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Parent pays subsidiary phone bill. TP Markup

Parent pays subsidiary phone bill. Does transfer pricing Markup apply and VAT

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Parent company pays a phone bill or large marketing invoice addressed to a subsidiary. This is a one off and there is no other way around it.

There is a transfer pricing policy in place on some shares services such as accounting, purchasing.

My understanding of main intercompany services are as below.. 1 & 2 has TP applied, 3 has interest rate. My question is on 4.

 

1. Physical product sales/ purchases 2. Shared services

3. Loan agreement

4. One-off ad-hoc payment of bills addressed to other company

 

I would consider this as a non shared service item and wouldn't apply a markup when invoicing the subsidiary. Is that the correct treatment ? And would VAT be applied to the invoice given the subsidiary is VAT registered?

Both companies are in the UK. 

Thanks Margaret 

 

 

 

 

Replies (10)

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By Bobbo
13th Oct 2021 08:44

If the phone bill or whatever was invoiced to the subsidiary and the parent has merely paid it on the subsidiary's behalf, i would simply be making entries in the intercompany ledger of each company. The parent company would not be raising an invoice for anything and so transfer pricing and VAT would not come into it.

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Replying to Bobbo:
ALISK
By atleastisoundknowledgable...
13th Oct 2021 09:37

+1

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Replying to atleastisoundknowledgable...:
Caroline
By accountantccole
13th Oct 2021 09:55

+2

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Replying to Bobbo:
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By [email protected]
13th Oct 2021 11:25

yes, but at some point the subsidiary needs to repay the parent. Intercompany charges need to be cleared down and paid at some point and an invoice is the usual way. Management fees for example will be settled by invoice say every 3 or 6 months.

My thinking is there should be no markup when this particular cost is settled by intercompany invoice.

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Replying to [email protected]:
Psycho
By Wilson Philips
13th Oct 2021 11:11

The point is that it's not an intercompany charge - it is just a debt due from one company to the other.

Had the invoice been addressed to the payer, and that company was then seeking redress from another group company for its share of the cost then yes an intercompany charge might be appropriate (with VAT if applicable).

If you and I were sitting on a train together and you'd no cash on you, you might ask me to pay for your ticket. When we alight you go to an ATM, get the cash out and repay your debt to me. I'm not going to hand you an invoice, and I don't consider that Company A needs to (or should) raise an invoice to Company B in this case. The relevant invoice is the invoice addressed to Company B by the supplier - nothing more than a transfer of funds from B to A is required.

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Replying to Wilson Philips:
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By [email protected]
13th Oct 2021 11:32

I agree with your point. I call it an intercompany transaction. the invoice is addressed to the subsidiary. the parent pays as the subsidiary is unable to. The entry in sub's books would be dr. exp/ cr. intercompany. it could be settled (without any markup) as part of the intercompany charge invoice from the parent. then dr. Intercompany/cr.bank

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Replying to [email protected]:
Psycho
By Wilson Philips
13th Oct 2021 11:39

Call it what you want. It is not an intercompany transaction.

Raise an invoice if you want. I (and I suspect others will) say that you shouldn't. If your initial (correct) entry in the sub's books when the supplier is paid is Dr Exp, Cr Intercompany, what is the entry in the sub's books when the intercompany invoice is raised?

If you're going to ignore advice, why bother to ask for it?

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By DKB-Sheffield
13th Oct 2021 11:35

Hi

As above!

However, and to clarify...

Stating the bleedingly obvious Company A (HCo) should not have claimed input VAT on the Company B (SCo) invoice. If this has happened, it needs correcting as HCo has claimed SCo's input VAT in error!

Also, you don't state the size of the group or whether you act for both A & B. In larger groups (with large subs) it may be that SCo refuses to pay HCo without additional paperwork from H. Perhaps provide a Request for Payment (or similar) for the gross value and attach the phone bill (etc.). Do not call this an invoice and do not charge VAT, and do not reflect the income in HCo. If you do, there are 2 invoices in SCo, 2 lots of VAT, incorrect income in HCo and only 1 cash transaction.

On a final point, not related to your initial question... you mention charging VAT. Are HCo and SCo in a VAT Group? You may wish to consider this for future but, it will depend on the VAT Status of both and whether it is beneficial in your case.

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Replying to DKB-Sheffield:
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By [email protected]
13th Oct 2021 14:07

tating the bleedingly obvious Company A (HCo) should not have claimed input VAT on the Company B (SCo) invoice. If this has happened, it needs correcting as HCo has claimed SCo's input VAT in error! I UNDERSTAND THIS POINT BUT GOOD TO CLARIFY. NO VAT ON THE ACTUAL SUPPLIER INVOICE IM REFERRING TO

Also, you don't state the size of the group or whether you act for both A & B. In larger groups (with large subs) it may be that SCo refuses to pay HCo without additional paperwork from H. Perhaps provide a Request for Payment (or similar) for the gross value and attach the phone bill (etc.). Do not call this an invoice and do not charge VAT, and do not reflect the income in HCo. If you do, there are 2 invoices in SCo, 2 lots of VAT, incorrect income in HCo and only 1 cash transaction. I'M COVERING BOTH COMPANIES. YES PAPERWORK TO REQUEST
A PAYMENT IS THE BEST OPTION

On a final point, not related to your initial question... you mention charging VAT. Are HCo and SCo in a VAT Group? You may wish to consider this for future but, it will depend on the VAT Status of both and whether it is beneficial in your case. EU VAT REGISTERED AND UK VAT REGISTERED. I DON'T NEED TO WORRY ABOUT THIS YET BUT THINK IT WILL BE REVERSE CHARGE FOR SERVICES (NOT TALKING ABOUT PHYSICAL PRODUCT HERE)

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By DKB-Sheffield
13th Oct 2021 11:56

Incidentally, and having just read your other question regarding VAT...

Is the "parent" company you speak of, the European parent of the UK subsidiary referred to in that question?

If so, it may have been advised to mention that in this question. Not saying it would necessarily change the advice in this instance but, whenever VAT is mentionned in a question, knowing the relevant jurisdiction of the VAT entities, and whether they are also VAT registered in the UK is somewhat important!

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