Intercompany Transactions

What are Intercompany Transactions?

Intercompany transactions are the purchase or sale of assets between a parent company and one or more of its subsidiaries.

What is an Intercompany Transactions list?

An intercompany transactions list provides information on all transactions that have occurred between your company and your group entities.

An inter-company transactions list contains details of the transactions within your corporate group including payment of dividends, purchase and sale of assets (e.g. inventory or machinery) and any borrowing and lending.

Information that is covered:

• Transaction Details: Nature and the type of a particular transaction entered
• Dates: Start and end dates of each transaction
• Parties Involved: Names of the group entities involved in each transaction
• Transaction Value: The amount and status involved in each transaction
• Documentation: Documents and agreements that provide the evidence of each transaction

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.