Intercompany agreements after the flip: IP, services and transfer pricing between a foreign parent and its Indian subsidiary
A Delaware parent and its Indian subsidiary need five intercompany agreements after the flip: an IP assignment, or a recorded decision not to move the IP; a cost-plus services agreement; a licence of the parent’s IP back to the subsidiary where needed; an intercompany funding agreement; and an ESOP and secondment recharge. Each is a related-party transaction priced at arm’s length, reported in India in Form 48 (formerly Form 3CEB), tested in the US under section 482 and, for a UAE group company, disclosed to the FTA.
Why the flip leaves a paper gap
The Delaware flip ends at the share swap, after which the ESOP pool is reconstituted at the parent and US banking and accounting start running. The Indian company still employs the team and writes the code; the parent now owns it and signs the customers. Unless that relationship is written down and priced, the group has international transactions between associated enterprises with no contract behind them, a file opened in every diligence and tax scrutiny.
The flip page’s step “put the IP where it belongs” is where the gap starts: the common failure is never choosing, and discovering at exit that the IP sits in the entity nobody is buying. Founder and contractor assignments into the Indian company are a different instrument, covered by contracts and IP; this page starts where the Indian company owns what it built.
The five agreements, in order
- IP assignment between the group entities. A written assignment, signed by both companies, listing the code, works, marks and inventions moving from the Indian subsidiary to the parent, stating the consideration and fixing an effective date. If the IP stays in India, record that too, because the licence in step three then runs the other way. The consideration is an international transaction between associated enterprises, priced at arm’s length in India and reported in Form 48 (formerly Form 3CEB); on the US side, 26 U.S.C. 482 requires the income from a transfer or licence of an intangible to be commensurate with the income attributable to it. The FEMA treatment of the consideration is checked on the FEMA, ODI and LRS workstream before anyone signs.
- Intercompany development or services agreement, on a cost-plus basis. The Indian company builds and supports the product for the parent and invoices its costs plus a markup. It sets the Indian company’s profit, so it should describe the services, who bears which risk, how costs are pooled, and the markup and its benchmarking.
- Licence of the parent’s IP back to the subsidiary, where needed. If the parent owns the IP and the Indian company serves Indian customers or needs the codebase to keep building, it needs a licence; if it works only for the parent under the development agreement, it may need none, and an unneeded licence creates an unneeded royalty flow.
- Intercompany funding agreement. Money the parent puts in beyond share capital, as a loan or a prepayment against services, needs papering rather than a running balance in the ledger. Its terms are tested under transfer pricing in both countries; the India-side exchange-control conditions belong to the FEMA workstream.
- ESOP and secondment recharge. The option pool sits at the parent while the employees sit in India, so a recharge agreement under which the Indian company reimburses the parent for those grants, and a secondment agreement where staff move between the companies, keep the cost in the entity that gets the benefit. ESOP after the flip covers the option mechanics.
The same stack applies, with a UAE issuer at the top, to the token-launch structure in launching a token from India.
