Can you re-write history and not get your head chopped off? Asks Lord Eddard Stark

This article appears in the December edition of our International Corporate Structures Newsletter.

Many of us wish we could have done things differently. For me, questioning the Royal lineage of Joffrey Baratheon was perhaps not the greatest idea. When I changed the dying King Robert’s will and got him to sign it, I may as well have been asking him to sign my own death warrant.

In the world of corporate structures, you may well be tempted to re-write history, and my friends at LCN Legal are often asked whether a particular intra-group agreement can be backdated. The short answer is ‘no’. Giving a document a date which is earlier than the date when it was actually signed, will almost certainly constitute fraud and may result in your decapitation. Similarly, from a Transfer Pricing perspective, it is doubtful whether any attempt to re-allocate contractual risk after the event will be effective. As is highlighted in the 2017 edition of the OECD’s Transfer Pricing Guidelines: “The purported assumption of risk by associated enterprises when risk outcomes are certain is by definition not an assumption of risk, since there is no longer any risk.”

Clearly, it’s better to put in place appropriate intercompany agreements before the relevant supplies are made. But if that didn’t happen, it’s better to act now, and set things straight. Doing nothing only increases the gravity of the problem: every day of inaction increases the period for which your tax filing positions are put at risk by inconsistent intercompany agreements.

So what actions should you take? Your options in relation to any given supply will depend on the proposed terms of that supply, and the conduct of the relevant group entities so far.

• Documenting arrangements which are already in operation
One possible scenario is that the relevant supply arrangements are already in operation, but they have not been documented. For example, a subsidiary may have provided marketing services to the parent from a particular historic date, as reflected in the transfer pricing functional analysis. In this situation, it may be possible to create a document after the event which recites what actually happened, and which records the key terms on which the services have been made – including ownership of intellectual property. The document should be dated when it is actually signed, but it can refer to the historic ‘effective date’ of commencement of the relevant supply. This approach may be harder to justify where the arrangements are unusual or where a particular contractual risk profile is intended which is not clearly evidenced by the conduct of the relevant parties, such as in limited risk distribution arrangements.

• Documenting new arrangements
In other cases, it may not be possible to say that the contractual terms you want are already in operation. In that case you need to make a decision: either to put in place an agreement which purely covers the period from now onwards (and probably be open with tax inspectors about the fact that your previous transfer pricing position was not supported by the legal terms of the supply), or put in place agreements now, with a historic ‘effective date’. Any such agreements would be dated when actually signed, but would state that the parties have agreed to act as if the documented arrangement had been in place from the earlier effective date, and to allocate revenue, liabilities and rights accordingly.

Whenever any form of backdating is proposed, it is important to review the facts carefully. Additional due diligence should be considered in order to manage the risk of any unintended liabilities being triggered, and to ensure that the legal effect of the relevant arrangements is as intended.

To request your free copy of our briefing on How to Put in Place Effective Intercompany Agreements for Transfer Pricing, email us at

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