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Coronavirus Q&A: Can a force majeure clause in an intercompany agreement justify a period of no mark up for a UK service company?

Group Reorganisations

Intercompany Agreements

18 May 2020

I thought you might be interested in a question we received last week from an international tax adviser. I’ve set out the question and our answer below.

Q: We’re having a number or enquiries from US headquartered groups regarding adjusting TP with UK service companies. I was wondering whether a force majeure clause in an IC agreement could justify a period of no mark up for a UK service company. I was also wondering if a group that hasn’t implemented IC agreements could execute them now with an earlier effective date and seek to rely on the force majeure clause.

A: If the general scenario is that a UK sub is providing services to a US recipient on a cost plus basis, then force majeure clauses would not usually be relevant. This is because such clauses are not usually designed to address ‘economic hardship’ type issues in the service recipient (payer). Force majeure clauses usually relate to circumstances affecting the service provider’s ability to perform.

If there’s no IC agreement in place, then it probably wouldn’t make sense to implement one with a force majeure (FM) clause, and then rely on that FM clause retrospectively. That’s because FM clauses typically deal with unforeseen events, and an event is not unforeseen if it’s already happened.

This is consistent with the principle in the OECD TP Guidelines that you can’t contractually allocate risk retrospectively.

However, groups should certainly be looking at their intercompany agreements, fixing gaps and aligning them with their adjusted TP policies in response to the coronavirus. We’ve recently published an article on the legal perspectives on force majeure clauses in the context of TP and coronavirus-induced supply chain restructuring. It includes a suggested framework for approaching the legal issues. Here’s a link:


I hope this helps. My colleagues and I would be very happy to discuss specific scenarios on an informal basis, and also to cover these coronavirus type issues in a training session for you and your colleagues internationally.

N.B. I don’t know where you’ve got to in terms of DAC6 compliance for your business practice, and how many cross-border arrangements you tend to get involved in, but it’s a significant headache for us.

To help work through the issues, and to join forces with others in the tax and legal community, we’ve published a ‘beta’ testing version of a free DAC6 self-assessment tool. It aims to help intermediaries come to a preliminary view as to whether a particular arrangement is reportable or not.

Feel free to try out the tool here:


This is very much a tentative pilot version of a possible approach, and if you have any comments or suggestions I would be very grateful to receive them.

We’re speaking to the Law Society about this initiative, and we’re also starting to receive feedback from some of the larger corporates we work with. If there are other people you think we should also be speaking to, please do let me know.


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Article by
Paul Sutton
LCN Legal Co-Founder

Free Guide: Effective Intercompany Agreements for TP Compliance