Schedule A: transfer pricing rules in the three corridor jurisdictions
| Item | India | United States | UAE |
|---|---|---|---|
| Arm’s length standard | Every international transaction with an associated enterprise is priced at arm’s length under the Income-tax Act 2025 (in force 1 April 2026; transfer pricing provisions renumbered) | 26 U.S.C. 482: the Secretary may reallocate income, deductions, credits or allowances among commonly controlled businesses; income from a transfer or licence of an intangible must be commensurate with the income attributable to it | Article 34, Federal Decree-Law No. 47 of 2022 (Ministry of Finance English text): Related Party transactions must meet the arm’s length standard; tax periods from 1 June 2023 |
| Methods and safe harbours | Budget 2026-27 safe harbour for Information Technology Services: common margin 15.5 per cent, threshold raised from Rs 300 crore to Rs 2,000 crore, automated rule-driven approval, continuation for five years; fast-track unilateral APA for IT services targeted at two years | Reg. 1.482-9 lists seven methods for controlled services; the services cost method (total cost, no markup) is limited to covered services (services specified by IRS revenue procedure, or low-margin services whose median comparable markup is 7 per cent or less) that do not contribute significantly to key competitive advantages, core capabilities or fundamental risks, and research, development, engineering and scientific work are excluded | Article 34(3): comparable uncontrolled price, resale price, cost-plus, transactional net margin, transactional profit split. FTA Transfer Pricing Guide (CTGTP1, October 2023): low value-adding support services at cost plus 5 per cent without detailed benchmarking; R&D, core business, sales and marketing and financial transactions excluded |
| Annual filing | Form 48 (formerly Form 3CEB), the accountant’s report on international transactions, filed annually where an international transaction exists | Information returns on the foreign subsidiary and foreign owners: see US compliance for a foreign-founded Delaware company | Article 55(1): disclosure of Related Party and Connected Person transactions filed with the tax return above the FTA’s materiality threshold; return due within 9 months of the end of the tax period |
| Documentation and consequence | Contemporaneous transfer pricing documentation for each international transaction; penalties apply for missing documentation and reports (figures not restated here) | Books and records for services cost method eligibility (Reg. 1.482-9(b)); reallocation of income, deductions and credits under section 482; other US penalty rules not stated here | Ministerial Decision 97 of 2023: master file and local file at AED 200,000,000 own revenue or AED 3,150,000,000 MNE group revenue; local file includes Non-Resident Person transactions; reasonable records below the thresholds; produce within 30 days of an FTA request (Article 55(4)); keep records 7 years (Article 56) |
What markup for the Indian development centre
The markup in agreement two follows from the functions, assets and risks the Indian company carries. A company that builds to the parent’s specification, bears no market risk and owns no IP earns a routine return; one that decides the roadmap, owns the code and bears the loss if the product fails earns more.
India publishes one administrative benchmark: the Budget 2026-27 safe harbour for Information Technology Services at a common margin of 15.5 per cent for eligible companies within the Rs 2,000 crore threshold. The safe harbour is elective: one input to an arm’s length analysis rather than a substitute for it, and silent on what the US side will accept.
On that side, the services cost method under Reg. 1.482-9, which charges total cost with no markup, is not available to a development centre: it is confined to covered services (services specified by IRS revenue procedure, or low-margin services whose median comparable markup is 7 per cent or less) that do not contribute significantly to the group’s key competitive advantages, core capabilities or fundamental risks, and research, development, engineering and scientific work are excluded. For a centre that builds the product, engineering is the core capability, so the charge is tested under cost of services plus, comparable profits or another full method, with a benchmarking study behind it. The UAE takes the same line: cost plus 5 per cent is for low value-adding support services only, and the FTA guide reads a point near the lower quartile as fitting a company with very limited functions and no risks.
The UAE leg: when the group adds a Dubai company
A UAE company in the group inherits the same stack. Under Article 35 of the Corporate Tax Law a company that owns 50 per cent or more of another, or Controls it, is its Related Party, so the UAE company’s dealings with the Indian subsidiary and the Delaware parent fall within Article 34, and Article 36 confines payments to a Connected Person, including an owner, to Market Value.
Three duties follow: the Article 55(1) disclosure form, filed with the tax return within nine months of the end of the tax period above the FTA’s materiality threshold; the master file and local file under Ministerial Decision 97 of 2023 above AED 200 million own revenue or AED 3.15 billion group revenue, the local file covering transactions with Non-Resident Persons such as the Indian and US affiliates; and, below both thresholds, reasonable records supporting arm’s length pricing, produced within 30 days of a request and kept for seven years. For a UAE company managed from India, see UAE company run from India.
