Intercompany Purchases between two commonly owned entities

USA Discussion in 'Technical Queries' started by BillLumbergh, Nov 30, 2016.

  1. BillLumbergh


    Dec 14, 2015
    Likes Received:
    Good Morning,

    I have a question regarding Company A purchasing goods for use in Company B.

    The logistics:

    Company A purchased an item that will be used by Company B for testing purposes.

    My instinct is to do the following:
    Record this on Company A's books as a due to Company B entry
    Record this on Company B's books as a debit to r&d expense and a credit to Due from Company A

    I met with our tax team recently and they said we need to markup items if Company A is purchasing items for company B. However, we aren't selling this particular item, only using it for testing.

    The Questions: Does Company B need to purchase the items from Company A, and does Company A need to charge a markup? Company A is a Corporation and Company B is an LLC, but they are both owned by the same person.

    Thanks in advance,

    BillLumbergh, Nov 30, 2016
    1. Advertisements

  2. BillLumbergh

    Amit Aggarwal

    Dec 1, 2016
    Likes Received:
    Not aware about US tax laws but i am drawing consensus taking an instances from Indian tax (base concept should be same)
    If invoice of those goods is in name of Company A, then it should be considered as purchase of goods from company A by company B.

    Best way to negotiate with a problem is:

    (only applicable if item in question is in nature of Capital Asset):
    => Give that item on lease to company B instead of selling it. Company B will book an expense (thereby saving tax) and Company A will book Income (thereby paying tax equivalent to tax saved in company B).
    Amit Aggarwal, Dec 1, 2016
    1. Advertisements

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments (here). After that, you can post your question and our members will help you out.