Legal entity restructuring (LER) is a strategic tool used to align legal structures with commercial reality, improving governance and enabling more efficient operations. Simplification remains important, but the key is to ensure that structures are fit for purpose rather than simply reducing the number of entities.

Why do businesses typically undertake Legal Entity Restructuring?

There are a number of common triggers, including:

• Upcoming transactions (eg disposals, initial public offering (IPOs) or refinancing).
• Rising compliance and administrative costs (including those associated with Pillar Two).
• Integration following acquisitions or expansion.
• Broader operating model or strategic changes.

Complexity can build over time and without intervention, structures often become inefficient and misaligned with the business.

What benefits can LER deliver

Well-executed group restructuring can provide a range of operational, governance and tax benefits, including:

• Reduced compliance and reporting burden.
• Lower administrative costs.
• More efficient finance, governance and decision-making processes.
• Easier and cost-effective enterprise resource planning (ERP) integration.
• Elimination of withholding tax inefficiencies.
• Improved visibility, control and reporting flexibility.

For organisations considering a future transaction, restructuring can help to unlock value and simplify transaction execution.

Lessons from real-world examples

The webinar, 'Legal Entity Restructuring: from complexity to control', considers two practical case studies. The first examines the tax implications of a business transfer, while the second focuses on international mergers.

Watch the Legal Entity Restructuring webinar here

Case study one

A UK/US example shows how a seemingly simple business transfer between two UK entities that are part of a US parented group can have a range of tax implications. These include: maintaining UK tax attributes (eg losses, capital allowances); indirect tax impacts such as VAT and stamp taxes; anti-avoidance provisions; and the wider US tax implications, including the check-the-box election.

Case study two

A US/EU scenario explores how the US and the Netherlands may treat a business transfer and subsequent dissolution as a merger, rather than two separate transactions.

Together, these examples highlight a consistent lesson: a step that is tax neutral in one country may be taxable in another, and poor coordination between jurisdictions can create risks that go well beyond tax. Successful legal entity restructuring depends on coordinating across jurisdictions and service lines from the outset, rather than treating each market as a standalone exercise.

Global trends affecting LER

A consistent theme emerging across organisations is the need to take an international view when considering structuring. Factors affecting LER globally include:

• Increased reporting burdens under Pillar Two, which may expose inefficiencies.
• The recently published EU Tax Omnibus Directive, which is anticipated to drive further scrutiny.
• Increased international workforce mobility, which naturally provides additional challenges.

As a result, a fragmented, country-by-country approach may not be appropriate and can lead to suboptimal structures or unintended consequences.

Key takeaways on LER

LER can deliver significant operational and tax benefits, but only where it is approached in a coordinated, forward-looking manner. Organisations that take this approach are better positioned to reduce complexity, manage risk and operate more effectively in an increasingly demanding global tax environment.

Many businesses have an understanding of their existing group structure but recognise there is scope for optimisation. Failure to act, or delays in undertaking such projects, can ultimately lead to more complex and adverse outcomes over time.

Would your business benefit from LER? Please contact Ryan Broomfield or your usual RSM representative to discuss how we can help.

Latest related insights