Inter-company transactions

What they are

Transactions between separate companies of the same group — sales, services, loans, shared costs, reimbursements.

Accounting

Each company records the transaction like any other party, using a separate ledger for each group company so balances can be matched.

Points to watch

• Related-party rules: under the Companies Act, related-party transactions may need board or shareholder approval and must be disclosed.
• GST: supplies between related persons are taxable even without payment (Schedule I). Value at open-market value. If the recipient can claim full ITC, the invoice value is usually accepted.
• TDS: deduct as for any other payee (e.g. on services, rent, interest).
• Loans: charge interest at arm's length; check deemed-dividend rules for closely held companies.
• Transfer pricing: applies to international and specified domestic transactions above prescribed limits.

Consolidation

When group accounts are prepared, inter-company sales, balances and profits in unsold stock are eliminated so the group isn't shown trading with itself.