4.6.1.5 Identification of Intercompany, Internal and External Transactions

The application identifies intercompany, internal and external transactions based on the consolidation level for which the Run is executed as per the following approach:

1. Any transactions between entities within the immediate organization structure of the consolidation entity are considered intercompany transactions and are eliminated during calculations.
2. Any transactions between an entity within the immediate structure of the consolidation entity and an entity outside the immediate structure of the consolidation entity but within the larger organization structure of which the consolidation entity is a part are considered internal transactions.
3. Any transactions between an entity within the immediate structure of the consolidation entity and an entity outside the larger organization structure of which the consolidation entity is a part, i.e. third party entities, are considered external transactions.

This is illustrated with the help of organization structure charts below:

The organization structure of a US BHC is given below where the US BHC itself is the consolidation level for calculations:

Figure 3-26 Intercompany Transaction Identification for US BHC

In this case, any transactions between entities highlighted in red color i.e. entities within the immediate structure of the consolidation entity, are considered intercompany transactions and are eliminated during calculations. Any transactions between an entity highlighted in red color and an entity highlighted in purple color are considered internal transactions. Any transactions between an entity highlighted in red color and any other entity not part of this organization structure are treated as external transactions.

Suppose an FBO has an Intermediate Holding Company, a Branch as well as Agency within the US. The identification of intercompany, internal and external transactions when the consolidation entity differs is highlighted below. In each example, the transactions between entities highlighted in red color are considered intercompany transactions. The transactions between an entity highlighted in red color and an entity highlighted in purple color are considered internal transactions. All other transactions are considered external.

1. When consolidation entity is US Combined Operations
   
   
   
   
2. When consolidation entity is US IHC
   
   
   
   
3. When consolidation entity is US Agency
   
   
   
   
4. When consolidation entity is US Branch