InterCompany Transactions are between two or more related internal legal entities with common control, i.e. in the same enterprise (Inter = Latin for "BETWEEN")
IntraCompany Transactions are between two or more entities within the same legal entity (Intra = Latin for "WITHIN")
Well the real difference is that Intracompany processing is determined by company management, whereas Intercompany has to follow the law.
The amount the R&D department pays the manufacturing department of the same LE for some test chips(of the silicon kind) is to be sorted out between themselves. However when my manufacturing company in Ireland sell chips to their sister company in Germany you can imagine the tax authorities care about how much they charge because they get a % of it in taxes. This what transfer pricing is all about, it is important to get it right and you need to follow the rules and be prepared to open up your books to the tax people to demonstrate you followed the rules.
In R12 we have changed the way you set up the accounts formerly known as Intercompany accounts. You can enter Intercompany Accounts which are between pairs of Legal Entities, regardless of the ledger, chart of accounts, etc they are on. There is also the Intracompany Accounts screen where the accounts are defined from BSV to BSV with all the options that are available in 11i.
Example on Intercompany Vs Intracompany:
In order to take advantage of the automatic Intercompany balancing during GL posting and SLA Accounting you first need to define the accounts you want us to use.
Intercompany and Intracompany Accounts in R12 are defined in two different Set Up Pages, the Intracompany Balancing Rules are what we had in 11i for Intercompany Accounts (confusing I know) – this is where you will find the rules you had in 11i of you are upgrading from 11i. If you don't want to take advantage of the Legal Entity Configurator product and define Legal Entities and map them to your accounting structure, you can still go ahead and use the intracompany rules. If you start to map your Legal Entities to Ledgers and/or Balancing Segment Values (BSV) then you will want to be sure you complete the job, so there is no ambiguity in your setup. Consider the example below for BSV 10, 20, 30, 40, 80 and 90 :
The France Ledger is mapped to the FR LE, so all BSV in that ledger are assumed to be owned by LE France. However the UK Ledger has BSV 10 and 20 mapped to the UK LE, but 80 and 90 are not mapped to anything we have no way to know what LE they are assigned to.
You will be able to set up Intracompany balancing rules
- Between 10 and 20
- Between 80 and 90
- between 30 and 40
- 10 and 30 or 40
- 20 and 30 or 40
- LE France and LE UK
We would not allow you to create Intracompany rules between
- 80 and 10 or 20
- 90 and 10 or 20
If 80 and 90 aren't in the UK LE then what LE do they belong to? Once you map them to the to the appropriate LE then you will need to define Intercompany accounts for them.
Set up:
In R12 the Intercompany Accounts setup is broken out from GL and included in the Advanced Global Intercompany System (AGIS) product (Don't worry you don't need any additional license for this product). There is a separate set up screen for Intercompany and Intracompany Accounts. The same set up pages are available through the Accounting Set Up Manager as well as AGIS so you can pick your navigation path.
The Intracompany accounts are defined for pairs of Balancing Segment Values (BSV) within the same ledger; this set up is similar to the 11i approach and we upgrade 11i Intercompany accounts to Intracompany accounts here. You don't need to uptake the Legal Entity Configurator product(new in R12) to define these.
In order to enter Intercompany Accounts you need use Legal Entity Configurator to define your Legal Entities and map them to ledgers and/or BSV. You then define accounts to use when certain pairs of Legal Entities trade.
In R12 you can now define a separate payable and receivable account for each Inter/Intracompany trading relationship. In 11i you would just define the due to/due from account and that account was used for both the payables and receivables I had with the specified trading partner.
These will be used for any AGIS transactions you create and also by the automatic intercompany balancing in GL and SLA. Doing the Intercompany balancing at the transaction level in SLA is a big enhancement for R12
More info =>http://davidhaimes.wordpress.com/2007/11/26/intercompany-vs-intracompany/
