Procedural & Documentation Masterguide for Intercompany International IT Cost Reimbursements

By CA Surekha S Ahuja

Across Income Tax, GST, and Companies Act Compliance for India-Based and Global Entities

"Compliance is not merely following rules; it is structuring, documenting, and executing transactions so that every step speaks for itself under scrutiny."

INTRODUCTION

Cross-border intercompany IT cost reimbursements—between a global parent or overseas branch and an Indian entity—are common yet highly scrutinized. Risks include:

• Recharacterization as Fees for Technical Services (FTS) or Fees for Included Services (FIS)

• Misapplied GST or reverse charge provisions

• Related-party transaction issues under the Companies Act

• Potential transfer pricing adjustments

Without a disciplined framework, routine cost-sharing arrangements can trigger audits, penalties, or litigation.

This blueprint provides a step-by-step, audit-proof framework for structuring, executing, and documenting intercompany IT cost reimbursements in a tax-efficient and legally defensible manner.

PRE-IMPLEMENTATION CONTROL SYSTEM

1 Transaction Characterization

• Nature: Service, reimbursement, or composite

• Related-party status: Domestic or cross-border

• Fee type: Cost-to-cost recovery vs. markup

• Purpose: IT operations support, helpdesk, monitoring

2 Regulatory Mapping

• Income Tax: TDS sections, deductibility, treaty implications

• GST: SAC codes, rate, reverse charge mechanism, ITC eligibility

• Companies Act: Sec. 188 approvals, MBP-1 disclosures

• Transfer Pricing: Cost contribution agreements, arm’s length validation

3 Internal Diagnostic File Note

Document:

• Commercial rationale

• Regulatory mapping

• Valuation approach

• Risk assessment

• Planned evidence trail

This becomes the foundation for all future defense in case of audit or litigation.

DOCUMENTATION BEFORE EXECUTION

1 Board / Management Approval

Board note should include:

• Transaction background and necessity

• Commercial justification and arm’s length rationale

• Scope and fee/reimbursement mechanism

• Delegation of authority and approvals

2 Agreement Essentials

Ensure clarity and defensibility:

• Scope of Services: Operational IT support, clearly enumerated

• Fee Structure: Cost-to-cost, zero markup, supported by third-party invoices

• Tax Clauses: GST, TDS, withholding provisions

• Record-Keeping: Obligations for both parties

• Term & Termination: Fixed term, renewal and exit conditions

• Exclusion Clause: No transfer of IP or autonomous capability

EXECUTION PROCEDURES

1 Invoicing Protocol

• Include service/reimbursement description

• Correct SAC / HSN codes

• Reference agreement and period

• Attach supporting third-party invoices

• Declare “cost only, no markup”

2 TDS Compliance

• Identify correct TDS section

• Deduct at time of credit or payment

• Deposit timely and file quarterly returns

• Issue Form 16A and reconcile with 26AS

3 GST Compliance

• Verify classification and rate

• Apply forward charge or RCM as applicable

• Follow time-of-supply rules

• Avail ITC only after supplier invoice reflects in GSTR-2B

• Maintain service consumption evidence

4 Companies Act Compliance

• Obtain MBP-1 declarations

• Board approval/resolution for related-party transactions

• Maintain contract register under Sec. 189

• Document arm’s length rationale

POST-EXECUTION CONTROL & DOCUMENTATION

1 Audit Trail

Maintain:

• Signed agreements and board resolutions

• Invoices, bills, payment proofs

• Service delivery proof and cost allocation evidence

• GST ledgers and reconciliations

• TDS calculation sheets and challans

• Communication/email evidence

2 Annual Management Certification

Confirm:

• Services delivered per agreement

• Reimbursements match actual costs

• No personal/non-business expenditure

• Compliance with all regulatory obligations

INCOME TAX PROCEDURAL BLUEPRINT

• Prepare TDS determination note

• Maintain defense-ready folder: agreement, ledgers, bank proofs, 26AS

• Document commercial rationale and arm’s length validation

• Link service delivery to reimbursement

GST PROCEDURAL BLUEPRINT

• Prepare GST position note: classification, RCM, ITC, valuation

• Avail ITC only after invoice reflection and service receipt

• Maintain reimbursement chain and reconciliations

COMPANIES ACT PROCEDURAL BLUEPRINT

• Director MBP-1 disclosures

• Board resolution approval and minutes

• Maintain contracts and related-party registers (Sec. 189)

• Document arm’s length rationale for cross-border cost sharing

MODEL AGREEMENT HIGHLIGHTS

Title: Group Cost Contribution Agreement – Centralized IT Support

• Scope: Operational IT services only

• Fee/Reimbursement: Cost-to-cost, zero markup, supported by invoices

• Exclusions: No IP transfer or know-how sharing

• Tax Compliance: GST and TDS clauses

• Record-Keeping: Audit-ready obligations

• Term & Termination: Fixed term with clear exit conditions

• Arm’s Length Confirmation: Commercial justification statement

INTERNAL COMPLIANCE CHECKPOINTS

Stage	Checklist
Pre-Transaction	Agreement, board approval, MBP-1, TDS & GST notes
Monthly	Invoices, RCM, ITC, TDS deposit, service delivery evidence
Annual	26AS / IT reconciliation, GSTR-2B alignment, contract register, management certification

CLOSING

A transaction becomes legally sound when its law is correct, procedurally strong when steps are disciplined, and fully defensible when documents tell a complete, consistent story. Compliance is not a burden—it is a shield. With this procedural blueprint, every intercompany IT cost reimbursement is clear, traceable, justified, and protected across Income Tax, GST, and Companies Act regimes.