Concept clarification: inter-group companies, intra-group companies, intercompany, related companies

What is a group?

This question is more complex than it seems and would deserve a whole separate study. In many countries, the legal concept of “group” is still unclear, although it is commonly used as a marketing argument by companies and it is a reality in the context of account consolidation and intra-group transactions. For instance, the term “group” is not defined in French law, even though the accounts of several companies may be consolidated under certain conditions for tax purposes.

In any case, a group can generally be defined as a set of interconnected companies controlled by a single company. The definition of this “control” is what varies from one country to another and is usually defined as a percentage of ownership of the controlled company’s shares or voting rights.

Inter-group

In English, the expression “inter-group companies” can be read in many financial publications but we do not believe it is the best option. The prefix inter- is quite misleading as it means “between” or “among”. It does not really convey the idea that the companies in question belong to the same group.

Intra-group

“Intra-group” is widely used and is much more understandable, as intra- clarifies that the companies are part of the same group.

Intercompany

Intercompany or “interco” transactions are defined by the IMF as “transactions between members of an affiliated group filing a consolidated return”. Therefore, the adjective “intercompany” can be considered perfectly equivalent to “intra-group”: in accounting, an intercompany transaction is equivalent to an intra-group transaction.

 
Related companies

The OECD defines related companies as “companies that do not have an arm’s-length relationship (e.g., a relationship involving independent, competing interests). This could be due to both companies being part of the same business group or could stem from family or personal ties between officials of two companies.” This concept cannot be considered strictly equivalent to the above three concepts as, in some cases, related companies may not belong to the same group but only have common interests due to “family or personal ties between officials”.

Which term should I choose in English?

We do not recommend:
- In English, we do not recommend to use the term “inter-group” as it is misleading and does not clearly refer to the status of being part of a group.

We recommend:
- Our favorite: we strongly recommend the use of “intra-group”, as it expresses the state of being part of a group and it can be used for anything you like: intra-group transactions, intra-group loans… and even intra-group companies.
- “Intercompany” or “interco” is the most commonly used term for accounting purposes and we recommend its use… even though it is unclear from an etymological point-of-view that the companies belong to the same group. Moreover, this term can only apply to things other than the proper companies (e.g. you cannot say “intercompany companies” as it would be redundant, but you can say “intra-group companies”).
- Related companies is to be used carefully as the definition of such relationship varies from a country to another. It should only be used when you are sure the companies are legally regarded as “related”.

Which term should I choose in other languages?

- In French, intra-groupe is officially used in International Accounting Standard 27 (IAS 27): “Les soldes et les transactions intra-groupe, y compris les produits, les charges et les dividendes…” However, this term cannot be used for companies: sociétés intragroupe (intra-group companies) does not really sound natural in French; they are simply referred to as sociétés d'un même groupe (companies in the same group). Related companies can be translated as sociétés liées.
-  In Spanish, intragrupo is officially used in IAS 27: “Las transacciones y los saldos intragrupo, incluyendo los ingresos, gastos y dividendos…” As in French, this term cannot be used for companies: empresas intragrupo (intra-group companies) does not really sound natural in Spanish; they are simply referred to as empresas de un mismo grupo (companies in the same group). Related companies can be translated as empresas vinculadas.