Am I losing the plot?

Just became aware someone in my team (in-house) has drafted and approved for execution a service agreement between our primary OpCo (“X Limited”) and one of its European branches (“X Limited, Euro Branch”). Am I going loopy? Do they think this works or do they think this just ‘works’ in the sense it’s in intra-group arrangement and nobody will ever read the bloomin’ thing?! 

FYI I don’t know exactly who it was in my team.

FFYI our GC has signed it indicating either (a) I am mental or (b) he doesn’t read or question what is put in front of him for execution.

Is “x limited, euro branch” not enough to identify it? How many euro branches do you have? 

I don't understand the question but how don't you know who drafted it?

Well I’m sort of thinking that we’ve effectively got a legal person purporting to contract with itself. Under English law. 

Never seen this before and I thought I’d seen a lot in the last decade or so...

I’ve seen this. In fact a financial services regulator insisted on one being put in place in the scenario you describe. I had the same reaction as you, but does it hurt?

I've seen this a few times from litigators and accountancy advisers.  A sizeable minority don't know what a branch is. 

Well no it doesn’t hurt I suppose - like I say, nobody will ever read it in anger. I only came across it on the shared drive whilst looking for a precedent for something unrelated (they’d managed to misfile it too). 

Transfer pricing wouldn’t be relevant as the assets aren’t transferred to another entity, surely? 

See this all the time in transfer pricing and other stuff.

Consistently applying law and regulations to international branches is basically impossible, none of the rules are written to consider them and everyone just pretends they're companies.

Trying to get your head around applying CRD IV to a branch is particularly fun. Pretty much just make up a number. 

Or a jurisdiction issue for tax, I suppose

Beps tomfoolery

Transfer pricing wouldn’t be relevant as the assets aren’t transferred to another entity, surely? 

Try telling that to the local taxman

What clergs said

in some countries (if not most) the branch office are considered as another entity for tax purposes. 

Its a fecking nightmare 

I’m now imagining jolly old St Nick as an Austrian accountant 

Quite right re transfer pricing being a potential reason - there may be no movement of goods but presumably the branch is paying Opco for its services so the amount paid for those services could be important for tax purposes. 

But how can the branch pay opco  given that branch and opco are the same legal entity this is just  insane what is going on 

The murky hinterland between law, tax and accounting, better left undisturbed. Wishing I’d not asked to be honest...

Yes, but they are not necessarily considered to be the same legal entity for tax purposes and that is why it is sometimes important to have a written agreement (to show the relevant tax authorities ) signed by the competent signatories for both parent and branch as to what has been agreed in relation to cross-charged services. Simples Inuit?

It isn’t a parent because the branch isn’t a subsid the branch IS the parent this is madness ffs what are you doing this is like some weird shared hallucination stop it stop it stop it 

When mister Pedro Taxman is telling me my Spanish branch is a seperate entity for Spanish tax and Mr Helmut BaFIN is telling me my German branch needs separate share capital because the reg cap rules say so we all just nod along and go with it because what else can you do.

Branches don't work at all everyone just pretends

Heh @ BaFin

cakers - are you loving KWG regs and its many manifestations post brexit (or otherwise also). 

You have to realise that many civil law based jurisdictions look at certain issues in a very different way from those, like England, that base their legal systems on the common law. That's just the way it is. As pancake explains. Branches sometimes have to have separate designated share capital, balance sheets, local bank accounts, official registrations, trade licences and authorised representatives from their 'parent' entities. 

You have to realise that many civil law based jurisdictions look at certain issues in a very different way from those, like England, that base their legal systems on the common law.

a very wrong way that believes in Santa it’s just insane madness. If they refuse to accept our way of doing things then we should just do the same and say I don’t care eg German company whether your companies house record says in German that two directors have to ratify everything and we are just going to rely on ostensible authority and you can go fook yourselves and we’ll invade you too and jut fuxking stop it 

Organisations set up internal Service Level Agreements all the time.

You are probably right that it has no legal effect on the organisation as a whole.

But that's not to say they have effect and value internally.   Line managers can fight ferociously over payments due from profit centres to cost centres and the results impact on their performance measures and bonuses.  In practice they can be essentially identical to those with third party suppliers, except for the option to get courts involved.  It's still a 'Service Level Agreement', even if as a lawyer you say that it isn't a contract

Well if anyone was going to make this more wrong and insane it was going to be elffi 

But that's not to say they have no effect and value internally

And not what Elfffi said. Specifically not what Elfffi said. 

Well what do you want to call an agreement that a cost centre will provide a service to a certain standard and management accounting will show a transfer from a profit centre according to the service levels realised?  

The whole point of organisations is to use internal agreements rather than 'contracts' with third parties.  That doesn't mean that they don't have internal agreements!

What choice of law rule are you using to determine which law governs the question whether the branch has separate legal personality, which law does that rule lead you to, and what does that law say about the question?

On the subject of parties contracting with themselves, I once received several instructions (over a period of time) from a local authority to draft section 106 agreements. Mostly standard stuff, relating to payment to the local authority of financial contributions to be used to mitigate the impact of the development and for the provision of ‘affordable’ housing although there are a whole myriad of potential other obligations.

However, on one occasion the instructions I received concerned a permission the local authority had granted to itself for a mixed use development on land owned by itself. It is perfectly acceptable for a council to grant itself planning permission and to impose planning obligations (although there are some administrative steps with which it needs to comply which would not apply if the council has no legal interest in the development site.)

Their planners expected me to draft a bilateral agreement where it was individually the local planning authority and land owner. I told them you can’t really do that. The Council would be contracting with itself, They replied ‘No, we are separately the LPA and the landowner.”

I had to tell them “It does not work like that. It might have different departments responsible with different roles and different sub-committees but it is one single legal entity. If the Council did not comply with the planning obligations the Council would ultimately have to sue or injunct itself. Which would be ridiculous.”

I was told “But we have done agreements like that loads of times before.” [It had quite extensive landholdings in the borough.]

*Bangs one’s own head on the desk.* (Who drafted those? Actually I could hazard a guess; the Council’s own former head of legal services who had recently ‘retired’.)

The solution was fairly obvious. The s106 was done as a unilateral undertaking. But I told them if the council is the landowner at the point in time the obligations need to be performed, it does not argue with itself. It cannot ignore it but must comply without question (although it could apply to itself to amend the undertaking if circumstances have changed.)

Elffi raises a very interesting point about the difference between the law and internal rules. For example there is no law or contract with my wife that says I can’t make sweet love to the lady next door. But my wife and I do have a ‘rule’ about that kind of thing if I do there will be a consequence for breach - my wife will bang Tony at number 23. Unenforceable you may say. Win win my wife says. 


this is not unusual

to a simple lawyer it is nonsensical

to accountants and regulators apparently it can mean something