Tag: Conversion of full-fledged manufacturers

France vs SA Tropicana Europe Hermes, August 2022, CAA of DOUAI, Case No. 20DA01106

France vs SA Tropicana Europe Hermes, August 2022, CAA of DOUAI, Case No. 20DA01106

SA Tropicana Europe Hermes is a French permanent establishment of SA Tropicana Europe, located in Belgium. The French PE carried out the business of bottling fruit juice-based drinks. In 2009, a new distribution contract was concluded with the Swiss company FLTCE, which was accompanied by a restructuring of its business. Before 1 July 2009, Tropicana was engaged in the manufacture of fresh fruit juices in cardboard packs and purchased fresh fruit juices which it pasteurised. As of 1 July 2009, its activity was reduced to that of a contract manufacturer on behalf of FLTCE, which became the owner of the technology and intellectual property rights as well as the stocks. The re-organisation led to a significant reduction in the company’s turnover and profits. Tropicana Europe was subject to two audits, at the end of which the tax authorities notified it of tax reassessments in respect of corporate income tax, withholding tax and business value added contribution (CVAE) for the years ... Read more

TPG2022 Chapter IX paragraph 9.44

Take the example of a conversion of a full-fledged manufacturer into a contract manufacturer. In such a case, while a cost plus reward might be an arm’s length remuneration for undertaking the post-restructuring contract manufacturing operations, a different question is whether there should be indemnification at arm’s length for the change in the existing arrangements which results in the surrender of the riskier profit potential by the manufacturer, taking into account its rights, other assets and economically relevant characteristics. Indemnification is discussed in Section F ... Read more

TPG2022 Chapter IX paragraph 9.2

Business restructurings may often involve the centralisation of intangibles, risks, or functions with the profit potential attached to them. They may typically consist of: Conversion of full-fledged distributors (that is, enterprises with a relatively higher level of functions and risks) into limited-risk distributors, marketers, sales agents, or commissionnaires (that is, enterprises with a relatively lower level of functions and risks) for a foreign associated enterprise that may operate as a principal, Conversion of full-fledged manufacturers (that is, enterprises with a relatively higher level of functions and risks) into contract manufacturers or toll manufacturers (that is, enterprises with a relatively lower level of functions and risks) for a foreign associated enterprise that may operate as a principal, Transfers of intangibles or rights in intangibles to a central entity (e.g. a so-called “IP company”) within the group, The concentration of functions in a regional or central entity, with a corresponding reduction in scope or scale of functions carried out locally; examples may ... Read more
Netherlands vs "Zinc-Smelter Restructuring BV", September 2017, Rechtbank ZWB, No BRE 15/5683

Netherlands vs “Zinc-Smelter Restructuring BV”, September 2017, Rechtbank ZWB, No BRE 15/5683

A Dutch company was engaged in smelting of zinc. The business was then restructured, for which the company received a small compensation. Dutch tax authorities disagreed with both the amount of compensation payment and the arm’s-length remuneration of the post restructuring manufacturing activities. Until 2003 the Dutch Company was a fully fledged business. The company owned the assets and controlled the risks relating to the activities. In the years after 2003, the company was involved in several business restructurings: Activities other than the actual production activities were gradually transferred to other group companies, among others the global marketing and services team (GMS), took over purchasing, sales and deployment of personnel. After becoming part of another group in 2007, the company entered a consultancy agreement with another group company under witch strategic and business development, marketing, sales, finance, legal support, IT, staffing and environmental services was now provided on a cost plus 7.5% basis. Under ‘Project X’, a Belgian company was established in April 2009, which concluded both a business transfer agreement and a cooperation agreement with related ... Read more

TPG2017 Chapter IX paragraph 9.44

Take the example of a conversion of a full-fledged manufacturer into a contract manufacturer. In such a case, while a cost plus reward might be an arm’s length remuneration for undertaking the post-restructuring contract manufacturing operations, a different question is whether there should be indemnification at arm’s length for the change in the existing arrangements which results in the surrender of the riskier profit potential by the manufacturer, taking into account its rights, other assets and economically relevant characteristics. Indemnification is discussed in Section F ... Read more

TPG2017 Chapter IX paragraph 9.2

Business restructurings may often involve the centralisation of intangibles, risks, or functions with the profit potential attached to them. They may typically consist of: Conversion of full-fledged distributors (that is, enterprises with a relatively higher level of functions and risks) into limited-risk distributors, marketers, sales agents, or commissionnaires (that is, enterprises with a relatively lower level of functions and risks) for a foreign associated enterprise that may operate as a principal, Conversion of full-fledged manufacturers (that is, enterprises with a relatively higher level of functions and risks) into contract manufacturers or toll manufacturers (that is, enterprises with a relatively lower level of functions and risks) for a foreign associated enterprise that may operate as a principal, Transfers of intangibles or rights in intangibles to a central entity (e.g. a so-called “IP company”) within the group, The concentration of functions in a regional or central entity, with a corresponding reduction in scope or scale of functions carried out locally; examples may ... Read more
German Guidance on Business Restructuring and Valuation issued in October 2010

German Guidance on Business Restructuring and Valuation issued in October 2010

In 2008 German legislation on business restructurings was updated to align with the new chapter XI in the OECD Transfer Pricing Guidelines. § 1 para. 3 AStG and the “Regulation on the application of the arm’s length principle according to §1 para. 1 AStG in cases of cross-border relocation of functions” of 12.8.2008 (Function Relocation Regulation, in short: FVerlV). Guidance was subsequently issued by the tax authorities in BMF letter of 13 October 2010, IV B 5 – S 1341/08/10003, BStBl 2010 I p. 774; in short: VWGFVerl. Click here for unofficial English translation Click here for other translation Germany 2010-10-13-Verwaltungsgrundsaetze-Funktionsverlagerung - BR ... Read more