What Are Intercompany Loans?

The intra-company loan refers to a method of consciously using the differences in foreign exchange control and tax regulations of the host countries of various subsidiaries to provide internal capital transfers to each other and to achieve internal transfers. If the host country of the subsidiary does not impose restrictions on the transfer of funds, the parent company may directly lend to the subsidiary in any party or third party currency. The interest rate for direct loans within a company is actually the internal transfer price of funds. If the host country of the subsidiary imposes restrictions on the transfer of funds, the parent company adopts a roundabout loan method to bypass the foreign exchange control of the host country to achieve the company's internal fund transfer.

Intra-company loans

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Intra-company loans refer to the conscious use of various subsidiary host countries within a multinational company

The roundabout loan methods commonly used by multinational companies are: Parallel Loan. A multinational company that plans to make loans to its foreign subsidiaries, either by itself or through the help of other financial institutions, seeks another subsidiary with the same state-owned surplus funds, and the two parties reach a mutual loan agreement;

Back-to-Back Loan. The parent company or other funded subsidiary deposits the funds in an intermediary bank, and the bank or its branch in the location where the subsidiary is located lends the equivalent funds to the local subsidiary in the local currency or the parent company currency or a third country currency.