Principal Toller Agent Model

The Principal Toller Agent model

What is Principal Toller Agent model?

Principal Toller Agent Model (a.k.a. Commissionaire model) is a tax optimisation model for Companies within Europe with establishments in multiple EU countries.

Expert note**

Despite whatever reasons are being told about this model, the main reason is paying less corporate tax. tax_cuts_lrgOther reasons that are frequently heard are;


  • Centralisation in general
  • Supply chain centralisation
  • Reducing risk in general
  • Reducing risk for local subsidiaries
  • Reducing risk for employees
  • …and other creativity to sell the model to stakeholders.
 How – Basis
  • Create a new, or promote, central Company called: ‘The Principal Company’
  • Position this ‘The Principal Company’ in the EU+CH country where you have the lowest company tax, or where you can get the best Tax deal( a.k.a. a ruling) with an EU country – Tax authority
  • Shift all ownership of the supply chain stock, related to your core business, to this ‘The Principal Company’. This situation is very often referred to as a ‘Plants Abroad situation’
  • Local country Sales organisation Companies do not own any stock anymore
  • Local country manufacturing Companies do not own any stock anymore
  • ALL supply chain stock is owned by the Principal Company
  • Manufacturing companies(“the toller”) are granted a fee for manufacturing efforts
  • Local country Sales organisation Companies are charged an intercompany transfer price. This monthly flexible transfer price is used to retrieve a big? chunck of the profits towards  ‘The Principal company’ .
  • Since this ‘The Principal company’ has the lowest corporate tax rate, this will optimise your Net profit.
  • Above set-up can come in many variants, dependant per Company situation.
 How – Operationally

The heart of this model is in the regular outbound sales flow, since that’s the moment where profit can be distinguished and pulled aside towards ‘the Principal company’. Most extensive solution, but also the most profitable, is the set-up on a single transaction basis.

To simplify: Every regular invoice to an end-customer is followed-up by a second invoice(inter company) which can, using condition technique in pricing, retrieve value/profit  from the first invoice and let it land in ‘The Principal Company’.

This intercompany invoice can and needs to be issued since the stock is, in this model, not owned by the sales organisation company, but by the Principal company. Only at the very last moment, within the goods issue to the end customer, a flash ownership is taken by the sales organisation company.

In more detail below;

  1. Step A1 –> A sale in a country (not equal to country of ‘The Principal’) by the local sales organisation (the Agent)
  2. Step A2 –> Since the local stocks are owned by the ‘The Principal’, a last-minute transfer of owner ship is required(a.k.a. Flash title ownership), within the ERP system movement to the end-customer.
  3. Step A3 –> Invoice is presented to the end customer, including local VAT
  4. Step A4 –> End customer pays local Sales Organisation company
  5. Step B1 –> Since the local stocks are owned by the ‘The Principal’, an InterCompany(IC) invoice is presented from ‘The Principal’ to the local Sales Organisation company(the ‘Agent’).
  6. In this transaction an optimised Transfer Price is derived, automatically, that retrieves an optimised profit towards ‘The Principal’.
  7. Step B2 –> This IC-invoice should include Domestic Reverse Charge VAT, VAT Group VAT or Local VAT dependant on the country and situation.
  8. Step B3a –> Using a Good ERP system, this IC invoice(A/R side) is automatically posted as a vendor invoice(A/P side) in the local sales organisation company books
  9. Step B3b –> Within this process, the correct input indirect tax values are derived automatically
  10. Step B4 –> Local Sales organisation company pays Principal Company according IC- invoice 
  11. Result –> Using a IC Profit condition within the A/R IC-invoice, additional profit can land in ‘The Principal Company’. Indeed the company with the ‘optimised’ tax rates/regime…
  12. Resulting in..green_smiley
Other affected flows
  1. Inbound Purchasing
  2. Inter Company Stock transfer
  3. Intra Company Stock transfer

@1. Since all supply chain stocks can only be owned by ‘the Principal Company’, all central purchasing of COGS-goods needs to happen by ‘the Principal Company’.

@3. the number of ‘IntRa-Company stock transfer’ transactions will increase vastly. Moving supply chain stock within EU needs to happen always as an Intra Company flow, in a ‘Plants Abroad’ or ‘WIA-Werke Im Ausland’ scenario.

@2. the number ‘InTer-Company stock transfer’ transactions will decrease vastly. Since all supply chain movements are executed within the Principal Company, only transactions to companies outside EU, on other continents or special EU situations like Canary Islands, Ceuta/Melilla remain as InterCompany.

‘Inter-Company Sales invoicing’ transactions, see also previous chapter, will therefor double to match regular invoicing.

 Is it so easy?….

The above explanation is an overview in a nutshell. An implementation like this requires excellent specialists in the field of;

  • Corporate Tax
  • Indirect tax
  • Project Management
  • Transfer Pricing
  • …and above all, excellent ERP consultants in the Finance, Material Management and Sales & Distribution areas who have to deliver this set-up in your systems.

BUT, once running the benefits can be huge!

Is it so easy? part 2

This set-up needs to be delivered by highly educated and trained professionals. Consequently it needs to be tested extensively. Especially the intercompany set-up, VAT set-up and tax reporting needs to get extremely extensive attention.

!…Because once running operationally, ‘the Bear is out!!!’ simply because of sheer volume of documents.  In every but especially in a FMCG  company, once running with sub-optimal pricing, discounting or VAT derivation is a company ‘nightmare’.

The number of invoice transactions, which is even without this model already vast, will be doubled because of the 1 on 1  intercompany invoicing. Any, even small, structural invoicing error will cause havoc. Unpaid invoices, required  massive adjustments, reversals, invoice corrections or credit notes will consume great effort to solve.

And this is then only A/R side. The intercompany invoice needs to land, preferably automatically, on the A/P(MSU Company) side. Including the correct A/P VAT derivation. To control the model, ‘going concern’, it requires thorough expertise of some key people in the organisation.

Indirect tax(VAT(UK), MWST(DE, AT, CH), BTW(NL, BE), TVA(FR) IVA(ES))
  1. Invoice to end customer, normally Local VAT
  2. Intercompany invoice A/R side, depending on the country, Domestic Reverse Charge VAT(NL, BE, FR, ES, SE) or Local  VAT(Other including UK and DE)
  3. Intercompany invoice A/R side related to sales in the country of the Principal, very likely ‘VAT Group VAT’ needs to be applied.

VAT is a topic in it’s own right, More detail, click here

Business Case

Roughly speaking: deduction of Company tax percentage * Gross Profit

Discussion is open! please post a comment below, to discuss.

Until when?
  • This model holds out as long there are corporate tax rate differences between member states of the EU.


  • Companies can negotiate with individual EU member states and agree to have a deviating corporate tax rate for their HQ of that individual company. A variety of economical and political reasons might be of importance to grant  a ‘deviation’ to an individual company, a.k.a. ‘a ruling’.

Looking at this tax overview, expectation is that the PTA model will be option for decades to come.

Note PTA

The PTA model set-up  is always company specific and can deviate substantially from Company to Company.


More information;

Mail to  or or leave a comment on this site.



Some excellent side documentation can be found under the following links;

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.