Strategic Tax Structuring for an Industrial Equipment Supplier with Worldwide Projects

An industrial equipment supplier specializing in large-scale machinery for energy and infrastructure projects operated in more than twenty countries through a mix of subsidiaries, branches and project offices. The business model relied on winning complex tenders, delivering equipment from several manufacturing hubs and providing on-site installation and maintenance services. Over time, the group faced increasing scrutiny from tax authorities regarding permanent establishment exposure, profit attribution and withholding taxes on service fees. The executive committee recognized that a coordinated approach to international tax law was necessary to protect project margins and support future bids.

Radner’s team was brought in with a mandate to develop a global tax strategy tailored to the project-based nature of the business. The engagement began with a diagnostic review of recent projects in different regions, focusing on how contracts were structured, where personnel were deployed and how revenues and costs were allocated. Radner’s team analyzed contract terms, project timelines and the presence of staff on construction sites. This review revealed that similar projects had been structured differently from a tax perspective, leading to inconsistent treatment across jurisdictions.

To bring order to this complexity, Radner’s team categorized the group’s projects into several archetypes based on scope, duration and level of on-site activity. For each archetype, the team assessed potential permanent establishment risks under domestic laws and tax treaties. The analysis considered factors such as the length of time personnel spent on site, the existence of project offices and the authority of local staff to conclude contracts. This systematic approach allowed the group to understand where its current practices were most vulnerable to challenge.

One of the key findings was that project managers often made decisions about staffing and site presence without considering tax implications. In some cases, personnel remained on site longer than initially planned, inadvertently triggering permanent establishment thresholds. Radner’s team explained how international tax law defines a construction permanent establishment and how extensions or modifications to projects could affect this status. The team worked with operations and HR to design guidelines for managing site presence in a way that balanced operational needs with tax risk.

Contract structuring emerged as another critical area. Many contracts bundled equipment supply, installation and maintenance into a single agreement, with a single price. This made it difficult to allocate revenues between jurisdictions and increased the risk that a larger portion of profits would be attributed to high-tax countries where installation took place. Radner’s team proposed a modular contract structure that separated supply and service components, with clear pricing for each. This allowed for more precise allocation of income and reduced the likelihood of disputes over profit attribution.

To support this modular approach, Radner’s team collaborated with the legal department to develop standard contract templates. These templates included clauses addressing tax responsibilities, such as who would bear withholding taxes and how changes in tax laws would be handled. The templates also clarified the roles of local entities and branches, reducing ambiguity about where activities were performed. By embedding tax considerations into contract design, the group reduced the need for ad hoc negotiations on each project.

Transfer pricing was another area requiring attention. The group’s manufacturing entities, engineering centers and project management units all contributed to the delivery of complex projects, but the allocation of profits between them was not always consistent. Radner’s team conducted a functional analysis to determine which entities performed key entrepreneurial functions and bore significant risks. Based on this analysis, the team developed a transfer pricing model that allocated residual profits to central project management and engineering units, while providing routine returns to manufacturing plants and local support entities.

Implementing this model required changes to internal reporting and cost allocation systems. Radner’s team worked with the finance department to ensure that project accounting captured the necessary data to support the new profit allocation. This included tracking hours spent by engineering teams, documenting decision-making processes and recording the use of specialized assets. The team also prepared transfer pricing documentation that explained the rationale for the new model and provided benchmarking for routine returns. This documentation was designed to be used across multiple jurisdictions, with local adaptations where required.

Withholding taxes on cross-border payments posed a particular challenge for the group. Many contracts involved payments for equipment, services and royalties, each subject to different tax treatments. In some cases, clients withheld tax on the full contract value, even where treaties provided for reduced rates. Radner’s team reviewed existing contracts and identified where the group had overpaid withholding taxes due to lack of clarity or documentation. The team then developed procedures for obtaining treaty relief, including the use of certificates of residence and applications for refunds where possible.

To prevent similar issues in future projects, Radner’s team created a set of tax guidelines for bid teams. These guidelines outlined how to factor withholding taxes into pricing, when to seek gross-up clauses and how to structure payment terms to minimize cash flow impact. Bid teams were trained to recognize situations where early involvement of tax specialists was essential. This integration of tax into the bidding process ensured that project margins were calculated on a more accurate basis and that tax risks were considered alongside technical and commercial factors.

Another important aspect of the global tax strategy was managing disputes and audits. The group had ongoing audits in several countries, with tax authorities questioning the existence of permanent establishments and the allocation of profits. Radner’s team reviewed the audit files and developed a consistent defense strategy based on the new global framework. The team prepared position papers explaining the group’s business model, contract structures and transfer pricing policies. These papers were used to present a coherent narrative to different tax authorities, reducing the risk of contradictory outcomes.

In jurisdictions where double taxation had already occurred or was likely, Radner’s team advised on the use of dispute resolution mechanisms under tax treaties. This included preparing submissions for mutual agreement procedures and, where appropriate, considering advance pricing agreements. The team evaluated the cost-benefit of each option, taking into account the size of the disputed amounts and the likelihood of success. By approaching disputes strategically, the group was able to resolve several cases without resorting to lengthy litigation.

Governance and internal controls were strengthened as part of the project. Radner’s team helped establish a global tax committee that included representatives from tax, finance, legal and operations. This committee reviewed major projects, monitored changes in tax laws and oversaw the implementation of the global tax strategy. Standard processes were introduced for approving project structures, reviewing contracts and documenting key decisions. These measures ensured that the new framework would be applied consistently and that deviations would be identified and addressed.

Over a three-year period, the impact of the global tax strategy became evident. The group experienced fewer disputes over permanent establishment status, and when audits did occur, they were resolved more quickly and with lower financial impact. Project margins became more predictable, as tax costs were integrated into pricing and risk assessments from the outset. The group also gained a reputation with clients for being able to handle complex cross-border tax issues, which enhanced its credibility in competitive tenders.

The strategic value of the international tax law support extended beyond risk management. By understanding how different project structures affected tax outcomes, the group could choose configurations that optimized both operational efficiency and tax position. For example, in some regions it became advantageous to establish regional hubs that combined engineering and project management functions, supported by local branches for on-site work. Radner’s team modeled the tax implications of these options, enabling informed decisions that aligned with long-term business goals.

Ultimately, the industrial equipment supplier transformed its approach to cross-border taxation from reactive to proactive. International tax law was no longer seen as a constraint but as an integral part of project strategy and corporate governance. The collaboration with Radner’s team resulted in a coherent framework that supported global operations, reduced uncertainty and contributed to the group’s ability to compete for large, complex projects worldwide. The case illustrates how a tailored global tax strategy can become a strategic asset in industries where each project spans multiple jurisdictions and regulatory environments.