If you have 1 subsidiary lending revenue generating equipment to a different subsidiary, doesn't GAAP require you to have an intercompany lease for some consideration as if this was an arms length transaction with an unaffiliated company? If so, can you point me to the rule that states this?
Is an intercompany lease required?
Answers
It's not GAAP that requires it since the consolidated results will eliminate the intercompany transaction but, you are very correct, that the arm's length principle embedded in most countries'
The "arms length" requirement is primarily a judicial concept, used frequently when determining taxable liability. But, if you are audited, your Auditors will be focused on the inter-company transactions for the purposes of validating Notes to the Financial Statements - http://pcaobus.org/Standards/Auditing/Pages/AU9334.aspx.
Jake,
Do you know of any specific tax rulings for USA that would lead a company to book an intercompany lease on their financials?
GAAP provides for onsolidation, but not for reaquired documentation. Related party disclosures, however, may be required. If the two entities file separate income tax returns, intercompany pricing will be a tax issue.
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