Intercompany Business Transaction

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yobaba

I have been working on 'Intercompany Business' and i had a few questions on this topic which i hope would be answered here.

Consider an organisation with a Sales Plant In Asia ( CC2 ) and a Producing plant In Europe (CC1) , ie different company-code , within the same organisation. When a customer places the order to CC2 , the order is sent to the CC1. CC1 receives this order prduces the product and then delivers the Product directly to the customer and sends an Inter-company invoice to CC2 , which inturn sends the customer Invoice to the customer.

Hence, since the CC1 is delivering the product to Asia , it needs to provide Export /Import documents, which includes an Invoice.

My question here is : What kind of Invoice ( Customer Invoice / IC- Invoice) should be provided at the Customs at the receiving Port ?

And kind of Inovice should the CC1 send with the delivery Product ?

Looking forward to your reply,

Thank you
 

harry

Trusted Information Resource
.................... My question here is : What kind of Invoice ( Customer Invoice / IC- Invoice) should be provided at the Customs at the receiving Port ?

And kind of Inovice should the CC1 send with the delivery Product ? ..............

This is a complex question to answer. It is dependent on so many other factors and top on the list is your organizations business strategy and practices which are in turn determined by factors such as:

Transfer pricing - how is the other countries law related to this issue? There's going to be some form but the difference is the quantum or amount.

Tax structure of the related countries - you have to understand it and see how best you can maximize the benefit to your organization.

Investment and/or trade incentives of the countries concerned - what are these incentives and how best you can make use of it.

In other words, these are questions for specialist in those respective areas and is something outside the scope of most of us here. The potential candidates to answer your question should be found at the international big boys in the financial industry who have offices on most countries and have people knowledgeable in these area of the countries you mentioned.
 

somashekar

Leader
Admin
~~~ Welcome to the COVE yobaba ~~~
Its a very typical drop shipment procedure, wherein the invoice clearly states the "Ship To" and "Bill To" details.
Read more about it in the contents you get with search word "drop shipping" in Google .....
 
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Wes Bucey

Prophet of Profit
I have been working on 'Intercompany Business' and i had a few questions on this topic which i hope would be answered here.

Consider an organisation with a Sales Plant In Asia ( CC2 ) and a Producing plant In Europe (CC1) , ie different company-code , within the same organisation. When a customer places the order to CC2 , the order is sent to the CC1. CC1 receives this order prduces the product and then delivers the Product directly to the customer and sends an Inter-company invoice to CC2 , which inturn sends the customer Invoice to the customer.

Hence, since the CC1 is delivering the product to Asia , it needs to provide Export /Import documents, which includes an Invoice.

My question here is : What kind of Invoice ( Customer Invoice / IC- Invoice) should be provided at the Customs at the receiving Port ?

And kind of Inovice should the CC1 send with the delivery Product ?

Looking forward to your reply,

Thank you

This is a complex question to answer. It is dependent on so many other factors and top on the list is your organizations business strategy and practices which are in turn determined by factors such as:

Transfer pricing - how is the other countries law related to this issue? There's going to be some form but the difference is the quantum or amount.

Tax structure of the related countries - you have to understand it and see how best you can maximize the benefit to your organization.

Investment and/or trade incentives of the countries concerned - what are these incentives and how best you can make use of it.

In other words, these are questions for specialist in those respective areas and is something outside the scope of most of us here. The potential candidates to answer your question should be found at the international big boys in the financial industry who have offices on most countries and have people knowledgeable in these area of the countries you mentioned.

~~~ Welcome to the COVE yobaba ~~~
Its a very typical drop shipment procedure, wherein the invoice clearly states the "Ship To" and "Bill To" details.
Read more about it in the contents you get with search word "drop shipping" in Google .....
I feel my experience in investment banking and law may provide some insight into the situation.

The question arises whether CC2 is, in fact, a plant (manufacturing facility) or merely a sales office. If it is just a sales office, somashekar's comment about "drop ship" is probably accurate.

If CC2 is a manufacturing facility, the reason for fulfilling the order from CC1 comes into play. There have been some publicized instances of multinational organizations playing "shuffle the goods" to record low sales prices in high tax rate countries and high sales prices in low tax rate countries, effectively cheating the high tax countries out of revenue. Thus, CC1 "sells" to CC2 at low intercompany price and CC2 sells to end user at inflated price. I don't imply this is what is transpiring. A legitimate reason may be
  1. production issues at CC2
  2. overstock in one facility (CC1)
  3. specific requirements or features only capable in CC1

Deming (and I) say every employee should practice a System of Profound Knowledge (SoPK) so that he knows to the best of his abilities the "big picture" as well as the details of the interdepartmental activities of his own organization and as much as possible about suppliers, customers, and the business, economic, and political climate and how they affect his organization and himself, particularly.
 

somashekar

Leader
Admin
The OP is very clear that CC2 is the sales plant in Asia. CC2 could be a manufacturing plant as well of that organization and could be making some of their products. Trading could also be an activity of CC2 per their memorandum of association, and they could be the global contact for Asia market. What CC2 makes and what they do not make can be handled within the CC2 business.
 

Wes Bucey

Prophet of Profit
The OP is very clear that CC2 is the sales plant in Asia. CC2 could be a manufacturing plant as well of that organization and could be making some of their products. Trading could also be an activity of CC2 per their memorandum of association, and they could be the global contact for Asia market. What CC2 makes and what they do not make can be handled within the CC2 business.
The point I make is the word "plant" has an accepted meaning in American English and may well have in Britain and other English-speaking [first language] as well. Depending on the exact language in the papers of incorporation and on the laws of the countries where CC! and CC2 are located, everything "could" be a relatively normal transaction of "drop ship" as you state. On the other hand, it might not. OP owes it to himself to "know" which situation is pertinent, not take the meanderings of folks on an internet forum as his ONLY guide, merely an indication to seek more facts.
 

Wes Bucey

Prophet of Profit
This is somewhat complex question.
The question is NOT "complex," merely disingenuous because the OP (original poster) did not research the situation enough to provide sufficient data to provide an unequivocal answer by subsequent posters.

If it was merely a hypothetical question, it demonstrates the OP didn't have sufficient grasp of the potential scenarios (some perfectly reasonable and legal; some nefarious and unethical if not actually illegal) to present a whole picture.

If it was an actual situation, the OP should probably review an earlier Cove thread Ethics - Moral law vs. Criminal law
 

Ninja

Looking for Reality
Trusted Information Resource
My question here is : What kind of Invoice ( Customer Invoice / IC- Invoice) should be provided at the Customs at the receiving Port ?

And kind of Inovice should the CC1 send with the delivery Product ?

For the questions you asked:

A "Commercial Invoice" or "Customs Invoice" should be sent with the shipment. Many of these are simply marked "For Customs Purposes Only".

A true billing Invoice should be sent to the customer from the sales office.

For the question you didn't ask...The shipping plant should send a billing Invoice to the Sales office or reseller.

All of the discussion above is valid...but affects what values are put on the invoices...the invoice types are straightforward.

It is not uncommon to discuss the situation with taxing authorities or regulatory authorities to avoid the "shuffle" that Wes describes. There is a certain amount commonly allowed, and then there's "too much". Agreement beforehand can keep you out of hot water.
 
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