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Pre-Economic Analysis Legal Fact Pattern Checklist

A preliminary checklist for the early stage of any project involving the design of intercompany transactions.

Each of the twelve factors below can be significant from an economic or practical perspective. Identifying them before detailed analysis begins helps avoid misalignment and unnecessary project delays.

Twelve factors to pin down before the economics

Use this at an early stage of any project involving the design of intercompany transactions. Each factor can be significant from an economic or a practical perspective.

01

Timing and financial periods

  • Which period(s) are under review?
  • Have entity accounts and corporation tax returns for those period(s) already been filed?

Issue: Retrospective policy changes may impact financial accounts and tax positions, including indirect taxes and customs.

02

Regulated entities and legal constraints

  • Are any entities regulated (e.g. in the FS sector) or subject to specific local legal constraints, such as caps on royalties or interest rates, or currency controls?

Issue: Economic analysis must align with the legal framework. This includes regulated functions and control of risk. Specific contractual terms may be required.

03

Contracting model (third parties)

  • Which entities contract with third parties (customers and suppliers)?

Issue: The legal contracting model is a key reference point for delineating the actual transactions and understanding exposure to claims risks.

04

Physical goods (where applicable)

  • Where are stocks of raw materials and finished products actually held?
  • What is the chain of title?
  • What is the physical flow of goods?
  • Which entities act as importers of record?

Issue: Trade compliance and customs considerations are key stakeholders in intercompany transaction design. Inventory risk must be considered.

05

Existing intercompany agreements

  • What intercompany agreements are currently in place, including for financial transactions?

Issue: TP analysis must explain how it is consistent with the agreements in force. Changes in contractual terms may require legal justification and/or compensation.

06

IP rights and IP strategy

  • Does the group have a register of trade secrets, know-how and other ‘soft’ IP, in addition to registered IP rights?
  • Is there a documented IP strategy?

Issue: Economic analysis must align with how IP is actually used by the group, not theoretical positions.

07

Staff contracting model and incentive structures

  • How does the group contractually engage with staff?
  • What incentive plans and KPIs are in place, including share-based compensation?

Issue: Informs functional analysis.

08

External financing and government incentives

  • What forms of external funding or incentives has the group received?
  • What cross-guarantees and cross-security have been provided?

Issue: Informs risk allocation. Contractual or legal restrictions on intra-group arrangements may apply.

09

Entities subject to solvency issues

  • Are any entities thinly capitalised, in a net liability position or subject to liquidity constraints?

Issue: Invalidity risks and personal liability risks may arise if related party transactions are entered into at an undervalue. Impacts capacity to bear risk and losses.

10

M&A history and structural changes

  • Have there been recent M&A transactions, reorganisations or changes in functions or business models?

Issue: May indicate fragmented intangibles or deemed migration of intangibles; contractual or legal restrictions on intra-group arrangements may apply, e.g. in relation to earn-outs.

11

Joint ventures and minority interests

  • Are any entities subject to joint venture arrangements or minority shareholder rights?

Issue: May indicate contractual or legal restrictions on intra-group arrangements.

12

Litigation and disputes

  • Are there historic or ongoing commercial disputes or litigation involving group entities?

Issue: May indicate economically significant rights or constraints; there may be a tension between ‘limited risk’ models and the commercial need to ring-fence claims risks within specific legal entities.

Why the legal fact pattern comes first

Economic analysis of intercompany transactions does not happen in a vacuum. It sits on top of a legal fact pattern — who contracts with whom, which entities are regulated, where title to goods sits, what agreements are already in force, and what the group has already told its auditors and tax authorities.

When those facts surface late, the economics have to be reworked. Filed accounts constrain what can be changed retrospectively. Regulatory caps limit the royalty or interest rate a model can support. Existing intercompany agreements have to be explained, varied or replaced — and varying them may itself require legal justification or compensation.

Running through these twelve factors at the outset takes a short meeting. Discovering them halfway through a transfer pricing project costs considerably more.

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How to use the checklist

  • Work through it before the economic analysis starts, not alongside it.
  • Answer each question with evidence, not recollection.
  • Flag every factor where the answer is ‘we are not sure’ — those are the ones that cause delays.
  • Share it with tax, legal, treasury and trade compliance together. Most of the gaps sit between those teams, not inside them.

Download the PDF above to use it in your next project kick-off.