Case study: Tax efficiency of a Holding company

Abstract

The Chief Executive Officer of a multinational Group is concerned about his Board’s decision to decrease significantly the tax cost by about 40 % over the next two years based on the latest audited Financial Statements to boost the profits and gain a competitive advantage for a Holding Company in the current turbulent economic environment.

The CFO is working on the Group’s holding structure, intra-group financing arrangements and service fees, in order to satisfy the Board’s requirement i.e. to cut the tax bill by about 40 %, resulting in boosting the profits by the same percentage, everything being equal.

The CFO highlights potential tax weaknesses and assess the tax efficiency of the current holding structure of the Group as well as the Group’s financing arrangements; He identifies the limitations of the current service fee arrangement from a corporate tax and transfer pricing policy and documentation perspectives, as well as the factors that need to be considered when determining arm’s length price for intra-group services.