Ireland Intercompany transaction


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Need a little advise please.

So company has 2 EUR entities. A invoices B in EUR. A has USD & EUR requirements. B has EUR & USD cash, so to better utilise group cash, I've paid invoices from B to A in both USD and EUR. This is something that is happening monthly ,so could snowball.


Logic behind this is that B wants to pay (say) 1m EUR for invoices to A
A required 250K USD (lets call this 200k EUR equivalent).

So instead of B transferring 1m EUR to A, and then 'buying' back 200EUR vs 250k USD -I 've transferred 800k EUR and 250k USD to cover the invoices.

Accounting chief just wants to book payment of 800k EUR invoices and a loan of 250k USD to entity A. Mainly to save time!

My view is that, while this is ok (ish) in the short run, its just causing other problems
1- Not reflecting that B has paid all the invoices that it actually has
2- FX exposure on both sides is incorrect (B should have less USD assets -it now has a receivable, A should have less USD liabilities, it now has cash & loan liability)
3- Because of FX exposure being wrong, and this issue happening monthly (and increasing the exposures) that it may soon become material and will be effecting P&L in both entiites (and ultimately tax)


what would people suggest?
 

kirby

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Bottom line: accounting chief is not paying A. That can work as long as A has other sources of EUR and USD cash. But chief has to watch out as long term unpaid intercompany accounts can be treated by your country's regulators as capital. For example, this happens in the U.S per IRS section 385.
 
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Thanks Kirby. That was another issue I didn't consider.

I'm worried that (in the best case) this quick fix just causes more issues to be unwound down the line, and (in the worst case) legal/tax issues around how we are booking things.

think i need to stand my ground.
 

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