Test your Transfer Pricing knowledge: which of these types of sales agent are exposed to contract risk?

Chess Board

‘The God of small things’ or ‘the Devil in the detail’ – you choose, depending on how you’re feeling this fine morning. Either way, one theme highlighted by HMRC’s announcement on 11th January is the critical importance of robust implementation of Transfer Pricing compliance strategies. In relation to legal implementation, as with anything else, the detail is key.

For example, local subsidiaries within a multinational group may be described as “sales agents”. The assumption may be that those agents do not carry contract risk in relation to the third-party contracts they facilitate. Such an assumption may or may not be correct, and if the historic TP compliance documentation for that group presented the sales agents as having one particular risk profile, but the legal reality was very different, then the group’s tax function has a potential problem.

Here’s an opportunity for you to test your knowledge: can the following types of sales agent can be sued by customers under the contracts they facilitate (and therefore carry contract risk)?

A. Introduction agent
B. Commercial agent for undisclosed principal
C. Commercial agent for disclosed principal
D. Commissionaire

Clue: The answer is likely to be ‘yes’ for two of the above, and ‘no’ for the other two … subject of course to applicable laws and the terms of the relevant intercompany agreements.

If you’re unsure as to whether the implementation of your Transfer Pricing policies is legally robust, and you want to fix the holes for future periods, we will be very happy to help. To kick things off, email us at info@lcnlegal.com to arrange a ‘traffic light’ review of a sample intercompany agreement for whichever type of intra group transaction you consider to carry the highest Transfer Pricing risk. You can find anonymised example of a recent traffic light review we carried out for a substantial group here.

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