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Any suggestions on how to give foreign subsidiary contract signature authority on behalf of US parent company and not run into PE (permanent establishment) issues

The US parent company has a wholly-owned, foreign subsidiary who is providing sales and customer service in Europe.  We have an intercompany service agreement in place wtih transfer pricing (cost plus markup).  The sale of product is between US Parent and customer.  Our tax advisors have cautioned us against allowing the foreign sub to sign sales contracts on behalf of the US Parent to avoid creating a PE situation in the local foreign country.  Any suggestions on how to give contract signature authority to foreign sub?  All our customer agreements are standard - term, price, etc.  The sub is not "negotiating" just selling.  For administrative and customer service reasons, it would be ideal to give the sales reps in the foreign sub authority to sign.

Answers

Victor Pollak
Title: Attorney/Shareholder
Company: Fabian Law
(Attorney/Shareholder, Fabian Law) |

Have you considered appointing an individual person (who may be associated with your foreign subsidiary) to be a direct individual independent contractor agent of the parent to issue preliminary approvals in the foreign jurisdiction which would remain subject to final acceptance by the US Parent in the US? Any such alternative should be explored with your tax advisors. Feel free to contact me to discuss further.

Topic Expert
Jake Feldman
Title: Managing Director
Company: Global TaxFin Advisory Group LLC
(Managing Director, Global TaxFin Advisory Group LLC) |

Can the parent company fax a signed contract ahead of time to your local sales person who would obtain the buyer's signature and/or, contract language should permit signature by counterparts, so each could sign on their own?

Topic Expert
David OBrien
Title: Treasury Consultant
Company: EE Treasury
(Treasury Consultant, EE Treasury) |

Krista:

In a previous life, we allowed the local staff to negotiate the contracts which were then sent to HQ for "rubber stamp" execution and returned i 24 hours.

David L. O'Brien, CTP
Consultant in Treasury

Topic Expert
Joan Varrone
Title: CFO
Company: Cloud Cruiser
LinkedIn Profile
(CFO, Cloud Cruiser) |

I dont think you really would want them to have authority as they may agree to things that you do not approve of. Remember that they are sales people and they may for example grant extra day payment terms to get the deal. I understand the you want to streamline your process. Have you considered using electronic signatures from the US which might speed up the process. Jake's suggestion might work as the contract would be seen in the US and the signed deal would show up ASAP.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Europe is a collection of countries and local country laws may constrain you anyway; e.g. in the event of a dispute, where is legal/court jurisdiction? Is it different for the product vs the customer service?

With workflow based approval, you can institute a US over-arching authority over all necessary customer facing transactions, but make sure your process does not harm the customer experience, or violate local laws. Does your CRM/ERP system offer you help (i.e. functionality) here?

Apart from PE considerations, have you asked local country lawyers to identify any local country contracting requirements and compared those to the PE and other issues?

Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

You may get some protection from having selected individuals officers of both the sub and the parent company, with signing done in their capacity as an officer of the US parent. The constant presence of an officer of the US parent may be sufficient to constitute a permanent establishment.

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