On 24th September 2015, LCN Legal hosted an informal workshop for large corporates on legal entity reduction projects. The event was chaired by Paul Sutton of LCN Legal with assistance from Ian Barron, non-executive adviser to LCN Legal and former VP and Head of Corporate Tax EMEA for American Express.
It was co-hosted by Duff & Phelps, represented by James Palmer (valuations) and Andrew Cousins (transfer pricing).
We would like to thank our guests for contributing so much to the discussion. They represented organisations including:
- National Grid
- Global Radio
- Marsh & McLellan
- RELX (Reed Elsevier)
- Valad Europe
As for our previous corporate simplification workshop, the discussion was held under the “Chatham House Rule”, so as to provide a safe environment for sharing issues and approaches. The key themes which emerged included the following:
- The problem of lack of “corporate memory” as regards the history of particular legal entities within a group.
- The associated reluctance which may exist in relation to the elimination of companies, due to the fear of losing unidentified but potentially valuable assets. Common types of “hidden assets” include unregistered intellectual property, contractual rights such as options and the benefit of restrictive covenants, and assets held on trust.
- The range of solutions available to address the “hidden asset” problem, including systematic due diligence, “sweeper” assignments (supported by a ‘further assurance’ clause and an irrevocably power of attorney by way of security) and potentially cross-border mergers.
- The difficulty which often exists of establishing a clear cash benefit of a corporate simplification programme, and the fact that such projects are rarely intended to reduce overall headcount. In practice, many legal entity reduction projects are driven by governance considerations, rather than prospective cost savings.
- The valuations issues which may be involved in transferring assets between group entities, especially if there is a cross-border element.
- The challenge of agreeing valuations with multiple tax authorities in a project affecting multiple countries. Once a specific methodology has been accepted in one country, it may be easier to approach other tax authorities within other countries using the same methodology. This may speak in favour of starting with the least stringent authorities first and working towards the stricter ones.
- The practicalities of organizing simplification projects, including the need for high level support, clear methodologies, and the use of IT tools such as Sharepoint to facilitate collaboration.