Head quarter service

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sherin (Querist)
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09 February 2024 I have group companies and one of my company provides only headquarters service to another company and takes a reimbursement of the expense incurred from the other companies. so how can i account the transaction between these companies. should i charge any fee from other companies?

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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09 July 2024 When one group company provides headquarters services and incurs expenses on behalf of another group company, it's important to account for these transactions correctly to reflect them accurately in financial statements. Here’s how you can approach it:

1. **Cost Reimbursement**: The company providing the headquarters services should record the expenses incurred on behalf of the other company as an expense in its own books. Simultaneously, it should recognize a payable to the other company for the amount reimbursable.

2. **Intercompany Billing**: While no profit markup is necessary, you may choose to charge a management fee for the services provided. If a fee is charged, it should be based on an agreement between the companies and should reflect the fair value of the services provided.

3. **Accounting Entries**:
- **Expense Incurred**: Debit the relevant expense account (e.g., Rent, Utilities, etc.).
- **Payable to Other Company**: Credit Accounts Payable or a similar liability account for the reimbursable amount.

If a fee is charged:
- **Intercompany Revenue (Fee)**: Credit this account for the fee charged.
- **Intercompany Payable**: Debit Accounts Receivable or a similar asset account for the amount due from the other company.

4. **Reconciliation**: Ensure periodic reconciliation between the companies to confirm the accuracy of expenses incurred and reimbursements made.

5. **Transfer Pricing Compliance**: Ensure that the fees charged (if any) comply with transfer pricing regulations if applicable in your jurisdiction. This involves ensuring that the charges reflect arm's length pricing.

It’s advisable to consult with your company’s accountant or tax advisor to ensure compliance with applicable accounting standards and tax regulations governing intercompany transactions in your country or region.