An intercompany treasury agreement is the contract that frames cash movements between entities of the same group: advances, current account balances, and the operation of a pooling arrangement. Where an intercompany agreement covers any intragroup flow, this one is specific to financing, and in France it is not optional.
The legal basis is narrow. Lending money as a business is reserved to credit institutions under the French Monetary and Financial Code, and intragroup cash advances exist only as an exception to that monopoly, available where a capital link ties the entities together. Operating a treasury arrangement without a written agreement means operating outside the frame that makes it lawful.
A workable agreement sets out five things. The perimeter: which entities participate and on what basis. The mechanics: sweep frequency, ceilings, whether balances are repayable on demand. The interest rate applied to debit and credit positions, with its method of determination. The remuneration of the centralising entity for the service it renders. The exit conditions if an entity leaves the group.
The interest rate is the exposed point. It must be arm's length, meaning comparable to what each entity would obtain from an independent lender given its own standing. An interest-free advance to a subsidiary can be reassessed as an abnormal act of management, and an excessive rate shifts profit toward the lender. The agreement must therefore state a rate and be able to justify it, which is a transfer pricing question as much as a treasury one.
In practice the drift is between the agreement and the flows: rates that were never updated, ceilings quietly exceeded, interest accrued on one side only. Phacet's intercompany flow reconciliation agent compares both sides continuously and documents each position with an audit trail.
