Key points
- Typical structure: the goods move in a single direct shipment, invoices pass down the contract chain tier by tier, payments flow back up tier by tier, and profit is allocated between the parties according to pricing rules.
- A trade chain within a group involves related-party transactions, so pricing between the entities must follow the arm’s length principle and be supported by transfer pricing documentation.
- Regulators and auditors focus on the genuineness of the trade and expect the contract, invoice, title and payment at every link to close.
In practice
Groups use multi-party trade for reasons such as centralised procurement, regional division of sales, and cross-border settlement and financing arrangements. The difficulty is that one consignment generates several contracts, invoices and payments along the chain; any mismatch in quantity, price or date at a single link causes problems for reconciliation, tax and audit.
In finance, each entity in the chain has to account separately, and intra-group transactions must be eliminated on consolidation. For tax, each link must be invoiced and filed under local rules, and cross-border links also bring transfer pricing and BEPS-related requirements. For risk control, the group must be able to show that every link corresponds to real goods, to avoid the trade being treated as financing or fictitious trade.
How Tranexio supports it
Tranexio uses a trade chain master document to connect the contracts, orders and documents of every entity in the chain, managing the four flows – goods, invoices, funds and profit – separately. It allocates profit according to transfer pricing rules and provides intercompany reconciliation and a BEPS compliance self-check. See Trade chain management and transfer pricing and Multi-party trade chains.