INTM441060 - Transfer Pricing: Transactions and Structures: business structures: marketing and distribution - commissionaires: evidence gathering
Information needed to examine commissionaire structures
Case teams must establish as much factual background as they can about commissionaire structures and carry out a thorough risk assessment (see INTM482000 onwards).
It’s important to obtain copies of all documentation relating to the new business structure. This might involve meeting key members of staff in the UK, finding out what they do and how this compares with the documentation. It’s also important to check that the functions and risks that are meant to be undertaken and borne by the principal are undertaken and borne in practice. Establishing how the customers understand the trading relationship to work may also be useful. In some cases where information cannot be obtained from the UK commissionaire, it can be worth talking to the customers themselves.
An early meeting with the company may be useful to establish exactly what information is available, and which members of staff are likely to be able to supply key evidence.
The type of information which teams should seek can include:
For the commissionaire
- Copy of the commissionaire agreement.
- Details of the actual sale of goods in the UK, as opposed to the commission earned by the commissionaire.
- Where there has been a switch from a distributor to a commissionaire, a breakdown of figures for the contrasting years, identifying costs which are no longer borne by the UK.
- Details of UK staff made redundant or switched to different jobs, following the change from a classic buy/sell distributor to a commissionaire.
- Details of bonus schemes or share incentive schemes for staff - what incentives do they have?
- Copies of all internal instruction manuals dealing with the selling function, including any amendments or documentation that explain how those instructions are to be interpreted.
- A random sample of sales invoices between the commissionaire and the major customers.
- Copies of the correspondence files between the commissionaire and the major customers. This may be needed in order to understand how the commissionaire and the customer view the contractual relationship in practice.
- Evidence that shows how the respective risks and functions of the commissionaire and principal have been weighted.
- Evidence to support the arm’s length nature of the profits now earned by the commissionaire.
For the principal
- Copies of accounts, including management or divisional accounts dealing only with the UK, where the principal is selling goods in more than one country, through more than one commissionaire.
- Details of staff employed by the principal to administer the new selling structure. This should include the management structure, their duties, where they work and where they carry out their duties, their remuneration package and whether they are on secondment from another group company, or used to work for another group company.
- Details of the premises occupied by the principal, including size, whether the premises are occupied the whole time and whether the premises are shared with anyone else.
- Copies of any licence agreements between the principal and other members of the group.
- Any information should be obtained with the aim if establishing precisely where the functions of the overall trade are carried out in practice.
This is not an exhaustive list, nor will every point necessarily be required in each case. Teams should adapt their information request according to the risk assessment and the circumstances of each enquiry.