Marketing and procurement hubs are centralised group entities — typically located in low-tax jurisdictions such as Switzerland, the Netherlands, or Malta — that assume the formal role of principal entrepreneur within a multinational supply chain. The marketing hub acts as the contracting party for sales to end markets, with local affiliates reduced to limited-risk distributors or commissionnaires; the procurement hub mirrors this structure on the purchasing side, consolidating buying functions and capturing associated margins. Disputes arise under the arm’s length standard in Article 9 of the OECD Model Tax Convention and equivalent domestic provisions, focusing on whether the economic substance of the hub justifies the allocation of profit it receives.

Tax authorities challenge these structures on two related grounds. First, they question whether the hub genuinely performs the functions, assumes the risks, and holds the assets that the contractual arrangements attribute to it, or whether those elements remain with the local operating entity. Second, where a restructuring converted a full-fledged distributor into a limited-risk entity — as in Colgate Palmolive Spain and Ferragamo France — authorities assess whether the taxpayer was adequately compensated for the transfer of profit potential. Conversely, taxpayers such as Eli Lilly ČR argue that their local entity acts as a genuine service provider to the foreign principal, accepting lower returns in exchange for reduced risk exposure. The facts that typically determine outcomes include the location of decision-making personnel, contractual risk allocation versus actual risk management, and the economic rationale for the restructuring.

The OECD Transfer Pricing Guidelines address these arrangements across several chapters. Chapter I (paras 1.48–1.106) governs the delineation of transactions, including the accurate identification of risk and the conditions under which contractual risk allocation is respected. Chapter IX addresses business restructurings, specifically the remuneration of conversions from full-fledged to limited-risk distributors (paras 9.1–9.100). Chapter II governs method selection, with the transactional net margin method frequently applied to test hub remuneration. The 2010 Report on the Attribution of Profits to Permanent Establishments is also relevant where hubs may give rise to PE exposure.

Courts examine whether the hub’s functions are substantive or merely formal, scrutinising staffing levels, physical presence, and internal decision-making records. The BenQ Italy and Odesa Port Plant cases illustrate that procurement hubs using intermediary jurisdictions attract particular scrutiny over substance. The most contested questions concern the appropriate tested party, benchmark selection, and whether a restructuring exit charge was required.

These cases are critical for practitioners advising on principal structures, supply chain planning, and audit defence, as revenue authorities across multiple jurisdictions are applying increasingly rigorous substance requirements to centralised hub arrangements.