As the finance team of an SME or startup that has expanded internationally and has multiple entities in the group, your resources are spread thin.
January 12, 2022
David Tuck
As the finance team of an SME or startup with international reach and multiple entities, your resources are spread thin. You manage intercompany charges to properly allocate costs and implement your group transfer pricing policy. Processing these charges monthly can feel like a ‘nice to have’, and often doesn’t rise high enough on the priority list, leading to yearly runs for your annual accounts and tax return.
It’s like washing the dishes— piling up unsettled charges increases the effort later. Running recharges monthly provides a recency benefit: more frequent charging reduces the chance of missing details, especially if the people involved have left the business.
Gone are the days of investor or director questions about why one month’s management accounts look wildly different from the rest.
Running intercompany charges once a year risks inaccurate cost and revenue reporting for sales tax purposes in the prior months. Some countries require quarterly estimates (e.g., the US). If you don’t include the resulting costs/revenues in those estimates, you may miscalculate and misreport your tax.
Regular posting of intercompany transactions gives you a clearer view of your expected yearly profit and related tax liability. Without this visibility, the tax bill can come as a shock.
Monthly recharges prevent inaccuracies that arise when charging based on annual headcount or other proxies. For example, apportioning central software subscriptions by team headcount will be accurate for only one month of the year; monthly charging provides an exact figure for each month.
Intercompany transactions must be at arm’s length for transfer pricing compliance. Independent third parties would invoice promptly rather than waiting a year. Monthly charges support an arm’s length relationship.
Monthly charging also provides a clearer basis to assess and reward performance across different territories, helping you compare results more reliably.
Running intercompany charges monthly is a win-win. If you’re a startup juggling many tasks, consider Mayday Recharger to automate your intercompany charges on a monthly basis, saving time and money!
