Not every structure arrives through careful planning. Many are inherited from a previous adviser, copied from someone else’s arrangement, or entered quickly under commercial pressure, and the client only later asks whether it was right. Sometimes the answer is that it was fine. Often it is that it works today but carries a risk that has not yet surfaced. The useful question is not how it happened, but what can be done about it now, and the answer is usually more than the client fears and less than a clean start would have given.
First, assess honestly
The starting point is a clear-eyed assessment of what actually exists: what the structure does, what it was meant to do, where it is exposed, and how urgent each exposure is. This is not an exercise in blame, and a defensiveness about how the structure came to be only delays the diagnosis. Some problems are cosmetic, some are serious, and some are latent, fine until a bank, an investor or a tax authority looks closely. Sorting them by severity is the first real step.
What can usually be fixed
A great deal can be corrected without unwinding everything. Missing substance can be built. Absent documentation, intercompany agreements, transfer pricing files, board minutes, can be prepared, though it is always better to document contemporaneously than retrospectively. Governance can be tightened, filings brought current, and a UBO register corrected. Much of what makes a structure fragile is fixable housekeeping, and doing it converts a risky structure into a defensible one, as we describe in our note on keeping a company in good standing.
Most bad structures are not beyond repair. They are structures that were never finished, and finishing them is cheaper than the client fears and far cheaper than being caught.
What is harder to undo
Some things resist correction. A transaction already completed on the wrong basis may have crystallised a tax cost that cannot be reversed. A structure built around a hybrid mismatch or an aggressive position that the rules have since closed may need genuine restructuring rather than repair, and restructuring has its own tax consequences that have to be modelled. The honest advice sometimes is that part of the structure has to be dismantled and rebuilt, and that doing so now, deliberately, is better than doing it later, under examination.
The substance question runs through everything
Very often the core defect is the same one: the structure was built for a tax outcome without the substance to support it. That is now the most dangerous single flaw a structure can have, because the rules that target it, from the principal purpose test to the Unshell directive, have all moved in the same direction. We deal with them in our notes on Dutch substance requirements and ATAD 3 and Unshell. Building real substance into a thin structure is frequently the single most valuable fix available.
Fix it before it is examined
The decisive factor is timing. A structure corrected on the client’s initiative, before a tax authority, a bank or a counterparty examines it, is a structure that has been put right. The same correction made after the examination has started is a concession under pressure, worth far less and read far worse. A client who suspects their structure is not sound has a window, and the value of acting within it, rather than hoping the question never comes, is the difference between fixing a problem and being caught with one.
If you are facing this, we can help. Montclare handles exactly these situations for international businesses and families. Our services are set out on our services page.
This article is informational and does not constitute tax, legal or financial advice. The right course depends on the facts. Each engagement is subject to scope and applicable regulation.