The first year-end exposed the historic problem. A client renewal showed what the future structure still had to resolve.
Angelo Chirulli | Vectigalis AC Tax Limited
An illustrative continuation. Luca, Albion and the client renewal are fictional; the figures are used to explain the issues.
The Italian company had been incorporated. Luca’s local payroll was being arranged. An intercompany agreement was ready for review.
Then an email arrived from the finance director of his largest client.
“For the renewal, are we contracting with Albion Consulting Ltd or with the Italian company?”
Luca started typing: “Either is fine. It is still me.”
He stopped before sending it.
This was the decision behind the cleaner second year described in the previous article. Before the new structure could work, Luca had to explain what each company would actually do.
The client wanted to know who would stand behind the work
The engagement generated £240,000 in annual fees. That was revenue, not profit, and the amount said nothing by itself about how much either company should earn.
The client had worked with Albion for years. Its procurement records, engagement terms and insurance checks all referred to the UK company. Luca’s move to Italy had not rewritten those documents.
The finance director’s question was practical. Which company would deliver the work? Which company would be responsible if something went wrong? Why should the client pay a different entity?
For Luca, the questions went further. Who would negotiate the renewal? Who would approve a discount? Would the Italian company supply services to Albion, or take on the customer engagement itself?
Until those points were settled, choosing the name on the invoice was premature.
A familiar percentage did not answer the question
One suggestion sounded reassuringly simple. Albion would keep the client contracts and pay the Italian company its costs plus a modest margin.
That could be appropriate for properly characterised services. But the advisers first needed to understand the services being supplied.
Luca was developing the scope, negotiating fees and deciding how to solve the client’s problems. The proposed arrangement had to explain whether he would exercise that authority for the Italian company, for Albion, or in different capacities for each.
Where arm’s-length pricing is required, a company’s reward depends on its actual contribution. HMRC’s guidance specifically cautions against assuming that services central to a consultancy business deserve only a low routine return. The activities, assets and risks must support the pricing.
The advisers therefore put the proposed percentage aside and asked Luca to walk them through a real engagement, from the first client call to the final payment.
The difficult question was who controlled the risk
The draft agreement said Albion would retain the commercial risks. That description needed to be tested against how the business would operate.
Imagine the project overruns. Luca promises the client another month of work without an additional fee. Who authorised that promise, on behalf of which company, and who pays for the extra staff time?
Or the client refuses to pay. Who decides whether to pursue the debt, accept a settlement or preserve the relationship?
For transfer pricing purposes, assigning risk in a contract is only part of the analysis. The relevant company’s ability to control that risk, its actual decisions and its financial capacity to bear the consequences also matter.
Luca’s presence in Italy did not automatically allocate every risk or every pound of profit there. Equally, writing “UK company bears the risk” could not replace the necessary examination of the facts.
A renewal could involve more than future services
Luca then offered another solution. Future engagements could be signed by the Italian company. The existing client would receive a new engagement letter when its current contract ended.
That was a commercial option worth examining. It also raised a separate question about what, if anything, would pass from Albion to the Italian business.
The advisers reviewed the existing customer rights, the consultancy’s proprietary materials and the activities each company would retain. A new legal supplier and a new payment destination did not tell them the whole story.
Under the OECD restructuring guidance, a fall in expected future profits does not, by itself, require compensation. The analysis asks whether something valuable is transferred, or existing arrangements are terminated or substantially renegotiated, in circumstances where independent parties would agree compensation.
That distinction matters. A genuinely new engagement is not automatically a taxable transfer of the old company’s goodwill. Conversely, transferring an existing business, valuable rights or customer contracts requires more than changing the invoice template. The applicable domestic tax rules must then be considered.
The advisers kept two pricing questions separate: what should each company earn for future work, and does the restructuring itself require a payment? An ongoing service fee does not necessarily answer both.
The UK company needed a commercial role
Luca wanted to retain Albion. Several clients recognised its name, and some preferred a UK supplier. Those were commercial reasons to consider, rather than assumptions about where the profits should remain.
One workable model might leave Albion responsible for defined customer engagements, with the Italian company performing agreed services. Another might put future engagements with the Italian company while Albion retained and completed specific existing work.
A mixed model could also be justified. What mattered was that the responsibilities were clear and reflected what people would actually do.
For each material activity, Luca needed to identify the company involved, the person authorised to act and the basis for any payment between the companies. Any transfer of existing rights or assets needed its own assessment.
The advisers also checked which domestic rules and exemptions applied. OECD guidance supplies a framework for arm’s-length analysis; it does not itself impose a tax charge or make every small business subject to identical obligations in both countries.
The change had to work on the next Monday morning
The implementation plan became much more specific. Client renewals would identify the intended supplier and its responsibilities. Luca’s authority in each company would be defined. Intercompany charges would follow the agreed activities and be supported by records.
The team also identified the necessary legal, insurance, VAT, payroll and social-security checks. Each had to be resolved on its own facts; an answer to the corporate profit question would not settle them all.
The first year remained a separate workstream. A prospective arrangement could not explain away the decisions already made before it existed.
Most usefully, Luca could now answer the client’s question. He could name the supplier, explain who was responsible for delivery and show how the other company would be involved.
The reply Luca eventually sent
His response was no longer “Either is fine.” It identified the company entering the renewal and described its role.
Opening the Italian company had taken relatively little time. Deciding what business it would conduct required much more thought.
For founders planning a similar move, that work should begin before the first renewal, the first intercompany invoice or the first transfer of existing business.
The question to ask is simple enough to put to your own team: if your largest client asked which company was running the engagement, would everyone give the same answer?
Vectigalis AC Tax Limited advises internationally mobile founders and owner-managed businesses on corporate residence, permanent establishments, transfer pricing and cross-border business restructurings.
To discuss a proposed relocation or a change to your operating structure, contact angelo@vectigalistax.co.uk.
This article provides general information. The treatment of a particular restructuring depends on its facts and the applicable domestic law and treaty provisions.
Facebook introduction
He moved to Italy. He opened an Italian company.
Then his biggest client asked:
“Which company are we actually hiring?”
Luca almost replied: “Either. It is still me.”
That answer would have left several important questions unresolved. Who would deliver the work? Who would approve the price? Who would be responsible if the project went wrong?
In this continuation of Luca’s story, I look at the decisions that made his new structure work — including whether anything valuable was passing from the UK company to the Italian business.
If you run a UK company and are planning to work from another country, this is a conversation to have before changing the name on your invoices.
Could everyone in your business explain what each company actually does?
angelo@vectigalistax.co.uk
#UKBusiness #MovingToItaly #InternationalTax
Supporting sources
Technical references checked on 12 October 2026.
HMRC INTM441110 — Services and the appropriateness of routine cost-plus returns
HMRC INTM485023 — Control and allocation of economically significant risks
HMRC INTM485020 — Actual conduct and establishing the facts
OECD Transfer Pricing Guidelines 2022 — Chapter IX, paragraphs 9.39–9.43