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The LCN Legal Podcast

How to healthcheck your ICAs

Intercompany agreements can have seemingly small defects which can cause serious problems. Our ICA Healthcheck is designed to be a quick and easy way to spot these, as Paul Sutton explains in this episode of The LCN Legal Podcast.


Discrepancies between a group’s intercompany agreements and the transactions as described in its TP documents are an ‘easy win’ for tax authorities when seeking to raise challenges. And more fundamentally, transfer pricing positions will lack substance, because the legal and commercial reality of the relevant transactions will not be as claimed.


In this episode we look at some of the main issues for consideration in this area, including:


  • Why groups need to healthcheck their ICAs
  • What an effective ICA should achieve
  • The consequences of getting it wrong (or just not quite right)
  • What a typical healthcheck involves
  • The areas that are particularly complex, challenging, or likely to reveal problems in ICAs
  • The problems that we most often find.

More episodes

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  • Germany’s ex ante price setting approach to Transfer Pricing, and the impact on intercompany agreements

    Paul Sutton looks at the German Finance Ministry’s June 2023 update to its Administrative Principles on Transfer Pricing. The new version confirms some fundamental points that multinationals and transfer pricing professionals need to be aware of. Perhaps the most important is a very clear and specific position regarding ex ante price setting, and the need for intercompany agreements to be implemented in advance, not after the event. Germany’s 2023 update to its Administrative Principles on transfer pricing confirm that the key point in time for the application of the arm’s length principle is the date of conclusion of the relevant intercompany agreement, not the date on which the relevant transaction is performed. This is a crucial distinction, and of course presupposes that appropriate intercompany agreements have been put in place on an ex ante or price setting basis. Although this approach is consistent with the OECD Transfer Pricing Guidelines, it reflects a much clearer and more specific expression of the concept of risk allocation, price setting and the ‘playing out’ of risks and contractually delineated transactions.  Clearly this has big implications for MNEs who are active in Germany, as it’s simply impractical to take one approach there and a completely different one in other territories. Paul Sutton looks at both the technical aspects and what it means in practice.
  • A corporate recovery perspective on related party transactions

    Paul Sutton talks to Mark Supperstone, Managing Partner of the corporate restructuring specialists Resolve, about how an office-holder in a formal corporate restructuring process involving a UK entity would look at related party transactions in the period leading up to the restructuring. They also consider what implications this has for group structures, and what practical steps legal entity directors can take to protect their position and reduce the risk of personal liability. Applying the arm’s length principle to intercompany transactions within a multinational group can sometimes appear to be a theoretical exercise. But if individual entities or the group as a whole experience financial distress, related party transactions are likely to be subject to scrutiny in a much more pointed way. Office holders in formal insolvency proceedings may be under a statutory duty to investigate the conduct of legal entity directors in the months and years leading up to the insolvency, and directors may be exposed to personal liability or disqualification if they are unable to account for their decisions. Paul Sutton and Mark Supperstone discuss this scenario from the perspective of UK entities in financial distress, and consider key questions such as: The key legal duties of an administrator in a formal administration processThe first steps which an administrator would be likely to take on taking officeThe statutory duty on officeholders to investigate the conduct of directorsHow an administrator or liquidator would be likely to view transactions between the company in liquidation, and other members of the groupKey duties of legal entity directors, and the circumstances in which they may become personally liableThe practical steps which legal entity directors can take to minimise their exposure to personal liabilityThe importance of addressing a potential situation before it develops, and getting informal advice at an early stage.
  • The 5-step process for creating and implementing ICAs

    Paul Sutton and Paul O’Regan discuss LCN Legal’s 5-step process for creating and implementing ICAs. This has been developed over many years, and is designed to ensure that in a tax audit, the group's ICAs will support its TP position. Paul Sutton explains the firm’s 5-step process for creating and implementing effective ICAs. In the course of explaining each stage in detail, he highlights the importance of: Ensuring that ICAs have legal substance, and integrating the legal considerations from the outsetUnderstanding the precise nature of the key transactions, and establishing the ‘legal anchor points’Working effectively with the wider team of TP professionalsDrafting that is brief and clear, using plain languageIdentifying and taking on board the needs of other stakeholdersLocalising agreements to reflect the needs of different countries and entitiesEnsuring that directors have all the information they need to carry out their responsibilitiesCreating – and maintaining – a central online archive of agreements.
  • The legal implementation of profit splits in transfer pricing

    Paul Sutton and Paul O’Regan discuss the profit splits method. Of the five main TP approaches, it’s unique in that it looks at the relative contributions of more than one party, but is it really ‘a method for the brave’? We look at the kinds of scenarios in which this method is appropriate, the role that intercompany agreements play in implementing it, and some of the practical issues around ensuring that the ICAs provide legal certainty and reflect the operation of the group.·      The kinds of scenarios in which the profit splits method might be used·      The role that intercompany agreements play in legally implementing it·      How the ICAs are affected by the decision to base the approach on actual profits or anticipated profits·      The key steps when creating ICAs to implement profit splits·      Common errors when applying the profit split method.
  • Ongoing TP litigation in Australia, with Andy Bubb

    An in-depth discussion by Paul Sutton and Melbourne-based tax disputes specialist Andy Bubb. They look at three cases that are currently ongoing in Australia: Pepsi, Singtel and Mylan. For each case, they:  ·      Review the current progress of the litigation·      Analyse the specific issues in question·      Identify key learning points for transfer pricing professionals.
  • The transfer pricing environment in India, with Akshay Kenkre

    An in-depth discussion with Akshay Kenkre, a transfer pricing and cross-border tax specialist based in Mumbai. As India is not a member of the OECD, and has not formally adopted the OECD TP Guidelines, its TP laws and procedures are very different. In this podcast we discuss a number of those differences, including: India's approach to benchmarkingThe requirement for a chartered accountant to certify the nature and arm's length value of relevant transactionsThe 10-day notice period for groups to respond to demands for documents.
  • HMRC v BlackRock: what should we learn?

    In 2022, the UK Upper Tribunal’s judgment in HMRC v BlackRock sparked a lot of comment – and not a little consternation – around the transfer pricing community. LCN co-founder Paul Sutton discusses the implications in detail. How the case changes things, and how it doesn’tHow the Upper Tribunal’s position differed from the previous First-tier Tribunal judgmentThe most important implications for MNEs and their transfer pricing advisers.
  • Target Margin arrangements

    Target Margin is a frequently used transfer pricing model, and one which particularly lends itself to limited risk distribution arrangements. LCN co-founder Paul Sutton discusses the implications in detail. ·      When Target Margin arrangements are most likely to be suitable·      The two main options when drafting the pricing clause of the ICA, and how to choose which one to use·      The importance of looking at the transaction from both a TP perspective and a legal one, and then reconciling the two·      Common mistakes, and how to avoid them