Intercompany agreements for transfer pricing: what to include
The intercompany agreement is often the first document a Transfer Pricing Officer asks for. It sets out what each group company does and how it is paid. A good one supports your arm's length price; a missing or careless one undermines it.
Reviewed by Vijay Dhawan, CA on · Published
Is a written agreement required?
The Income-tax Act does not say every transaction with an associated enterprise must have a written contract. But the agreement matters in three ways:
- Contractual terms are one of the comparability factors under Rule 10B(2): you cannot compare your price with an independent one without knowing the terms.
- Rule 10D(3) lists agreements and contracts among the documents that support the TP study.
- For the safe harbour, Rule 87(2) of the Income-tax Rules, 2026 says that where the contract puts risk on one party but conduct shows the other controls it, the contract is not the final word. The agreement has to describe how the business really runs.
Which agreements a typical Indian group company needs
| Transaction | Agreement | Pricing clause usually says |
|---|---|---|
| Software or ITeS for the parent | Services agreement | Cost plus a markup, with the cost base defined |
| Selling the group's products in India | Distribution agreement | Purchase price that leaves the distributor a target operating margin |
| Making goods for the group | Contract manufacturing agreement | Cost plus a markup on production cost |
| Using the group's brand or technology | Licence agreement | Royalty as a percentage of net sales |
| Management, HR or IT support from the parent | Shared services agreement | Allocated cost plus a small markup, with allocation keys |
| Loan to or from a group company | Loan agreement | Interest at a stated benchmark plus a spread |
| Guarantee for a group company's borrowing | Guarantee fee agreement | Commission as a percentage of the amount guaranteed |
| Staff seconded between group companies | Secondment agreement | Salary cost reimbursed, with or without a markup |
Our guide to transfer pricing methods explains which method suits each of these.
Clause checklist
| Clause | Why it matters for transfer pricing |
|---|---|
| Parties and relationship | Names both entities and their relationship, which supports the associated enterprise analysis |
| Scope of work and functions | Shows who does what. It should match the FAR analysis in the TP study |
| Risk allocation | States which party bears market, credit, inventory and foreign exchange risk. A low-risk entity should earn a routine return |
| Ownership of intellectual property | Says who owns what is developed. Critical for captives and for safe harbour eligibility |
| Pricing method and cost base | Sets the markup or royalty and defines which costs are included, so the margin can be tested |
| Year-end true-up | Lets the parties adjust the price after year end to land inside the arm's length range, with a contractual basis |
| Invoicing and payment terms | Sets when invoices are raised and paid. Long unpaid balances can themselves be questioned as a loan |
| Taxes and withholding | Deals with GST, withholding tax and any gross-up, and treaty documents such as the tax residency certificate |
| Evidence of services | Requires reports, timesheets or deliverables, which is what the benefit test for management fees needs |
| Term, termination and governing law | Shows the arrangement is commercial and states what happens on exit |
Sign before, not after
An agreement signed at the start of the arrangement, or at least during the year, is strong evidence. One drafted at the year end to explain invoices already raised is weaker, but honest. A back-dated agreement is the worst option: once the date is shown to be false, the tax dispute becomes a question of a false document, which no transfer pricing argument fixes. If an agreement is late, sign it with today's date and record that it confirms the terms followed from an earlier date.
Approvals and other laws
- Companies Act, 2013. Contracts with related parties need board approval under section 188 unless they are in the ordinary course of business and at arm's length, and shareholder approval above the prescribed limits. Companies with an audit committee also need its approval under section 177. Material contracts are disclosed in Form AOC-2 with the board's report.
- GST. Supplies between related persons are a supply even without consideration under Schedule I, and are valued under Rule 28 of the CGST Rules. Services imported from a foreign group company are taxed under reverse charge.
- FEMA. Loans from a foreign group company follow the external commercial borrowing framework, and guarantees and loans given abroad follow the overseas investment rules.
- Stamp duty. Agreements signed in India attract stamp duty under the relevant state's stamp law.
Keep the agreement and the TP study consistent
The most common problem is not a missing agreement but a mismatch: the agreement says the Indian company is a low-risk service provider, the TP study says it is an entrepreneur, and the invoices show something else again. Read the three together every year. If the business has changed, amend the agreement before the year ends.
For the base contract, our sister service DraftingBase drafts master service agreements and distribution agreements. We add the transfer pricing clauses and align them with the study as part of our transfer pricing services.
Transfer Pricing Study + Form 3CEB from ₹49,999, by a CA.
FAR analysis, benchmarking with the database cost included, the Rule 10D study and Form 3CEB filed by a CA.
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See what is included and the full priceFrequently asked questions
Is an intercompany agreement mandatory for transfer pricing in India?
The Act does not require a written contract for every transaction, but contractual terms are a comparability factor under Rule 10B(2) and agreements are listed among supporting documents in Rule 10D(3). In practice a TPO will ask for them.
What should an intercompany services agreement contain?
The scope of services, the functions and risks of each party, ownership of what is developed, the pricing method and cost base, a year-end true-up clause, invoicing and payment terms, tax clauses, evidence of services and termination.
Can an intercompany agreement be back-dated?
No. Sign it with the actual date and record that it confirms terms followed from an earlier date. A back-dated document turns a pricing dispute into a question of a false document.
Do intercompany agreements need board approval?
Under section 188 of the Companies Act, 2013, related party contracts need board approval unless they are in the ordinary course of business and at arm's length, and shareholder approval above prescribed limits. Companies with an audit committee also need its approval.
Does GST apply to intercompany transactions?
Yes. Supplies between related persons are taxable even without consideration and are valued under Rule 28 of the CGST Rules. Services from a foreign group company are taxed under reverse charge.
Agreements out of step with your TP study?
We align the clauses with the study and file Form 3CEB, from ₹49,999.
Keep reading.
Transfer Pricing Methods in India: The Six Methods, With Examples
CUP, resale price, cost plus, profit split, TNMM and the other method, with an example of each and how the most appropriate method is chosen.
Read guide→GuideSafe Harbour Rules in Transfer Pricing: Margins for 2026-27 and Form 49
The 2026 safe harbour margins for IT services, loans, guarantees, pharma R&D, auto components and data centres, and how Form 49 works.
Read guide→GuideAssociated Enterprise Under Section 92A: The Tests, With Examples
The thirteen tests in section 92A(2), with an example of each, and how an associated enterprise differs from a related party.
Read guide→Official references
The statutory sources behind this page. We keep our guidance aligned to them — verify anything time-sensitive directly.
- Ministry of Corporate AffairsCompanies Act filings, forms and fee schedules
- Income Tax DepartmentReturns, forms, rates and e-filing utilities
- GST PortalRegistration, returns and rate notifications
Facts on this page are checked against these sources; the date of the last check is shown at the top of the page. It is general guidance, not advice on your specific facts. How we write and check our guides.