Virtual Shared Services Organizations (SSO)

Multinational enterprises are establishing ways to optimize the trading relationships between their different subsidiaries. Central research and production facilities, distribution and warehousing, shared service centers for technical support, marketing, customer service and finance are often providing resources across different entities and countries.

These relationships need to be represented in "Inter-company Transactions". Inter-company transactions represent and document a critical part of the revenue and expense stream for each entity and will influence the tax liabilities in each country substantially.

Commissionaire and Buy-Sell Relationships

Many of our clients are US based enterprises operating subsidiaries in many European and Asian countries. These local companies are the customer-facing entities in each country. In order to realize substantial organizational, administrative and tax advantages these companies have organized their subsidiaries as "Commissionaires" where possible. In other cases, the trading relationships are standard buy-sell arrangements with additional provisions for the centralized services in research, marketing, distribution and finance. The local companies maintain a minimal staff to support the administrative responsibilities of the company and some local marketing activities.

Commissionaire agreements establish the concept of "Deemed" inter-company purchases and sales on which revenue and taxation are evaluated. The locally registered subsidiaries enter into Commissionaire agreement with the "Principal" which allows them to conduct the customer facing business in their own name, while all inventory, operational, and sales risks remain with the Principal.

This model allows the determination of revenue for the subsidiary as an agreed commission rate (the discount rate for the Inter-Company trade). A set percentage of the customer sale is left with the local selling entity.The details of the Commissionaire agreements can vary widely and different country specific regulations may affect the structure and required transactions to be recorded.

In some countries individual inter-company purchase orders are needed for each sales transaction, whilst in others a monthly summary is sufficient. Other requirements may be to assign the customer receivables to the Principal and to record "deemed" inventory receipts at the local entity. At the core, however, is the commission or discount rate, which provides the local revenue. The local revenue covers the operating expenses of the local company and produces a fair proportion of profit for local income purposes.


The Commissionaire approach also needs to be incorporated for compliance with local sales tax requirements. In Europe and Asia these are generally value added tax (VAT) or goods and service tax (GST). The customer sale is made by the local entity. It needs to show the tax appropriate for the selling entity’s location and will depend on where the goods are shipped from and delivered to.

The inter-company sale is made showing the tax of the "Principal’s" country and location, again depending on ship-from and ship-to location.Although Buy/Sell and Commissionaire Agreements are recognized as effective and Tax efficient Trading Models, the full benefits are often only realized when the effort involved in processing and reconciling inter-company activity is efficient and automated.

We have done some of this effectively by modifying Baan systems and or implementing Oracle’s “virtual trader”.