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Case Study

Our client for this project was a publically listed multinational group in the software sector. The group has a decentralized management team (in APAC, Middle East and Europe).

Our first introduction to the group came about because, working with their transfer pricing advisers, they had commissioned a large and well-known law firm to write some intercompany agreements. The transfer pricing advisers felt, however, that the results were not up to scratch, and so they recommended us to the client instead. Our fixed-fee proposal was approved, and we have been working with them ever since.

After we had completed the initial ICA project successfully, the client asked us to work with their tax team on a reorganisation project. The group is quite acquisitive, so it had to integrate the various different businesses it had recently brought in, and align them with its own structure.

The project was a debt and legal entity rationalisation, encompassing the UK, Europe and Asia Pacific. The two main goals were to rationalise the group’s intercompany debt and arrange for it to be capitalised or settled; and to simplify the European group structure, which involved reducing the number of legal entities by about half.

There were several reasons to undertake the project. Having many entities adds cost, and significant compliance work is involved in maintaining them. Reducing the intercompany debt would also lower the group’s exposure to foreign exchange risk. And a simpler structure is much easier to manage from an operational perspective.

Our expertise in the legal implementation of transfer pricing gave us extra insight into the groups’ structures and operations, which was very valuable in our work in the reorganisation. And our ability to work seamlessly and communicate effectively with the group’s tax advisers was also key. (Failure to do this can cause real problems in reorganisation projects, because issues can ‘fall between the gaps’.)

As always, there were various technical legal questions that needed to be resolved, and the legal side of things was further complicated by the fact that the project covered many jurisdictions, some of which (such as China) required different formalities to be complied with. But the really critical aspects of any group reorganisation project are managing the process and the communication.

We were able to do just that, ensuring that all the key stakeholders within the group were fully involved, and were consulted whenever necessary. The tax team set out a top-level plan that set out the key steps. We then fleshed that out into a detailed process, with a comprehensive list of legal documents and actions required.

At the time of writing, the initial reorganisation project is all but completed, and the group has already asked us to help them with the updating and extension of intercompany agreements following a further substantial acquisition in Asia.

This ongoing role is in line with our ICA maintenance service for them. At regular intervals we review our client’s group structure and intercompany transactions, identify any gaps in the coverage of intercompany agreements, and ensure that they remain aligned with the group’s transfer pricing policies as they evolve. This is particularly important for groups such as this one which are acquisitive, or which operate in a fast-moving sector, as these things mean that the group itself changes rapidly.

 

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