# Purchases made by another entity



## Tonystam (Apr 25, 2021)

Hi!

First of all, I apologize if this is not the right place to ask this question. I’m not able to find a tax forum in the USA.

I am the owner of an European company that resells software licenses to European clients. Until today, I have kept the accounting of my company but when opening a new branch in the USA a doubt has arisen for me. I would be very grateful if anyone could help me.

We have recently opened a new branch in the USA. Currently, in our European branch, we have an special agreement with the company that provides us the licenses. This agreement is no longer available, so the new branch in the USA cannot benefit from it. Does anyone knows if it would be possible for the branch in the USA to pay part or all the costs of those licenses that our European company buys (under the agreement) even if the invoices are issued to the European branch? In the case of an audit, would those payments be acceptable for the IRS even if the invoices are not issued to the company in the USA but to the European one (maybe such as repayments or even invoicing them from the european branch to the usa one)?

Thanks!


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## NickZ (Jun 26, 2009)

Google _Transfer Pricing_ .


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## Tonystam (Apr 25, 2021)

Hello NickZ,

Thanks for your reply.

What do you mean?


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## Bevdeforges (Nov 16, 2007)

Basically, you're talking about doing an intercompany transfer of the licenses. How you handle that is up to you and your company policies. But I would be more concerned about whether or not your European licensing arrangement allows you to transfer the license to a US entity. Your European company would then re-bill to the US branch on whatever terms you like.

But you might want to consult a CPA to help with your US accounting (including the tax stuff). In the US there are all sorts of tricks and tips you need to know about - and basically there can be two sets of books, the reporting books and then the tax books (and the two sets have to be reconciled depending on the accounting options you select).


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## Tonystam (Apr 25, 2021)

Hi Bevdeforges,

Thanks a lot for your reponse and for all the information. 

Yes, that's exactly what we need to do. Thanks for the tip, I'll check the arrangement too. 

Do you think there would be a way to justify this expense as compensation for expenses or as a repayment instead of having to re-bill to the US branch?

Regarding the CPA, i'll do it too. Can you recommend anyone?

Thanks!


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## Bevdeforges (Nov 16, 2007)

I've been gone from the US far too long to be able to recommend a CPA. Depends entirely on where your US branch is located.

But exactly how to do it will depend to a large extent on how your US branch is organized, in which state, etc.


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## NickZ (Jun 26, 2009)

Remember you'll need to discuss this with your local accountant also. Many countries are cracking down on creative transfer pricing. Your local country might expect you to bill the US branch at fair market value creating a profit for you. Even if the US branch hasn't sold anything yet.


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## Tonystam (Apr 25, 2021)

Ok, understood. Thank you all for the tips.


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