The IRS released a proposed version of the comment model last September, as well as a full example and how the presentation could be processed by a corporate taxpayer to create a first draft agreement. He released the new model last week. The tax authorities are not convinced that Pierre Plastic complies with transfer pricing laws. It intends to examine (i) whether the allocation of risks, assets and functions on which transfer pricing agreements were based is consistent with actual agreements and (ii) whether the associated companies have agreed to the transfer pricing agreements. Without intercompany agreements, Pjotr Plastic must now provide further evidence and convince the tax authorities that its transfer pricing position is in fact what it claims – potentially a lengthy and costly discussion. It could have been avoided… One day, the tax authorities knock on the door to find out about transfer pricing rules and their documentation. Pjotr Plastic informs them that there is documentation on transfer pricing, but there are no intercompany agreements proving that all related companies have approved transfer pricing agreements. “Transfer Pricing Agreement” is sometimes how a business owner or manager describes the document needed to prove a transaction in good faith and the length of the terms of the transaction vis-à-vis a tax authority. The term “agreement” can often be easily replaced by the term “documentation” in conversation.
The term “documentation” refers to something different from a tax expert in a transfer pricing context and represents the requirements of paragraphs 247(a) (a) and b) of the Act, Part 7 of IC 87-2R and TPM 09, published on Cra`s website (not to mention the requirements of transfer pricing documentation in other countries). As with any agreement that governs a complex transaction, an inter-partnered agreement should be developed or reviewed by a lawyer. While intercompany agreements do not replace the detailed information contained in transfer pricing documentation and are not mandatory in many cases, they are another instrument that companies should use to manage transfer pricing aspects of international transactions with related companies. Apple Austria transfers its shares and customer list to Apple Germany. An intercompany agreement (also known as an “intragroup agreement” or “transfer pricing agreement”) is a (signed) contract between two or more related companies. This contract governs the terms (CG) of controlled transactions, such as the provision of goods or services from a company linked to another associated company.