Intercompany Cost Plus Agreement Template for the Philippines

An Intercompany Cost Plus Agreement is a critical legal document that governs service arrangements between related entities operating in the Philippines. This agreement ensures that your intercompany transactions comply with Philippine transfer pricing regulations while establishing clear terms for cost recovery and markup calculations between affiliated companies.

When do you need this document?

You need an Intercompany Cost Plus Agreement when your company provides services to related entities and wants to charge costs plus an agreed markup percentage. This is common in multinational corporations where shared services centers provide administrative, IT, or management services to subsidiaries. Philippine branches receiving services from regional headquarters, parent companies providing technical support to local subsidiaries, and group service providers offering specialized functions to operating companies all require this agreement. The document is particularly essential when the Bureau of Internal Revenue requires documentation of your transfer pricing methodology during tax audits or compliance reviews.

Key legal considerations

Your agreement must demonstrate that the cost-plus methodology results in arm's length pricing as required under Philippine transfer pricing rules. You need to clearly define what constitutes recoverable costs, establish appropriate markup percentages based on comparable transactions, and implement robust documentation procedures. The agreement should specify cost allocation methods, detail the nature and scope of services provided, and establish reporting and invoicing procedures. You must also include dispute resolution mechanisms and ensure that both the service provider and recipient have adequate substance to justify the arrangement. Proper documentation of comparable transactions and economic analysis supporting your markup percentage is crucial for BIR compliance.

Legal requirements in Philippines

Under Revenue Regulations No. 2-2013, your Intercompany Cost Plus Agreement must meet specific transfer pricing documentation requirements. You need to maintain master files and local files as prescribed by the Bureau of Internal Revenue, including detailed descriptions of your controlled transactions and transfer pricing methodology. The Philippine Tax Code requires that related party transactions be conducted at arm's length prices, and your agreement must demonstrate compliance through economic analysis and comparable data. If any party is publicly listed, you must also comply with Securities Regulation Code disclosure requirements for material related party transactions. The Corporation Code of the Philippines governs the corporate relationship aspects, particularly regarding related party transaction approvals and corporate governance requirements. Your agreement must be properly executed according to Philippine contract law principles and may require board resolutions or shareholder approvals depending on the materiality of the transactions involved.