions under Action 13, the tax authorities are beginning to look at the existing principles and request intercompany agreements for the examination. . . .
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