What Corporate Legal Wants You to Know About Intercompany Agreements

A transfer pricer and a corporate counsel walk into a bar. They immediately disagree over whether they had actually walked in together.

It was, apparently, a matter of substance over form.

Turns out, they were both trying to describe the same event—just from very different perspectives!

We’ve written previous Margin Notes on intercompany agreements from a transfer pricing perspective: Why agreements become stale, Why they drift from actual conduct, and How seemingly routine drafting decisions can create tax challenges years later. This time, we wanted to look at the same document from the other side of the table.

To do that, we spoke with experienced in-house corporate counsel from multiple jurisdictions and asked them what they wished transfer pricing professionals better understood about working with Legal.

The answers were remarkably consistent.

Curious? Need to work on some new agreements before year end? Then read on…‍

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Transfer pricing professionals naturally spend much of their time thinking about the portions of an intercompany agreement that matter most for transfer pricing. In fairness, this makes perfect sense. Most tax professionals are not attorneys, and even those with legal credentials typically practice within the tax function rather than as corporate counsel. Particularly within CPA firms, there is generally a tax lane and a legal lane, and professionals are trained to remain within their respective disciplines.

‍ As a result, it can be easy for a Transfer Pricer to view an intercompany agreement (an “ICA”) primarily as an artifact of the transfer pricing craft that simply happens to require legal review and blessing before execution.

‍ This Margin Note was informed by discussions with experienced in-house corporate counsel from multiple jurisdictions who have collectively spent decades developing, reviewing, and implementing ICAs. We posed a simple question: What do you wish transfer pricing professionals better understood about the agreement development process? While the conversations varied in emphasis, several themes emerged with remarkable consistency. None suggested that Tax should become more like Legal, or that Legal should become more like Tax. Rather, they described the characteristics of working relationships that consistently produce stronger agreements and, ultimately, better outcomes for the company.

‍One observation in particular resonated. The healthiest working relationships were not necessarily those where everyone agrees. They are the ones where both disciplines have learned enough about the other’s objectives to ask better questions. Tax and Legal are ultimately trying to protect the same company, but they are often thinking about different categories of risk and over different time horizons. Recognizing that distinction changes the conversation from one of review and approval to one of collaboration and shared problem-solving.

‍An Intercompany Agreement Serves More Than One Purpose

‍Transfer pricing professionals understandably view an ICA through the lens of tax administration. Will the agreement support accurate delineation of the transaction? Does it align with the intended allocation of functions, assets, and risks? Is it consistent with the conduct of the parties and capable of withstanding scrutiny by a tax authority? These are precisely the questions tax professionals should be asking. (We have contributed some digital ink into the exploration of these and related themes: 10 Signs Your Intercompany Agreement Is Stale and 10 (More) Signs Your Intercompany Agreement May Be Stale.)

Corporate Legal approaches the same document differently. Their responsibility is to ensure that the agreement is legally effective, enforceable, consistent with corporate governance requirements, and compliant with the laws of the jurisdictions in which it will operate. They also venture into abstract thinking – often the bane of tax professionals in a hurry to get a contract inked – by contemplating circumstances that may (ideally) never arise, but that could become critically important to plan for if they do. Questions involving legal (rather than solely economic) ownership, standing, enforceability, local legal or civil code requirements and limitations may not be at the forefront of a transfer pricing analysis, yet they can become decisive years after an agreement is executed. Those scenarios are uncommon, but when they occur, they often matter for reasons having nothing to do with the markup.

Tell Legal What You’re Trying to Accomplish

‍Several attorneys remarked that one of the most difficult aspects of reviewing an ICA is not the drafting itself, but understanding the transaction. A draft agreement rarely explains why the arrangement exists, what commercial circumstances led to it, whether unusual business constraints influenced the structure, or whether historical facts or jurisdiction-specific issues might influence the legal analysis. Tax professionals frequently possess this knowledge but, understandably, focus their discussions on tax implications, rather than elaboration in the perambulatory clauses. “Less is more,” is a common dictum.

‍Providing that broader context allows Legal to become an active contributor rather than simply an editor. If there are unusual commercial considerations, legacy arrangements, restructuring objectives, or concerns that may influence how rights and obligations should be expressed, spotlighting those topics is most valuable before drafting is complete.

‍To summarize various threads of feedback simply, “Don’t just give us the document, give us the story.”

Collaboration Is a Process, Not Merely a Review Step

‍Perhaps the most consistent message was that successful agreement development rarely resembles a sequential handoff in which Tax drafts the agreement and Legal reviews it. The strongest agreements tend to emerge from an iterative process in which both disciplines contribute throughout development. Tax explains the operational objectives and transfer pricing considerations. Legal helps translate those objectives into language that is legally effective and consistent with other company agreements, while identifying risks or issues that may not otherwise have been considered.

Good ICA drafting leaves behind the fingerprints of thoughtful collaboration.

‍That collaborative process becomes increasingly valuable as multinational organizations grow. A company managing a handful of agreements can often succeed through informal coordination. Maintaining a global portfolio of agreements across multiple jurisdictions, however, requires considerably more discipline. Regular touchpoints, visibility into upcoming restructurings, realistic expectations regarding review timing, and an understanding of each team’s workload all contribute to a smoother process. It can take a small village to execute an ICA; effectively maintaining hundreds of ICAs over time with only a small village requires a very well-coordinated one.

‍Invest in the Relationship

‍A surprising theme was that there was less focus about specific drafting techniques or clauses than about quality of the relationships. The most effective collaborations were characterized by genuine professional curiosity about the other discipline. Tax professionals who routinely — and amicably! — worked with Legal began anticipating questions about governing law, enforceability, local requirements, or execution formalities before the agreement ever reached review. Likewise, attorneys who had invested time understanding transfer pricing became better equipped to recognize why Tax cared about accurately delineating the transaction, maintaining consistency between contractual language and actual conduct reflected in documentation, or preserving flexibility where appropriate.

‍That type of understanding does not develop overnight, nor does it require either discipline to develop expertise in the other’s profession. It develops through regular interaction, shared experience, and a willingness to learn. Over time, drafting becomes more efficient because the questions become more insightful and are often predicated on prior analysis. Discussions evolve from defending (sometimes personal) positions to focusing on solving genuine issues.

‍The ICA itself benefits, but more importantly, so does the organization.

‍Ultimately, none of the attorneys suggested that Legal should always dictate an ICA, nor did they expect Tax to relinquish responsibility for driving the key requirements to support the transaction. Their message was considerably more practical. Good ICAs are rarely produced because one discipline “prevails” over another. Rather, they are produced because both disciplines recognize that they are solving the same problem from different perspectives and are willing to learn enough about one another’s objectives to build a document that serves them both.

‍Upon Execution

‍Many of the strongest ICAs don’t merely reflect skilled and thoughtful drafting. They reflect thoughtful collaboration. The clauses may accurately define the relationship between the related parties transacting at volume, but the process by which those clauses were developed often speaks a volume about the organization tasked with creating them.

‍At the end of the day, good agreement drafting leaves behind the fingerprints of thoughtful collaboration.