Flash Title Agreement

Global distribution companies often work under a Risk Limited (LRD) model to distribute their products in a specific region or jurisdiction. This model is a widely used supply chain structure, primarily driven by corporate tax planning. The LRD markets products in its own name and on its own behalf and registers the “flash title” of the product, thus taking into account certain economic risks. The LRD`s narrow contracts with a principal company, which transfer significant functions and risks to the client. Since an LRD has a turnover in its books, Option 2 above could make the conversion to LRD a little easier, since in a commercial transaction, the Principal transfers the title right to LRD and LRD to the customer. On the other hand, several states have decided that a flash securities transaction does not justify an income tax nexus with the state. For example, an administrative judge (ALJ) for the New York Division of Tax Appeals in Wascana Energy Marketing (USA), Inc., No. 817866 (NY Div. of Tax). App., ALJ 7/18/02), that holding natural gas flash securities within the state would not subject taxpayers to corporation tax because the taxpayer was not active in the state. In addition, the ALJ found that such a tax imposition would have been contrary to the trade clause.

Since the fast-bunkering case of the European Court of Justice at the end of 2015, the possession of flash titles in the EU VAT landscape has been under pressure. This case indicates that, due to Flash`s ownership, LRD will never be able to sell the goods as an owner and therefore will not be able to play an active role in the supply chain. Does this mean that delivery from the client should be considered deliveries delivered directly to customers? On 6 December 2016, in response to the Fast Bunkering case, the European Commission`s VAT Committee agreed on guidelines and unanimously decided that the “Fast Bunkering” decision should be interpreted in a strict manner based on the concrete facts of the case in question. There doesn`t seem to be much to worry about at the moment for typical LRD models, but the evolution of VAT from the possession of flash securities is far from being clarified.