Who signs what on the intercompany stack
The companies sign the agreements, through their directors or authorised signatories, and the UAE company files its own tax return and disclosure form as the taxable person. Infinilex counsel qualified in India draft the India-law agreements and sign the India leg of the advice; Infinilex’s chartered accountant signs the Form 48 accountant’s report (formerly Form 3CEB), where the statute names an accountant. A US-admitted Infinilex lawyer signs the US leg, including the section 482 analysis. Infinilex counsel qualified for the UAE sign the UAE leg. A SEBI-registered merchant banker or chartered accountant gives any valuation the FEMA workstream calls for, and the AD bank reports the FEMA legs. The India, UAE and US work is handled in-house; for a group entity elsewhere, Infinilex scopes the work, builds the fact record and briefs the local counsel who sign, named to the client before they act. Cross-border structuring is the service under which this stack is built.
Frequently asked questions
What intercompany agreements does a Delaware parent need with its Indian subsidiary?
Five, in order: an IP assignment moving the subsidiary's existing IP to the parent, or a recorded decision to leave it where it is; a development or services agreement under which the Indian company builds and supports the product for a cost-plus fee; a licence of the parent's IP back to the subsidiary where it needs one; a funding agreement for money the parent puts in beyond equity; and a recharge agreement for ESOP cost and seconded staff. Each is a related-party transaction priced at arm's length.
How is IP assigned from an Indian subsidiary to a US parent?
By a written assignment signed by both companies that identifies the code, works, marks and inventions being moved, states the consideration and fixes an effective date. The parent and the subsidiary are associated enterprises, so the price must be arm's length in India and is reported in Form 48 (formerly Form 3CEB); on the US side, section 482 requires the income from a transfer or licence of an intangible to be commensurate with the income the intangible produces. The FEMA treatment of the consideration is a separate check.
What markup should an Indian development centre charge its US parent?
There is no single right number: the markup has to be an arm's length return for the functions the Indian company performs, the assets it uses and the risks it bears. The published administrative benchmark is India's transfer pricing safe harbour for Information Technology Services, set by Budget 2026-27 at a common margin of 15.5 per cent for eligible companies within the Rs 2,000 crore threshold. The safe harbour is elective and one input to the analysis, not a substitute for it; the US side tests the same charge under section 482.
What is the safe harbour threshold for IT services in India in 2026?
Rs 2,000 crore. Union Budget 2026-27, presented on 1 February 2026, raised the threshold for the transfer pricing safe harbour for IT services from Rs 300 crore to Rs 2,000 crore, clubbed software development, IT enabled services, knowledge process outsourcing and contract R&D relating to software into one Information Technology Services category with a common 15.5 per cent margin, and moved approval to an automated rule-driven process. Once elected, it can continue for five years at a stretch. This page states the Budget announcement; check the implementing rules before relying on it.
Does the UAE entity in an Indian group need a transfer pricing local file?
Only above the thresholds in Ministerial Decision 97 of 2023: a master file and a local file are required where the UAE company's own revenue is AED 200 million or more, or where it belongs to an MNE group with consolidated revenue of AED 3.15 billion or more. A local file must include transactions with non-resident persons, so the Indian or US affiliate is in scope. Below the thresholds the company still files the FTA's disclosure form above the materiality threshold and keeps reasonable records, producible within 30 days of a request.
Flipped, and the two companies still have no contract between them?
Send us the group chart, where the IP sits today and how the Indian company is paid. We will map the five agreements and the pricing file each jurisdiction expects.
Further reading
The Delaware flip from India · ESOP after the flip · US compliance for a foreign-founded Delaware company · LRS vs ODI for Indian founders · Launching a token from India · Contracts and IP · Cross-border structuring
General information for founders, not legal or tax advice on your facts; it reaches no conclusion on any group’s pricing. Sources as read on 25 September 2026: PIB release 2221428 of 1 February 2026; 26 U.S.C. 482 and 26 CFR 1.482-9 (Cornell LII); the Ministry of Finance English text of Federal Decree-Law No. 47 of 2022 and Ministerial Decision No. 97 of 2023; FTA Transfer Pricing Guide CTGTP1, October 2023. The Indian safe harbour and the UAE thresholds are re-verified quarterly. Income-tax Act 2025 section numbers, the safe harbour rules and penalty figures are not printed.