Centralisation of regional management and shared services

Resource Information

The work Centralisation of regional management and shared services represents a distinct intellectual or artistic creation found in International Bureau of Fiscal Documentation. This resource is a combination of several types including: Work, Language Material, Continuing Resources.

Label

Centralisation of regional management and shared services

Creator

• Malherbe, J.

Subject

• MNE
• PE
• central management and control
• commissionaire
• services

Language

eng

Summary

Host country reports prepared by practitioners in 12 separate jurisdictions. Facts: H Co. is a business entity organised and operating in Host Country. H Co. is part of a multinational group of companies. H Co. historically manufactures and sells products for customers in Host Country. Over time H Co. has also engaged in the distribution (purchase and sale) of related products manufactured by affiliates in other countries. Products manufactured by H Co. are also sold to foreign affiliates for subsequent sale and distribution by such affiliate to customers in affiliate's country. The multinational group, to which H Co. belongs, intends to rationalise both its manufacturing and sales operations, by centralising its regional management and certain central services in one country. As a result of the centralisation, H Co.'s manufacturing activities will convert to those of a contract manufacturer operating for the account and risk of F Co., a foreign corporation to be created within the multinational group of which H Co. is a part, and H Co.'s marketing and sales activities will convert to those of a limited risk distributor (or commissionaire) also operating for the account and risk of F Co. It may be assumed that F Co. will be located in a tax-friendly jurisdiction, and that F Co. will employ the regional management, and will perform a number of central functions, such as regional marketing, price setting, product development, production planning and logistics planning. It may also be assumed that both before and after the centralisation, the transactions between H Co. and its affiliates, including between H Co. and F Co., will meet the local arm's length transfer pricing requirements. Questions: a) If H Co.'s net profit before tax used to be 100, and after the centralisation is reduced to 20 (presumably split equally between manufacturing and sales) how does Host Country's tax law determine whether or not a taxable transfer of tangible or intangible property has occurred? b) Based on what factors would Host Country's tax law allow centralisation of functions and risks without asserting a taxable transfer of tangible or intangible property? c) To what extent can any possible exit charge on transfer of tangible or intangible property be mitigated or deferred over time? d) To what extent can any of these risks be mitigated by seeking an advance ruling from the Host Country tax authorities? e) Does it make any difference in respect of the above questions whether the manufacturing and sales operations are carried out in one single entity or in two different local entities? Very briefly state whether F Co. risks being deemed to have a Host Country permanent establishment by virtue of its entral activities for the benefit of H Co

Citation source

In: Tax Management International Forum. - London. - Vol. 27 (2006),

Language note

English