Companies with operations in more than one country often trade within their own groups. These trades: buying, selling, or sharing services, must be priced properly. But many businesses ignore the fine print. They either don’t have valid intercompany agreements (ICAs) or rely on old ones. This opens the door to tax audits, heavy penalties, and worse, reputational damage.
Businesses must treat intercompany agreements (ICAs) as legal proof that their pricing is fair and compliant. Regular reviews and updates of these agreements are the first step toward protecting your company from tax troubles.Â
Let Tax Gian help you understand the significance of ICAs and how you can maintain and utilise them with the help of transfer pricing agents in the UAE.Â
Intercompany Agreements: What Are They?
An intercompany agreement is a contract between two or more companies within the same group. These companies are often based in different countries. The agreement sets terms for buying or selling goods, offering services, using intellectual property, or providing loans.
Like contracts between unrelated businesses, ICAs are negotiated at arm’s length. This is why tax authorities require you to justify that your terms are fair, just like what two unrelated companies would agree to.
Why Reviewing ICAs Is a Must?
- Tax Compliance
ICAs prove that your intercompany transactions are legal and follow the correct rules. In the UAE, the Federal Tax Authority (FTA) needs to see that your deals match your transfer pricing (TP) policy. If the pricing or contract terms don’t align with your tax filings, it raises red flags.
- Avoiding Penalties and Audits
If you do not update ICA, you put yourself before serious consequences. These can include:
- Â Â Â Costly tax audits
- Â Â Â Financial penalties
- Â Â Â Damage to your brand or reputation
Tax authorities might assume your transactions are designed to avoid taxes, even if they’re not. A well-drafted and timely ICA shows you have nothing to hide.
- Changes in Business Operations
Companies grow, change structures, or launch new products. These changes should reflect in your ICAs. If not, your agreements will no longer match how your group operates. That mismatch can hurt you during audits.
Not sure how to prepare an effective ICA? Seek expert help from transfer pricing agents in the UAE.
What does a Good ICA look like?
To be effective, an ICA should be:
- Â Â Â Clear and easy to understand
- Â Â Â Signed and dated by all parties
- Â Â Â Aligned with how your company actually does business
- Â Â Â Approved by directors in each group company
It’s also helpful to write ICAs in plain language, avoid jargon, and make them short and to the point.
Red Flags to Watch Out For
Businesses often make common mistakes that weaken their ICAs. These include:
- Â Â Â Using outdated agreements for years
- Â Â Â Not checking if the terms match the TP policy
- Â Â Â Letting unqualified staff draft legal documents
- Â Â Â Having no system to track and update ICAs
Such mistakes can turn your ICA into a liability rather than a protection. Transfer pricing agents in Dubai can help you avoid that.
When Should You Review or Draft ICAs?
Ideally, your agreements should be in place before the financial year begins. Waiting until later can make them ineffective. ICAs should also be reviewed:
- Â Â Â Annually
- Â Â Â When filing corporate tax returns
-    After changes in the group’s structure or pricing methods
- Â Â Â Before introducing new products or services across borders
Transfer pricing agents in Dubai can help you review and update your ICAs.
Steps Businesses Should Take
- Assign Roles
Make it clear who is responsible for drafting, updating, and storing ICAs or appoint an external transfer pricing agent.
- Keep Records
Store signed and dated copies in a central archive.
- Mock Audits
Simulate a tax audit to check if your ICAs hold up.
- Update Before Each Financial Year
Review your TP policy and ICAs before the year starts, not after.
- Check for Changes in Group Setup
Update agreements if you add a new branch or shift operations.
Why the UAE Focus Matters?
With the UAE enforcing corporate tax rules and transfer pricing requirements, reviewing ICAs isn’t optional anymore. Authorities will examine whether:
-    You follow arm’s length pricing
- Â Â Â You maintain proper records
- Â Â Â You report related-party transactions correctly
Even if your prices are fair, you still need to prove it. ICAs are part of that proof.
What Businesses Risk Without Proper ICAs
Failing to keep ICAs in check can result in:
- Â Â Â Disallowed tax deductions
- Â Â Â Increased taxable income
- Â Â Â Disputes over intercompany pricing
- Â Â Â Reputational loss in front of regulators and stakeholders
And once an audit starts, the cost of fixing errors rises sharply.
How can Tax Gian Help?
Your intercompany agreements are more than just internal paperwork. They’re legal shields that protect your company’s tax position. Reviewing them yearly and matching them to your transfer pricing policy is not just good practice; it’s necessary.
Not sure how you can prepare, maintain or review your ICAs internally? Our expert transfer pricing agents in the UAE can help you do all of this. While our qualified professionals take this burden off your shoulders, you can focus on other business operations.
