Intercompany markup is the profit margin that one entity of a group adds when it invoices another. A shared services centre that costs 800 000 euros to run and recharges 880 000 to the operating subsidiaries is applying a 10 percent markup. It is the price component of an intercompany transaction, governed by two rules that pull in opposite directions.
The tax rule requires a markup that exists and is defensible. Under the arm's length principle, entities of the same group must transact at a price comparable to what independent parties would agree. The cost-plus method, common for services, management fees and manufacturing, sets the price as the cost base plus a margin benchmarked against third-party arrangements. A markup set at zero is as questionable to an auditor as one at 40 percent.
The consolidation rule requires the same markup to disappear. A group cannot report profit made on itself. Where it is embedded in inventory still held by another group entity at period end, it must be removed through an intercompany elimination until the goods are sold outside the group. The margin is real for the entity and fictional for the group.
Reconciling those two views is a data problem before it is a doctrine problem. It requires knowing, line by line, which flows carry a markup, at what rate, and how much marked-up stock is still held internally. Most groups rebuild that picture by hand at every close.
Phacet's intercompany flow reconciliation agent matches internal flows across entities and documents each pair with a traceable audit trail, which is the evidence base both the tax file and the elimination entry draw from. Where entities sit on different systems, consolidating data from multiple ERPs gives that base a single source.
