Types & examples of Intercompany Transactions
What are the types of intercompany transactions?
There are three main types of intercompany transactions: downstream, upstream and lateral. When a parent firm does business with a subsidiary, it’s called a “downstream transaction”. An “upstream transaction” is when an asset moves from the subsidiary to the parent company. Finally, a “lateral transaction” occurs between two subsidiaries of the same parent company.
What is an example of an intercompany transaction?
Common types of intercompany transactions include:
- Product and services purchases
- Human resource purchases
- Loans and leases
- Dividends and royalties
- Management fees
What is the difference between intercompany and intra company transactions?
Intercompany transactions occur between a company and its own subsidiaries, which are their own legal entities. Intracompany transactions, on the other hand, involve subsidiaries within a single legal entity.
Why are intercompany transactions important for business today?
An intercompany transactions list enables your company to:
- Track, record and reconcile the transactions between your company and group entities
- Understand and assess the types of transactions within your group company and parties involved
- Evaluate the monetary value of each transaction and provide accurate records to your accounting team.
- File accurate tax across jurisdictions
- Determine the impact of certain transactions on your company’s performance
- Avoid the double-counting of intercompany transactions across group entities
Why are intercompany transactions important for an event tomorrow?
An intercompany transactions list is important for an event tomorrow, as it helps:
- Assess the nature of and reasons for inter-company transactions
- Determine the frequency and value of inter- company transactions and analyze their impact on your company’s financial performance
- Evaluate your company’s compliance and reporting with tax and regulatory authorities
- Understand the accounting treatment following by your company in relation to inter-company transactions
- Determine your company’s future liabilities towards your group entities
Pros of addressing intercompany transactions
- Create consolidated and accurate financial statements and avoid any misrepresentation of your company’s financial position
- Facilitate transparency and provide real-time information on your intercompany transactions
- Implement uniform accounting and treatment policies and procedures for inter-company transactions
- Mitigate any potential for disputes between your company and its entities as each transaction is documented
- Comply with tax norms and regulations related to intercompany transactions across jurisdictions
Cons of not addressing this topic
- More difficult to reconcile intercompany accounts and eliminate intercompany profit during consolidation
- Restriction on your company’s capability to categorize and account for each entity’s contribution in the intercompany transactions
- Increase in potential disputes between your company and group entities, as transactions are not documented
- Limitation on your company’s ability to execute and monitor intercompany transactions and determine the monetary value associated with each transaction.