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http://uslanka.net/wp-includes/blocks/ In our course, we offer a more detailed description of these requirements. We reiterate that the content of the intercompany contract should be consistent with the three principles discussed above. Below are the steps companies need to take to make incompany contracts efficient and inexpensive to do so. With regard to the content of intercompany agreements, we stress three fundamental principles: Intercompany agreements are fundamentally different from third-party contracts (also known as commercial contracts). An intercompany agreement is signed by two companies that are part of the same group. Presumably they have the same objective: to increase the group`s result. They have the freedom to arrange the transaction as they see fit, and it is unlikely that there will be an argument. On the face of it, the Intercompany agreement is a formality. Nevertheless, there are fundamental requirements that must be included in each intercompany contract: in the case of ICAs for order manufacturing or limited risk allocation, it is necessary, for example, to check whether essential strategic decisions are actually made – and proven – by the adjudicator power.
In this context, it is also necessary to examine how the necessary substance can be detected at the main level. It is also necessary to check whether contractual agreements are being implemented properly. If routine businesses (for example. B contract manufacturers or traders identified as limited risk controlled partners) have very volatile or even (permanent) net results, this may indicate that the ICA is not sufficiently focused on economic substance and that, therefore, potential tax risks appear. In such cases, targeted adjustments to ICAs can often be sufficient to reduce these risks. The example below illustrates the causal link between an appropriate guidance of ICAs on the economic substance and the resulting allocation of benefits: to successfully address transfer pricing issues, the arm length principle (ALP), which remains the globally recognized paradigm for transfer pricing[1], must be adopted by the MNEs as a vacuum when setting prices for intercompany transactions. Under the ALP, MINLOs are required to use prices that, in similar circumstances, would be agreed among independent third parties. It is therefore not surprising that the issue of “comparability” is quite important in the area of transfer pricing. First and foremost, it is important to ensure that intercompany agreements (ICAs) are geared towards the effective allocation of risks to the underlying business model. The awarding of risk contracts (ex-ante) must clearly determine who bears the potential costs that may be incurred in the event of negative results (ex-post). On the other hand, the party that bears this risk should also be rewarded with the most important (or all) potential benefits of positive outcomes. In practice, companies often neglect contractual obligations between companies.
And even when intercompany agreements are concluded, they are often poorly drafted, obsolete and do not reflect the economic reality of controlled transactions. The lack of intercompany (quality) agreements can be a risk for many reasons. These are the three most important: transfer pricing agreements between associated companies must be formalised in intercompany agreements in order to make them legally binding, to comply with transfer pricing legislation and to ensure an appropriate line of defence against the challenges posed by tax authorities.