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Introduction to Transfer Pricing and ICAs

This blog is based on the guest chapter written by Paul Sutton of LCN Legal in Athennian’s Best Practices in Corporate Subsidiary Management eBook.Transfer PricingTransfer pricing, also known as TP, is a set of international tax laws that determine a company’s charges, such as royalties, service fees, and goods prices. These decide what is paid between connected entities within a multinational group and influence where profits are made and taxed. What is the Arms Length Principle?The arms-length principle is an adopted international standard for determining transfer prices for tax purposes. According to LCN Legal, what this means is that “tax authorities review the transfer prices affecting a particular enterprise, and then tax that enterprise based on the profits it would have made had the prices been negotiated between independent third parties.” This applies to ongoing and one-off transactions and to both legal entities and branches. However, this increases the risk of double taxation because the implication is that any tax change should apply to all jurisdictions. If this does not occur, the enterprise may be taxed twice. What are ICAs? Intercompany agreements, or ICAs are a fundamental component of transfer pricing compliance for multinational groups. According to Paul Sutton of LCN legal, intercompany agreements “define the legal terms under which transactions occur within a group of companies.” These transactions can look like:Head office and back-office services (e.g., finance, tax, legal, and HR services)Marketing servicesR&D servicesIT services and supportShared services arrangementsSale of goodsSales agency and commissionaire arrangements Intellectual property licensesRevenue/profit sharingCost-sharingContract manufacturingToll manufacturingLoan facilities (e.g., term loans, revolving credit, and overdraft facilities)Intercompany debt in security form (e.g., loan notes)Guarantees and other forms of security or financial supportCash poolingSecondment of staff and other mobility arrangementsICAs play a critical part in implementing transfer pricing policies, including:Describing the transactions – (e.g., recording which services are provided or intellectual property is licensed.)Allocating contractual risk between parties – (e.g., risks include product liability claims, credit risks, or inventory risks.) Specifying the fees to be paid by the correct parties – (e.g., royalties or license fees.)Specifying which party owns intellectual property rights used connection with the arrangement.In a tax audit, ICAs are one of the first items that tax administrations will ask for. An ICA must match the group’s transfer pricing policy and tax filing; otherwise, the group is instantly disadvantaged. Not only will this extend the audit process, but it will also undermine the enterprise group’s credibility. What Makes an ICA Effective? To be successful, an ICA must be aligned with the allocation of functions, risks, and rewards described in transfer pricing policies. It must also be legally binding and correctly managed (i.e., signed and dated by all participating entities.) In addition, ICAs require regular maintenance so that they accurately reflect the group’s policies and structure. Without proper maintenance, a group could find itself with an excess of penalties. For more information on effective ICAs and their commonly occurring issues, you can download the Best Practices in Corporate Subsidiary Management eBook, which includes an entire chapter on ICAs and TPs. 

By
Molly Greville
3/11/2021
All
EMEA
Blog Posts

Best Practices for Legal Document Automation

For any mature in-house legal team or high-performing law firm, legal document automation is an essential part of company-wide efficiency. Allowing for signature-ready documents in record time, document automation offers consistency both internally and when presenting to clients. With document automation, legal professionals can reduce the risk of error by systemizing their knowledge management and establish precedents within the automated system that aligns the entire department.In Athennian’s webinar on legal document automation, 64% reported that they would be starting a document automation project in the next 12 months. For many in the legal industry, adopting new tech practices can be daunting. Still, as reflected by the webinar’s guest panelist, Karen DiMartino (Cassels LLP), investing in doc auto was like, “building a puzzle. [First], make sure you flip all the pieces over to get started, build your border, then some trial & error to put everything together. But it is beautiful when it comes together [and you] get the green checkmark that your document has been generated correctly.”If you fall into the 64% of legal professionals planning on starting a document automation project, here are some tips and best practices for ensuring that your endeavor is successful. Be Strategic About What Can Be AutomatedTechnology can only build logic off data points, so it is critical to ensure that your documents are repeatable. If a clause is going to be different every time, there is less value in trying to automate it. However, documents with repeatable options and corresponding data points for determining the appropriate language are ideal for automation projects. Pay Attention to the DetailsEven if all the data and the logic works, legal professionals can still get stuck with fixing formatting–– and it can make a huge impact. From the font, alignment, adjusting signing blocks, or formatting numbers with commas or decimals, the little details matter and can easily overwhelm with how quickly they add up. Invest in the Scope of the Project With document automation, most find that doing through initial preparation saves more time than going back later to fix mistakes in a template. Before starting, it is essential to examine your intentions from a 360 view. Why are you doing this? What are your intended business outcomes? Developing a clear starting point and execution plan ensures that you’ve taken the time to research and prepare for a successful project, and saves you valuable time later. Questions to consider before starting: What is your formatting style guide? How many different variations of a document are there? What data points will you use? Do you want to package some documents together or have them separate?Start Simple to Perfect the WorkflowBegin your project with simple, high-volume templates that will bring you the greatest return on investment. With simple templates, it’s easy to ensure that you have all the necessary data points. Better to save the 30-page share purchase agreement with 15 variations until you’re really comfortable with the coding process and have experience automating multiple workflows.Watch “Mastering Legal Document Automation” On-DemandFor more information and best practices, watch Athennian’s webinar, “Mastering Legal Document Automation.” There you’ll find in-depth advice and hear firsthand how a paralegal with a limited coding background was able to fully commit her team to legal document automation, saving both time and money.

