Operations & compliance
Intercompany transactions
Intercompany transactions are any exchange of goods, services, financing or intangibles between two entities under common ownership or control, including product sales, management fee recharges, loans, royalties and cost-sharing arrangements, each of which must be priced on an arm's length basis under transfer pricing rules.
Because intercompany transactions do not pass through an open market, there is no independent price discovery to rely on, which is precisely why tax authorities require groups to benchmark and document pricing separately, using comparable transactions or margins observed between unrelated parties in similar circumstances.
Getting the categorisation right matters as much as the pricing itself, since a mislabelled royalty or a recharge treated as a loan can trigger withholding tax, VAT or customs consequences that have nothing to do with the underlying transfer pricing analysis but still create real cash cost for the group. This matters in.
In practice
What matters when applying intercompany transactions
- Categorise each transaction type correctly
- Benchmark pricing against comparable data
- Document the commercial rationale
- Check VAT, withholding tax and customs impact
- Keep intercompany agreements current
Frequently asked
Common questions
What counts as an intercompany transaction?+
Any transfer of goods, services, funding, intangibles or risk between related entities counts, whether or not cash actually changes hands, since accounting recharges and cost allocations qualify too.
Why do intercompany transactions need separate pricing analysis?+
Because there is no open market to set the price, tax authorities require groups to demonstrate that intercompany pricing matches what unrelated parties would have agreed in comparable circumstances.
See how the tooling handles this in practice
Our transfer pricing tools calculate intercompany charges, benchmark financing and reconcile the intercompany ledger from your own data. Book a short walkthrough and we will show the workflow on a scenario that matches your group structure, rather than a generic demo dataset.