Toll Manufacturing Agreement (intra-group)
PricewaterhouseCoopers AG
This agreement is a Swiss-law governed standard toll manufacturing agreement for use on an intra-group basis.
Author's Note
The Toll Manufacturing Agreement is a Swiss-law governed standard toll manufacturing agreement for use on an intra-group basis. In a toll manufacturing arrangement, the principal is usually responsible for procuring and providing to the manufacturer all materials necessary for manufacture of the products. Conversely, in a contract manufacturing arrangement, the manufacturer is responsible for procuring the required materials. Under the Toll Manufacturing Agreement, the manufacturer is compensated on the basis of recovery of the fully-loaded costs of manufacture, plus a margin (user defined). The agreement assumes that as between the parties, the principal owns all intellectual property rights relating to the products and the manufacturing process. The template includes, as standard, an allocation of risks between the parties that is consistent with that found in a typical toll manufacturing relationship, as well as an obligation on the principal to indemnify...
Read moreThe Toll Manufacturing Agreement is a Swiss-law governed standard toll manufacturing agreement for use on an intra-group basis.
In a toll manufacturing arrangement, the principal is usually responsible for procuring and providing to the manufacturer all materials necessary for manufacture of the products. Conversely, in a contract manufacturing arrangement, the manufacturer is responsible for procuring the required materials.
Under the Toll Manufacturing Agreement, the manufacturer is compensated on the basis of recovery of the fully-loaded costs of manufacture, plus a margin (user defined). The agreement assumes that as between the parties, the principal owns all intellectual property rights relating to the products and the manufacturing process.
The template includes, as standard, an allocation of risks between the parties that is consistent with that found in a typical toll manufacturing relationship, as well as an obligation on the principal to indemnify the manufacturer for any loss or damage arising out of the performance of the manufacturing activities.
Terms which are configurable to the user’s needs include:
- Purpose and background;
- Term and termination;
- The products to be manufactured and any specific requirements applicable to the manufacturing process;
- Budgeting, payment and reconciliation mechanisms;
- Territory;
- Terms relating to delivery of products;
- Termination assistance;
- Sub-contracting and assignment rights;
- Provisions relating to notices;
- Dispute resolution, jurisdiction and arbitration; and
- Other boiler-plate provisions (e.g. confidentiality, force majeure).
Circumstances of Use
This document is intended to be used to document the provision of toll manufacturing services between group companies, for transfer pricing purposes.
The Toll Manufacturing Agreement may be used for cross-border transactions where the parties have agreed to use Swiss law.
Terms of Use
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Exclusions and Limitations
The Toll Manufacturing Agreement assumes that the allocation of risk between the parties is aligned with that in a typical toll manufacturing relationship, and that the manufacturer is compensated accordingly.
The key differences between a toll manufacturing relationship and a contract manufacturing relationship lie in the assumption of risks and responsibility for procuring raw materials. A Contract Manufacturing Agreement template is also available.
Other Comments
No warranty or representation is given or made that the allocation of functions and risk and the related transfer pricing arrangements provided for in this document are appropriate in the specific circumstances of any given group of companies. No legal or tax advice is provided and nothing in this template or the related user interview shall be deemed to constitute the provision of legal or tax advice in relation to any fact or matter. Where necessary, specialist legal and tax advice should be sought together with input from group accounting functions prior to executing this agreement.
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Frequently asked questions
One party that is known as the Principal and the other party which is referred to as being the Manufacturer.
Yes, if the manufacturing has already commenced, the agreement will have retrospective effect.
The agreement can be of fixed term or indefinite term. Additionally, it is possible to sign an initial term with extension. The extension can be of indefinite nature or consist of successive additional terms.
No. Manufacturing must not be limited to take place at a specified place. However, the manufacturing agreement can be limited to a specific territory (or territories) or to a specific country (or countries).
Yes, it is possible to include reporting obligations for several events. Example are: (1) current status of the manufacturing process and product inventory, (2) the cost of manufacturing the products, (3) manufacturing delays, cost deviations and problems, (4) completed products and (5) others.
Yes, but only if specified in the manufacturing agreement.
Yes, but we should consider the following: It is important to take into consideration whether the principal or the manufacturer has responsibility for selecting suppliers as this may have a bearing on risk allocation and pricing. Buying production material form third parties may be (1) selected by Principal in its sole discretion, (2) selected by Principal in its discretion but subject to Manufacturer’s recommendations, (3) selected by Manufacturer but with Principal’s explicit approval.
Yes, but only if specified in the manufacturing agreement. This does not affect ownership.
The principal has to pay the transport costs while the manufacturer needs to provide the shipping documentation.
Whether it is appropriate for the principal to accept the risk of the manufacturer’s breach or gross negligence will depend on the level of compensation payable to the manufacturer. The principal may include costs attributable to Manufacturer's inefficiency, breach or gross negligence. This may impact the transfer pricing approach
The following options are possible: (1) annual budget for total costs, on-account invoicing and true-up: Costs plus mark-up will be invoiced based on an agreed budget, and then adjusted to reflect actual costs; (2) annual budget, price list invoicing and true-up: Invoicing will be based on a per-product “price list” created using the agreed budget, and then adjusted to reflect actual costs; (3) flexible invoicing of actual fees: group has maximum flexibility as to how fees are calculated and invoiced; (4) case by case invoicing, agreed costs: This option provides for invoicing on the basis of an agreed budget, but without any reconciliation process. It may be appropriate where costs are relatively stable/predictable.
