COMMISSIONAIRE STRUCTURE AND TAX-RELATED

COMMISSIONAIRE STRUCTURE AND TAX-RELATED
BENEFITS AND RISKS

Tax is relevant to every company and any project of the type of Shared Services Organization) SSO will have to deal with tax issues.

An SSO project is loaded with tax issues, especially when it is international in scope. There can be tax effects also, but in terms of benefits and risks it is important to note that the set-up of an SSO as such is tax-neutral.
Setting up an SSO is not an organizational change triggered by tax-saving potentials.

However, an SSO is often discussed in connection with other organizational changes such as setting up a commissionaire model (also called ‘3P’ or ‘trading company structure’).

The commissionaire model works based on a simple logic: risk brings reward – the greater the risk, the higher the reward will be. Based on this, companies try to manage the risk by moving activities and personnel to a lower-cost country.

The risk of sitting in this lower-tax environment can be taxed there and the overall tax burden is thereby reduced. Because it is necessary to move a number of activities and people physically to the country of the so-called principal company, it is possible and even probable that the location decision for an SSO and the process flows inside the company will be affected by a commissionaire model set-up.

Philosophically, the commissionaire model and SSO fit together just fine, because both are based on centralized provision or control of activities, strict guidelines and documented standardized process flows.

The project of setting up an SSO in parallel with a commissionaire model will have a different twist to it, as the tax-savings target is often the overriding goal and synergies and other efficiencies are seen as a nice-to-have side product.

This is also true for similar models involving stripped-risk entities, buy-sell models and toll manufacturing.

If a trading company is in existence during an SSO project, it is possible that
this will affect the scope of the project.

A country or business unit with a trading company structure might lose significant tax advantages if the structure is changed. It might be, therefore, that the finance and accounting activities are not changed, so as not to endanger the tax model acceptance by local tax authorities, resulting in that country being left out of the SSO.

The main tax benefits achievable for an SSO project are limited to the selection of a location , because some countries offer SSO's special tax treatment.For example, beneficial tax treatment of SSO executives.