Intercompany management fees and transfer pricing — where does doing it myself start to cost money?
Some of it, yes — and we will say so on the call if that is the honest answer. The parts that are worth paying for are the ones where a missed election, a missed deadline or an unverified threshold costs more than the fee: the fee has to be supported on three fronts: that the service was actually rendered, that it benefited the recipient rather than the shareholder, and that the charge is what independent parties would agree.
What if I have already filed and got it wrong?
That is a common starting point. We re-derive the position, identify whether an amendment or a disclosure route is the right vehicle, and tell you which one preserves the relief that is still available. The order matters more than the speed.
How long will it take?
It depends on the documents rather than on us. Once the pack is complete most filings turn around inside a fortnight; anything that needs a certificate from a tax authority runs on that authority's timetable, which we tell you at the start rather than at the end.
Can I charge a management fee from my company to my foreign subsidiary?
You can, but the charge has to survive three separate questions rather than one. Was a service actually rendered, and can you show what was done and by whom? Did it benefit the subsidiary, as against benefiting you as shareholder, which is the distinction that decides whether the recipient may deduct anything at all? And is the amount what independent parties would have agreed for the same service? A fee that fails any one of those is at risk, and the risk is asymmetric: the deduction can be denied in one country while the income stays taxable in the other.
What records do I need to support an intercompany management fee?
Enough to show the service happened and the price was reasoned. In practice that means an intercompany agreement describing the services, evidence of delivery such as time records, project notes or correspondence, a cost base showing what was actually incurred, and a written explanation of how the charge was arrived at. The word that matters is contemporaneous. Documentation assembled after an enquiry opens is capable of being true and still carries less weight than the same analysis prepared when the policy was set, because the second version cannot be tested against decisions taken before anyone was looking.
Why did the auditor say the management fee benefited the shareholder?
Because some head office activity is done for the owner rather than for the subsidiary. Preparing consolidated accounts, servicing group financing, meeting the parent's own reporting duties and managing the shareholding itself are usually treated as shareholder activities, and a subsidiary is not regarded as willing to pay for them. Services it would otherwise have bought in or performed for itself sit on the other side of the line. The practical consequence is that a single undifferentiated fee invites the whole charge to be challenged, while a breakdown that separates the two categories leaves the defensible part standing on its own.
How do I work out a reasonable mark-up on intercompany services?
Start with what is being charged, not with a percentage. Identify the costs that belong to the service, decide whether they are charged directly to the entity that used them or allocated across the group on a measurable key, and only then consider the return an independent provider of that service would expect. Routine support and genuinely valuable services do not sit in the same place. Whatever conclusion is reached, the reasoning is the deliverable: an allocation key that can be traced to real data, applied consistently year on year, is far easier to defend than a rate nobody can explain the origin of.
Do small groups really need transfer pricing documentation?
Size affects the scale of the analysis, not whether the arm's length standard applies. A two-company group that moves profit with a monthly journal entry is doing the thing tax authorities examine, and the entry is visible in both sets of accounts. What changes with size is proportionality: a small group may need a short, well-reasoned file rather than a full benchmarking exercise. What does not change is the requirement to be able to explain, in writing and at the time, what the service was, who received it and how the amount was reached.
My customs values and my transfer prices are different — is that a problem?
It is at least a question you should have an answer ready for, because two authorities are looking at the same goods with opposite incentives. Customs is interested in the value declared at import and generally prefers it higher; the tax authority examines the same intercompany price and generally prefers it lower. Year-end transfer pricing adjustments make the tension visible, since an adjustment made in the accounts after importation does not automatically flow through to declared values. Groups that set the two in different departments often discover the mismatch during an audit, when the reconciliation has to be built backwards from records not designed for it.
Do I need transfer pricing documentation?
If your company transacts with a related party in another country, in substance yes — the question is how much. Documentation is what shifts the burden: prepared before the filing deadline it evidences that your pricing was set on arm's length terms, and its absence is what turns a pricing adjustment into a penalty in several regimes. Volume of related-party dealings drives whether you need a local file, a master file, or a full benchmarking study. See do I need transfer pricing documentation.
Is GILTI computed at the CFC level or the shareholder level?
Both, in sequence. Tested income, tested loss and the qualifying asset base are measured company by company. They are then aggregated at the US shareholder, which is where the netting of losses across companies happens and where the inclusion, the deduction and the credit are determined. That order matters in practice: a loss in one foreign subsidiary can reduce the inclusion caused by another, but only for a shareholder who owns both. See the GILTI inclusion and Form 8992.
