While the tax reasons for well-designed intercompany agreements are sufficiently convincing (hmRC has been earning well over a billion pounds in additional taxes on transfer pricing requests for many years), there are also non-tax factors. The value of a business-to-business agreement often becomes clear only when something goes wrong, which is why they are crucial, explains the expert It is because they cannot make a clear statement about the intra-group deliveries that are made at what price, how the relevant assets are held and how the risks are shared between the group companies. The tax authorities are not convinced that Pjotr Plastic complies with transfer pricing laws. It intends to (i) verify that the allocation of risks, assets and functions on which transfer pricing agreements are based is consistent with the actual arrangements and (ii) determine whether related entities have accepted transfer pricing agreements. As it stands, Pjotr Plastic now needs to provide further evidence and convince tax authorities that its transfer pricing position is the one it claims – a potentially lengthy and costly discussion. This could have been avoided. In our course, we offer a more detailed description of these requirements. We reaffirm that the content of the Business-to-Business Agreement should be consistent with the three principles set out above. From the point of view of a group company in the United Kingdom proposing a business-to-business agreement, that agreement may very well be important in the context of the company`s business. The articles of such a corporation generally provide that the corporation is managed by its directors, that is, the directors act jointly by resolution of the board of directors. In that case, the terms of the agreement should be considered at a meeting of the board of directors, unless the board of directors has already granted delegated powers to an individual director or a committee of directors and the scope of the power granted extends to such an agreement. For intra-group supplies, the relevant group agreements must appear consistent with the Group`s transfer pricing policy as regards the type of delivery, the terms of delivery (including the allocation of risk) and the pricing of the supply. You must distinguish the delivery conditions appropriately from other reference points.
They must also be consistent with the reality of how agreements are operated and managed in practice. The complex change control or imported reporting provisions of an independent trade agreement do not contribute to improving a group`s transfer pricing position if they are not effectively respected. Even if such agreements exist, they are often poorly formulated, incomprehensible and outdated, and do not reflect the commercial reality of the group`s way of working. Finally, some inter-company agreements are more explicit than others, in particular as regards payment terms. Whether an existing agreement is amended or a new agreement is drafted, it may be time to consider whether more general language such as “armament rate” would be more appropriate if it states that remuneration is based on a fixed premium or margin.