This blog is an excerpt of a question and answer session about Limited Risk Distribution Agreements with Joanna Murphy, PwC Legal Switzerland's head of IP, Technology and International Contracts.
PartnerVine: Can you explain when a company would use a Limited Risk Distribution Agreement?
Joanna: Limited risk distribution is a supply chain concept commonly used to optimise a corporation's tax position within its trading strategy. A standard buy-sell distributor purchases goods, holds stock, and then sells those goods to customers. In a limited-risk distribution agreement, certain of the risks typically assumed by the distributor (such as inventory and bad debts) are contractually re-allocated to the principal. In line with its functions and risks, the principal earns a larger portion of the corporation's sales margin. This agreement is meant to be used by companies that sell tangible goods, so let's take the example of a manufacturer of component parts for domestic appliances. The manufacturer is based in Switzerland, but has a German subsidiary that manages sales and marketing in Germany. The agreement makes the German subsidiary responsible for marketing and sales in Germany, but limits its risks relating to inventory, product liability and sales. Accordingly, a large share of the proceeds go back to the Swiss principal.
For a short overview of issues regarding a limited risk distribution agreement, see our article Limited Risk Distribution Agreements.
Finally, a note on how you can use the information on this page. This information is not to be considered legal advice and is not a substitute for advice from qualified legal counsel. Material aspects of this information may change at any time and without further notice.