What it usually looks like
A group rarely grows to a plan. First there is one company, then a second for a new market, a third for property, a fourth abroad. Over time the companies start helping each other: one sells goods to another, another keeps the books for all of them, yet another lends money or guarantees a loan. Inside, everyone knows it is one business. Outside – in tax, in the books and in dealings with the bank – each company answers for itself.
That is why transactions within a group should look as if they had been agreed by independent businesses: with a contract, with a price that can be justified and with an invoice issued when it should be. While the group is small, nobody asks. The questions come up in a tax audit, in the audit of the financial statements, in talks with the bank or when someone wants to buy one of the companies.
Most often the problem is not wrong prices but the fact that nobody wrote them down. After a few years it is hard to reconstruct why a service cost what it did and why a loan carried that particular interest rate. Putting things in order does not usually require changing how the group works. It requires describing it and sticking to the description.
Points to watch
Contract before invoice
Services provided between companies with no contract and no trace of performance are the most common problem. An invoice alone will not show what was done and for whom. A simple contract, a clear way of calculating the fee and evidence that the service was needed and performed are enough.
A price that can be justified
Terms between related companies should match market terms. The price is compared with what independent businesses would agree in a similar situation. It is best to do this before the transaction, not only when the tax office asks.
Loans and guarantees are transactions too
Money moved between companies ‘just for a while’ can stay put for years. A loan needs a contract, interest and a repayment date, and a guarantee needs a fee. Leaving them out has tax consequences on both sides.
The description must match practice
Documentation prepared once and left on the shelf soon stops matching reality. When the division of tasks changes or a new company appears, the description needs updating. A document that says something different from actual practice will not protect you in an audit.
The companies’ books should agree
What one company shows as a receivable, the other should show as a liability – in the same amount and in the same period. Regular reconciliation of balances between the companies saves a lot of stress at year-end.
How we work – step by step
We map the group
We establish which companies make up the group, what they do and what they sell, provide or lend to each other. We talk to the people who handle these transactions day to day.
We list the transactions
The result is a list of intra-group transactions: what is covered by a contract, what has a justified price and what works on a handshake alone. It is clear straight away which areas need attention first.
We propose rules
For each type of transaction we propose a simple way of setting the price and a template contract. We say plainly what is worth changing and what just needs to be described.
We prepare contracts and documentation
We put the contracts between the companies in order and prepare transfer pricing documentation and the comparability analyses needed. We make sure that the contracts, tax returns and books all say the same thing.
We organise the day-to-day work
With the finance team we agree who issues invoices and when, how balances are reconciled and where evidence of services is kept. The rules should be simple – ones that can be followed without extra work.
A review when the group changes
A new company, a new type of transaction or a different division of tasks is a good moment for a review. We then check whether the rules and documents still describe what happens in the group.