Sub-contracting can be: (1) not permitted, (2) permitted only with principal's prior consent, (3) permitted only within group
Yes. A right to require continued provision of the services after termination is common for agreements where the manufacturing activities are complex and/or require transition to a third party. The principal may be obliged to reimburse the manufacturer for non-avoidable third party costs after termination if it is desirable to reduce the risk assumed by the manufacturer.
We can have possibilities: (1) standard warranty that each party has power to enter into and perform agreement (standard arm's length) and (2) explicit disclaimer of any warranties which creates greater risk for the other party. It is a standard warranty that the principal owns or has right to use all relevant intellectual property rights necessary for the manufacture of the products.
Typically in a toll manufacturing agreement, the principal will indemnify the manufacturer against any losses arising from the manufacture of the products. It is optional to carve out losses arising from the manufacturer's wilful default or gross negligence.
The confidentiality clause can be short or long depending on whether the agreement contains complex processes or highly sensitive or confidential information. With the latter, a long clause is recommended. The contents as well as its existence can be assigned to be confidential.
Yes. It may be appropriate to prohibit copies of confidential information being made if confidential information is being supplied in hard-copy format. If information is provided electronically, consider whether such a restriction is practical.
Yes, in an intra-group agreement, the parties may have more flexibility if email qualifies as writing (e.g. for the purposes of “written notice”). This must be specified in the agreement and may even allow termination. It is good practice to specify who is able to receive or send notices. Moreover, inserting a title is recommended, rather than an individual's name (e.g. "the Finance Director"), as roles and responsibilities change over time.
You may specify whether each party should bear their own costs arising from the negotiation, preparation, amendment, preservation and enforcement of the agreement, or whether one party should bear all the costs.
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EMIR Transaktionsreporting und Solvency II in Liechtenstein Go Live – Kommen Sie auf den neusten Stand bzgl. der EWR Vertragsergänzung Am 31. Mai 2018 beschloss der gemeinsame EWR-Ausschuss die vorbehaltslose Implementation der Solvency II Level 2 und der EMIR Level 2 delegierten Rechtsakte. Folglich wurden per 01. Juni 2018 die EMIR und Solvency II Level 2 Rechtsakte in Liechtenstein, Norwegen und Island anwendbar.
FinIA and FinSA on the right track On 29 May 2018, the National Council passed its resolution on the Financial Services Act (FinSA) and the Financial Institutions Act (FinIA). Shortly thereafter, on 4 June 2018, the Council of States discussed about FinSA and FinIA and resolved the following differences:
FINSA and FINIA: Only few differences remaining On Tuesday 29 May 2018, the National Council discussed again about the Financial Services Act (FinSA) and the Financial Institutions Act (FinIA). After the resolution of the National Council a few differences remain to the text approved by the Council of State.
How tightened corruption laws affects compliance management systems With the revision of the Criminal Law on Corruption, the criminal responsibility of companies and their management is gaining in importance.
Switzerland introduces the clearing obligation for certain derivatives for FC+ and NFC+ The Swiss Financial Market Supervisory Authority FINMA has recently announced that it will introduce the clearing obligation, meaning to clear certain derivatives over central counterparties, under the Swiss Financial Market Infrastructure Act (FMIA) that are traded by counterparties having the status of either an FC+, meaning large Financial...
A primer on cryptocurrencies trading regulation in Switzerland This primer seeks to give an overview of the key obligations under Swiss regulatory laws related to cryptocurrencies and asset management related to cryptocurrencies.
An initial coin offering (ICO) or a token sale is when a company sells a predefined number of digital tokens to the public in a limited period of time. The ICO market has grown very rapidly in recent months and has been a new avenue for blockchain-based start-ups and projects to get the funding needed to launch their projects.
Partial entry into force of the Swiss DLT-act On 1 February 2021, the parts of the Swiss DLT-act that introduce ledger-based securities (i.e. register uncertificated securities) to Swiss law have entered into force. The remaining provisions of the DLT-act will enter into force on 1 August 2021.
The E-ID Act from a data protection perspective On 7 March, the E-ID Act will be put to the vote in Switzerland. Especially in the area of data protection, opponents and supporters disagree on the extent to which the introduction of the law would cause problems.
Platform Economy: Prepare for the future and outshine with an online matchmaker Platform business models has changed how businesses are conceptualised and conducted. Interested to know more about the value of a platform business model?
A unique opportunity to become a responsible business role model With the narrow rejection of the Swiss Responsible Business Initiative (RBI), Swiss companies will have the challenge of aligning with stricter, EU-inspired standards in terms of corporate disclosure and sectoral human rights due diligence. In this blog post we explain how you can take the reins and become best in class – and why the current...