Principal Structures in Europe: A View from Germany and France

The authors discuss a court ruling regarding the reorganization of a US-headquartered group's European structure into a Swiss principal model, which involved converting German entities from residual to routine-margin earners. While the German court concluded no transfer-of-function compensation was required, the debate on transfer pricing methods continues, questioning the consistency of a cost-plus service model of a French entity while being characterized as entrepreneur. It notably emphasizes the importance of functional analysis in determining strategic and operational roles and risks rather than merely simplistic labels like "entrepreneur" or "routine".