Editing Legal Org Chart

The Legal Org Chart (LOC) is a crucial instrument for (in-house) tax people. Yet, it is typically kept in a suboptimal fashion and sometimes low quality. What’s even worse, it does not have a dedicated owner 😖.

LOCs of multinational companies tend to increase in complexity over time. The drivers of this complexity are typically organic and inorganic growth, the implementation of business models and strategies, specific projects, and structuring initiatives. Together with the complexity of the LOC, the cost and risk level for multinationals are rising.

For tax, the LOC is of the utmost importance. For the (intercompany) sale of shares and related capital gains taxation, or the distribution of dividends, it is crucial to have among others a detailed view of the amount of shares, the type of shares, and the ownership period. For M&A structuring and group rationalisation purposes, said chart plays a pivotal role as well. Even for various tax compliance activities, a high-quality LOC should be available. Not to mention what the value is of this chart for other departments like legal, treasury, finance, and the business. The latest version (highlighting the current ownership structure) and the previous versions at any given historical date should be available.

Despite its importance, the LOC is typically drafted and maintained in dysfunctional ways, like in PowerPoint, Excel, Visio, PDF, or something similar. As the size and complexity of the chart are growing (multinationals have often 100s of entities), an annoying issue popping up is that the unfortunate owner (if already defined) of the LOC will see the forest for the trees. Indeed, this chart will soon become a graphic spaghetti bowl of lines and boxes, which rapidly becomes a design nightmare, and cannot be printed anymore in the desired
“one pager” format.

Useful to note here that the owner and user of the LOC are often not the same person or department. As stipulated above, tax is for sure a power user. But when it comes to owning the LOC, and ensuring that it is kept up to date, this responsibility falls between the cracks of different departments, like finance, legal, tax, or even treasury. And we all know what the risks can be of ill-defined or unclear roles and responsibilities…

The consequences of tax consuming low-quality data are similar to consuming low-quality seafood. You will get in trouble 😵‍💫… When it comes to tax, the implications are not only financial but also reputational and even criminal. It is time that the role of the LOC gets lifted, and that high-quality (always up-to-date) charts, which ideally are dynamic and interactive, become the norm…

Curious to hear your thoughts in the comments section!

PS: read more about the importance of the LOC in our whitepaper about Group Rationalisation here: Group Rationalisation Whitepaper