By
Molly Greville
27/10/2021
All
Entity Management
Blog Posts

In-House Legal Teams Are Experiencing Burnout

Over the last year and a half, many industries have felt the impact of the global pandemic when it came to their team’s wellness and mental health. In fact, in the last year alone, organizations of all sizes and verticals have experienced a mass exodus as the workforce looks for more flexibility in balancing their work-life with how they want to spend their personal time.And it is impacting legal teams too.In October of this year, Gartner released a survey focused on the wellness of In-house legal teams, and the results were incredibly alarming. Of those surveyed who stated they were feeling exhausted in their roles, more than two-thirds said they were looking to leave their company. While the pandemic has contributed to burnout, the truth is that legal teams have long experienced high levels of burnout, with some saying that burnout culture is seen as part of the profession. What Exactly is Burnout?Burnout is a form of exhaustion that is experienced mentally, emotionally, and even physically. Burnout can be caused by work stress, family, personal finances, world events, and more. For legal teams, it can be heavy caseloads, client and organizational demands, concerns over the quality of work delivered, and more. Working remotely, being isolated from loved ones, and balancing workload with the demands of your family has led to an increased level of burnout for many legal professionals.Burnout Impacts All LevelsWhile it may be easy to assume burnout is only impacting corporate counsel, the truth is that all levels of a legal team have been impacted. Each role, whether it’s trainees, associates, or corporate counsel, is working harder than ever to accomplish tasks for the organization while living amid a global pandemic. As members of the team leave unexpectedly, those left behind will feel their workloads increased. What Causes Burnout & How To Tell If Your Team Is Experiencing It?Working hard and pushing yourself to the limit is still seen as a status symbol within the legal industry. Legal professionals have long been in a race to clock the most billable hours possible to not only receive a bigger paycheck but also to get into the good graces of their leaders. Burnout goes beyond feeling overwhelmed at the end of a busy workday. Burnout happens from chromic workplace stress that goes unmanaged. Identifying burnout in legal teams can be challenging, but here are a few signs that should raise concerns:Disconnected to the work being done. The best way to avoid being burnout with the work you do is to be proud of the work you do. Legal teams have a huge impact on the success of their organization or firm. If you notice that members of your team are disengaged and aren’t feeling pride in their work, it could mean that they are burnt out.Increased cynicism. Complaining about a project or task is normal in the workplace, but there comes a point when light complaining turns into cynicism. Decreased productivity. When someone is feeling burnout, they will often pull away from their work. Look for signs of tasks taking longer than expected or a lack of engagement from your team members.How to Solve Workplace Burnout On Your Legal TeamIf you or someone on your team is experiencing legal burnout, here are a few things you can do to address it:Acknowledgment. It’s often difficult for legal professionals to acknowledge that they are experiencing burnout. In a fast-paced, high-demand role, it is easy to confuse burnout with stress from a heavy workload. Acknowledging that burnout is being experienced is the first step to addressing the issue.Encourage time off. Time away from work can be a huge refresher for anyone experiencing burnout. Connect with your team. Burnout often happens because members of your team feel like they are working beyond what is expected of them. Hold regular one-on-one meetings with your team to understand what their to-do list looks like and how that aligns with what they were hired to do.ConclusionBurnout can affect anyone in any industry or role, including those that work in legal. When burnout goes unchecked, it can lead to team members quitting their jobs, which can have an impact on the entire team. Addressing burnout early can create a stronger team, more engaged legal professionals, and a healthier work environment.

By
Stephanie Montelius
25/10/2021
All
Legal Operations
Blog Posts

Legal Innovation: Where to Begin?

Traditionally, the legal industry has been hesitant to embrace technology due to its longstanding history of ceremony and heritage. Commitment to technology is a new milestone in the legal landscape that is rapidly growing each day; however, an industry as novice to the benefits of technology as ours is may need guidance navigating different service providers. In fact, 38% of legal professionals struggle to assess the appropriate software solutions for their organization’s needs. What Are Your Challenges?Before you can evaluate a software’s solutions, you must fully understand your unique needs. What does your organization struggle with? Where would you like to see improvements? Perhaps your team faces daily inefficiencies in task management or has difficulty collaborating interdepartmentally. With a detailed outline of your current situation, the path forward becomes more apparent.Why Do You Face These Challenges?Maybe your team’s task management is lacking because your calendars and to-do lists are not aligned. Or, your collaboration is severed because your data is siloed within different areas of the organization. Find potential causes for each problem in your workplace.How Have Others Solved Similar Issues? Explore software case studies and reviews to see if existing customers have run up against the same hurdles as you. Did they find relief through their new software? Look for the features they rave about, and ask yourself if these align with your needs. Evaluate a Platforms ResponsivenessThis step is especially critical for teams new to software services. If you anticipate friction in the adoption process, finding a solution with dedicated customer support is integral. Remember: modern and intuitive software grows with you. Find out if your potential new platform listens to user feedback. Will it adapt its features to solve the unmet needs of its clients? Ensure that your provider has the infrastructure to support you every step of the way. Looking to Adopt an Entity Management System?Investing in a purpose-built entity management platform is the best way to ensure that you have the specialized functions you need to optimize your team's productivity. For first steps and best practices for choosing the right entity management software, download our Entity Management Starter Kit, where you’ll find case studies from real users, an assessment checklist, and more!

By
Sydney Lawson
18/10/2021
All
Entity Management
EMEA
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