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Intercompany Transactions

How do you clear intercompany receivables by a subsidiary to its parent without actual settlement? These are receivables related to expenses paid by a subsidiary on behalf of the parent


Jake Feldman
Title: Managing Director
Company: Global TaxFin Advisory Group LLC
(Managing Director, Global TaxFin Advisory Group LLC) |

This seems like a question with incomplete information but here are a couple of scenarios:

1. If the sub owes other money/payables to the parent, as is typical, then you can net the offsetting payables and receivables with accounting entries.
2. The sub can replace the receivable with a different type of asset.
a. It can convert the receivable into a longer term intercompany loan receivable bearing interest with payment at a future time.
b. If the situation arises, it can make a capital contribution of the receivable to a new sub of itself in a multi-tiered subsidiary structure.

All the above begs the question: why or what restrictions prevents the sub from just paying the parent?

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

I agree with your scenarios, with one caveat: if the sub is in a foreign country, there may be local bank laws that prohibit offset of charges between parent and sub. It can happen in Africa, Latin America, where local govt regs are very stringent. These countries often want USD so anything that dilutes inbound USD can be frowned upon.
In some cases the transactions may need local federal bank approval before they can be processed.

Martin van Wunnik
Title: Experienced Financial Projects Manager
Company: ARSIMA Projects
LinkedIn Profile
(Experienced Financial Projects Manager, ARSIMA Projects) |

In addition, local thin capitalisation rules may or may not apply, depending on the choice.

Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

This is more a tax issue than an accounting one. I suggest talking to your tax advisor first to have an idea of taxation strategies/plans before you do anything. This is a case where what to do or how to do it (or even if you have to do it) follows the tax strategy/plans.

Rachel Riley
Title: Co-Founder and CFO
Company: ansarada
(Co-Founder and CFO, ansarada) |

To completely clear without funds transfer usually comes back to 2 Options:
Convert to loan - then forgive (tax consequences)
Treat as capital contribution (possible tax consequences)


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