Effective Intercompany Agreement for Transfer Pricing

Many organizations in Malaysia spend a considerable amount of time and money on preparing an efficient and reliable transfer pricing document.

 

Overall, the process of transfer pricing in Malaysia can be quite challenging for companies that do not have access to professional guidance.

 

We hope this article can help companies realize the significance of intercompany agreements and implement the best practices in transfer pricing documentation.

Importance of Intercompany Agreements

The importance of the intercompany agreements should not be taken lightly. Some companies make the common mistake of not paying full attention to preparing effective intercompany agreements.

 

The poor quality of such agreements can result in some serious issues for the companies.

 

The following are the three most important reasons why effective intercompany agreements are necessary for transfer pricing in Malaysia:

1. A transfer pricing document is essential to fully define the scope and arrangements of transfer pricing.

As a result, intercompany agreements are essential to fully formalize and implement the transfer pricing arrangements.

Moreover, the intercompany agreements serve as official and legal evidence for both internal and external stakeholders.
2. Due to rapidly increasing globalization and international trade, the importance of transfer pricing documentation has greatly increased.

More and more countries are now demanding taxpayers to prepare proper documents.
3. Government agencies and taxation authorities also require copies of the intercompany agreements for auditing and legal investigations.

If the companies are not able to provide satisfactory documents, then it can become a legal issue for the company.

Therefore, it is important to have a thorough and up-to-date intercompany agreement to facilitate the entire process of transfer pricing.

Important Components of an Intercompany Agreement

There are several approaches used by various firms to prepare an efficient and reliable intercompany agreement.

The best way to do it is by approaching the agreement from different angles.

Whenever your company is in the process of preparing a transfer pricing document, you will need help from both tax and finance experts and professional legal writers. The following are some of the most important parts of an intercompany agreement:
2 males are shaking hand in office
1. Errors and discrepancies in the legal agreements must be avoided to ensure your company does not run into any legal troubles.

It is important to point it out because such errors are quite common in large companies.
2. An intercompany agreement must be consistent with the entire process of transfer pricing in Malaysia.

The conclusions made in the transfer pricing documentation should be the same in the intercompany agreement.
3. Any legal agreement like an intercompany agreement must be prepared according to the market standards and requirements.

The associated organizations should make sure that the expected terms and conditions are fully followed in the agreement.
Other than the aforementioned three major principles, you should keep in mind that the content of an intercompany agreement is heavily dependent on the overall nature of the transactions between the associated enterprises.

Factors affecting the controlled transactions like licensing, legal contracts, and others can also impact the entire process.

Generally, the basic requirements of an intercompany agreement are:
  • Name of the involved parties
  • Nature of the controlled transactions
  • Legal terms and conditions
  • Details about taxes
  • Information about the governing laws
signing a transfer pricing agreement

In a Nutshell

Ultimately, the goal of having an effective intercompany agreement is to facilitate the process of transfer pricing in Malaysia.


It does not only help you in preparing a thorough transfer pricing document but also allow you to avoid any legal issues associated with these contracts.


Furthermore, such agreements ensure a smooth and healthy partnership between two or more companies, so you should use the best practices available to prepare an effective and reliable intercompany agreement.


For more information, feel free to get in touch with us.