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How to structure intercompany cash transfers?

Fat Poutine
Level 3

My client (US based startup funded by VC) bought a 100% owned foreign subsidiary, and they are transferring funds sporadically to the subsidiary to fund their operation. Both companies are R&D and not making any profit, just lots of expenses.

What would be a good way to structure the transfer on the tax return? I am thinking as intercompany loans? Any advice on how to figure out the interest would also be appreciated, since the transfer s are sporadic. They would transfer 200k one month, then 100k the next. They are jointly doing research and closely collaborating.

Also, in the first half of 2023 the subsidiary paid acquisition-related expenses on behalf of the parent company, the sub's CPA firm also classify them as intercompany loans (due from parent). So at the time the parent actually had an outstanding loan (due to subsidiary) until eventually the parent transfer enough to become a creditor in the 2nd half of the year. How would you recommend booking those transactions in the early days?


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