Sales company
A sales company is that part of a company that deals exclusively with the sale of products from the same company. Sales companies are usually located regionally close to the markets served, while production companies tend to operate in traditional locations close to the required resources.
Fiscal Motivation
The division of an integrated company into a production company for manufacturing and a sales company for sales is a classic procedure to achieve a division of labor that is adapted to the respective productive resources and fiscal conditions at separate locations. The fiscal conditions have a significant impact on tax revenue and consolidated profit in international transactions. Thus, specialized locations have an impact on the tax revenue of the participating states and, in the case of tax rate differentials between the two states, also on the group profit.
Use of tax rate differentials
In the case of tax rate differentials, the companies involved have the incentive to minimize the group tax rate through a clever choice of the transfer price between the group companies. According to the arm's length principle, internal transfer prices in cross-border transactions must take into account that at least three parties regularly appear at the same time: the multinational company and the financial administrations of the countries involved. This means that the selected transfer price must be accepted by the tax authorities in the countries involved in order to avoid the threat of double taxation for the company involved. The arm's length principle has established itself as the international regime for such an internationally acceptable transfer price . This means that corporations must structure their transfer prices as if the underlying transaction were not taking place between companies of the same group but between independent market participants.
Potent motivation
The division of an integrated company into several sales companies, among other things, can also serve to share power in the company's decision-making bodies. While a central sales company can have considerable design power for the use of the income directly generated there, a regional structure with several, for example national sales companies without their own parent company, has the advantage of being managed by the production company, control over the strategic goals and the positioning of the To orient the entire company primarily to production goals according to the classic criteria of corporate management and to set sales goals autonomously. As the size of the company grows and the variety of products increases, this procedure leads indirectly to a holding structure that controls a large number of regionally structured sales companies and production companies structured by product.