Intercompany Cost Plus Agreement Template for the United States

An Intercompany Cost Plus Agreement is a specialized contract that governs service arrangements between related corporate entities within the United States. This document establishes the legal and financial framework for one entity to provide services to another related entity using a cost-plus pricing methodology, where the service provider recovers its costs plus an agreed markup percentage.

When do you need this document?

You need this agreement when your corporate group has related entities providing services to each other, such as shared administrative functions, IT support, or management services. This is particularly common in multinational corporations with U.S. subsidiaries, holding company structures providing centralized services, or when establishing shared service centers. The agreement becomes essential when you need to demonstrate arm's length pricing to tax authorities or when restructuring internal service arrangements to optimize tax efficiency while maintaining compliance.

Key legal considerations

The agreement must carefully define the scope of services, cost calculation methodology, and markup percentage to ensure arm's length compliance. Key clauses should address cost allocation methods, documentation requirements, and dispute resolution mechanisms. You must consider the economic substance of the arrangement and ensure the markup percentage reflects what independent parties would agree to under similar circumstances. The agreement should include termination provisions, modification procedures, and clear reporting obligations. Risk allocation between parties is crucial, as is ensuring the service provider has adequate substance and capability to perform the contracted services.

Legal requirements in United States

Under IRC Section 482, all intercompany transactions must be conducted at arm's length, with detailed documentation supporting the pricing methodology. Treasury Regulations §1.482 provide specific guidelines for acceptable transfer pricing methods, including the cost-plus method requirements. You must maintain contemporaneous documentation demonstrating the economic analysis supporting your markup percentage. State corporate laws may impose additional requirements depending on where your entities are incorporated. If any party is publicly traded, Securities Exchange Act disclosure requirements may apply. The agreement must comply with GAAP principles for financial reporting, and FASB guidelines govern proper cost allocation methodologies. Regular benchmarking studies may be required to validate that your pricing remains arm's length over time.