You are the only party to the arrangement who thinks the companies are the same thing. Your team in one country does the work. The customer contracts with the company in the other. The invoice goes out, the money comes in, and at some point somebody asks what the first company should charge the second for having done it.

The instinct is that it does not really matter, because both companies are yours. It feels like moving money between pockets in the same coat.

It is not, and the reason is simple. Two tax authorities are looking at the same transaction, each has a view about which of them should be taxing the profit, and neither is inclined to be generous.

Charging nothing is a decision

Most businesses arrive at this question having already answered it by default. Nothing is charged, because nobody raised it, so all the profit sits wherever the customer happened to contract and none sits where the work was done.

That position is visible from the outside and it is difficult to defend, because it describes an arrangement no two unconnected businesses would ever have agreed to. It is also the one most likely to be adjusted, and adjustments arrive with interest and penalties attached rather than as a polite correction.

The same applies to the mirror image: a charge invented at year end to move profit somewhere convenient, with no basis anybody wrote down at the time.

What the number has to survive

Not being right, exactly. Being defensible.

It has to reflect what was actually done, by whom, and where. It has to be a basis that two unconnected parties might plausibly have agreed. It has to be written down before the year end rather than reconstructed after it. It has to be applied consistently, including in the months when the result is inconvenient. And both sides have to book it the same way, in the same period, so that the two sets of records agree.

That last one sounds procedural and causes more trouble than the rest combined.

What it is not only about

Tax is the reason people eventually ask the question. It is not the only thing the answer touches.

The charge decides which company looks profitable. That matters to a lender assessing one entity rather than the group, to a minority shareholder who owns a slice of one and not the other, and to a buyer valuing a business whose margin is partly an internal bookkeeping choice. It also decides where cash physically ends up, which is a different question from where the profit is recorded, and the two are regularly confused.

A charge set purely for a tax outcome, with no thought given to the other three, tends to create a problem in one of them.

Where this needs a specialist, and where it does not

The question of what the charge should be, on what basis, and what has to be documented is specialist work. The rules differ by country, they are enforced with real energy, and getting it wrong is expensive in a way that is hard to unwind. That opinion should come from somebody qualified to give it, engaged by you, and briefed properly.

Briefed properly is where most of this goes wrong. A specialist handed a narrow question answers it narrowly. Somebody has to describe the whole arrangement first: what each company actually does, who its people are, where the value is created, what the customer thinks they are buying, and what the group is trying to be in three years. Without that, you get a correct answer to a question that did not describe your business.

And then somebody has to make it happen every month: raise the charge, book it on both sides, keep the basis current when the business changes, and notice when the arrangement no longer matches what the companies actually do. Advice that is never implemented is worse than no advice, because you have paid for it and you are relying on it.

The version that works

One arrangement, written down, that describes what is really happening. A number with a basis somebody can explain in two sentences. Both sets of books agreeing. A review once a year against what the companies now actually do rather than what they did when it was written.

That is not a tax exercise with some administration attached. It is a decision about how your group is put together, taken with proper advice, and then actually run.