Intercompany fund transfer policies refer to an organization’s polices relating to the transfer of funds across its various units. In particular, this applies to an organization’s transfer of funds internationally.
Some problems businesses take into account in implementing their intercompany fund transfer polices include political and tax constraints. For instance, a government could place a ceiling on the amount of money a company could transfer out of the country. Companies also have to deal with different tax rates in different regions of a country or internationally.
A company could have a policy that times payments to its advantage. For instance, payments from a subsidiary to the parent company could be expedited, while the payments from the parent to the subsidiary could be slowed down. This has the effect of advancing cash to the parent company and may help present its financial situation to its advantage.
A policy choice could also be made to bring an intermediary into the process. For instance, a parent company could make a loan to its subsidiary through a large bank. And the subsidiary could in turn make its interest payments on the loan through the bank too. This policy is based on the premise that foreign governments are less likely to scrutinize these transactions.
