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My confession and the number one tax risk


6 December 2017

Here’s a confession: back in the early 2000s, I was doing things which would not be considered acceptable now. I was with one of the ‘big 4’ firms (newly reduced from 5), and my role related to the legal aspects of tax planning structures for large corporates. Some of these structures were pretty artificial: partly paid share structures, stock lending, hybrid instruments, limited partnerships, tower structures, offshore EBTs and so on.

We often used to go to tax counsel to get an opinion on the prospects of ‘success’ of these arrangements. I always enjoyed the theatre of these old-school conferences with counsel: a smallish meeting room in a building which looked like something out of Mary Poppins, squeezing around a highly polished and slightly wobbly table. Even if counsel was fundamentally agreeing with the analysis, the prospects of success were never given at more than 80%, because there was always considered to be a ‘litigation risk’ of 20% or more.

This kind of risk assessment was really about the risk of tax technical challenge. But whatever the arrangements were, if they were not properly implemented, then of course all bets were off, and all the careful tax technical analysis would be irrelevant. This meant that implementation – doing the right things at the right time – was arguably the biggest tax risk in any structure. And implementation does not just relate to the initial set-up of a structure; it’s also about how it is operated and maintained, long after the original project team has disbanded.

So what has changed now? A much more complex tax environment, both domestically and internationally. More media interest in tax. (Such as the BBC headline last weekend: “Airbnb paid £188,000 in UK tax last year”.) Greater threat of criminal prosecution for involvement in tax evasion. Less appetite for aggressive tax planning. But one thing has not changed: unless a taxpayer has a firm grip on legal structure, implementation and operations (aka ‘reality’), it’s impossible to plan effectively for tax compliance.

We offer training on intercompany agreements for transfer pricing, group reorganisations, property investment structures, M&A transactions and sales process streamlining. You can download a copy of our current training programme here.

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Article by
Paul Sutton
LCN Legal Co-Founder

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