# Intercompany transactions

Source: https://developer.avalara.com/transaction-reconciliation/lko7287502468032/

# Intercompany transactions

Intercompany transactions are tax-relevant transactions between related entities that can create reconciliation and reporting risks if not managed correctly.

Intercompany transactions occur when transactions are recorded between related entities within the same reporting structure. These transactions can introduce reconciliation complexity when multiple AvaTax companies or reporting entities are involved.

Reconciliation evaluates intercompany activity to prevent duplicate reporting, ensure proper elimination treatment, and confirm that tax is applied under the correct entity.

## Duplicate reporting risk

When the same transaction appears in multiple companies within the reporting entity:

-   **Risk**: Duplicate tax reporting.

-   **Resolution**: Verify which entity has collection responsibility and void the duplicate transaction.

## Missing elimination entry

When an intercompany sale is recorded but the elimination entry is not processed:

-   **Risk**: Taxable activity is overstated.

-   **Resolution**: Identify paired transactions and ensure only the selling entity reports tax.

## Incorrect nexus application

When an intercompany transaction is taxed under the wrong entity’s nexus profile:

-   **Risk**: Tax is calculated under the incorrect filing entity.

-   **Resolution**: Review the transaction flow and correct the company assignment.