Cross-Border Agency and
Distribution Agreements
International Business Agreements
David A. Laverty
InternationalCounsel
May, 2005
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Cross-Border Agency and
Distribution Agreements
Deceptively Simple to
Companies and their Lawyers?
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Deceptively Simple Agreements?
 Advantages
of
a
Representative:
A
local
representative can deliver knowledge of the targetcountry market, its channels of distribution, means of
importing and sale and a network of contacts and
relationships - acts as an extension of a company’s sales
and distribution arm
 Can be a substitute for costly and resource-intensive
alternatives – such as establishing “greenfield”
operations, acquiring or joint venturing
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Deceptively Simple Agreements?
 Underestimated
by
Companies: An agent or
distributor may represent a simplified and less expensive
alternative for entering, and getting out of, a foreign
market
 These agreements look like the kind of agreements used
in a company’s domestic market - what can go wrong?
 North American businesses are at a particular
disadvantage - relative freedom of contract, lack of local
dealer-protection, absence of currency and other crossborder issues
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Deceptively Simple Agreements?
A
word of caution on terminology
“agents” vs. “distributors”
–
 Very important to understand the underlying
business structure of each
 Very dangerous to rely on the labels – may or
not conform to definitions in law
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Cross-Border Issues – Our Focus
1. Local Dealer-Protection Legislation
2. Governing Law and Dispute Resolution
3. Competition Law Issues – EU Example
4. Tax-Related Issues
I. Permanent Establishment Concerns
II. Withholding Taxes
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Agency and Distribution Agreements –
Key Cross-Border Issues
1. Local Dealer-Protection
Legislation
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Local Dealer-Protection
Legislation
The Issue:

Local laws may restrict the termination of a
representative through:
1. Mandatory termination notice
2. Mandatory post-termination compensation

Often a surprise to companies from common law
jurisdictions within Canada, the US, Singapore or New
Zealand
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Local Dealer-Protection
Legislation - EU

Perhaps the best-known framework of
termination limitations is found in Europe - EU
Directive 86/653 has been enacted into local
law of EU member countries with local
variations to generally apply to “agency”
relationships
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Local Dealer-Protection
Legislation – Asia

Does the jurisdiction regulate or otherwise restrict the
termination of agents and/or distributors, or is this
purely a matter of contract?

Do any such regulations/restrictions provide for a
mandatory termination notice period?

Is there mandatory post-termination compensation,
such as in the form of a payment for goodwill
generated by the representative or an “indemnity”
payment?
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Agency and Distribution Agreements –
Key Cross-Border Issues
2. Governing Law and
Dispute Resolution –
Focus on dealer protection
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A Word on Governing Law and
Dispute Resolution
The Issue:
 Even where local dealer protection laws are
mandatory, can governing law and dispute
resolution help overcome the reach of local
law?
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Agency and Distribution Agreements –
Key Cross-Border Issues
3. Competition Law Issues
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Competition Law Issues
The Issue:
Clauses deemed anti-competitive may be prohibited
 Resale price maintenance – distributor or reseller is required to
charge a minimum amount for the product or licensed items
 Territorial restrictions - the representative is required to sell
only in its territory and not make sales outside of it, yet some
countries prohibit the imposition of restrictions on “passive
sales” from unsolicited orders outside of the country
 Non-compete provisions – can these be extended beyond the
term of the agreement, and if so for how long, and are there
limitations even during the term of the agreement?
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Agency and Distribution Agreements –
Key Cross-Border Issues
4. Tax-Related Issues
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Permanent Establishment – Tax I
The Issue:
Will the supplier/principal be taxed in a foreign country
on income from sales or licenses there?
Without a business presence in another country, such as through a
branch or subsidiary, many may believe there would be no tax in
the foreign country
Yet, the concept of “permanent establishment” recognizes that one
can still have enough interaction with the foreign country to be
deemed taxable
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Withholding Tax – Tax II
The Issue:
Even if the supplier/principal does not have a permanent
establishment in the other country which would subject a
foreign person to tax on business profits derived in that
country, may some categories of income derived from
that country still be taxable?
Royalties and interest are two categories of income that
may be subject to withholding tax
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Case Studies
Examples of InternationalCounsel projects:
 Terminated Representative in Latin America
 Terminated European Representative
 Consolidation of Representatives After Acquisition
 Seizure of CD Roms
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InternationalCounsel
An “In-House Equivalent”
Cross-Border Legal Capability
 A law firm formed by former in-house international legal
counsel to provide legal services to companies with
business interests in multiple countries
 Delivers expertise in structuring, negotiating and
documenting international transactions such as joint
ventures, strategic alliances and agency/distribution
arrangements, as well as foreign direct investment
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InternationalCounsel
Address:
Telephone:
Facsimile:
Web Site:
E-mail:
200 South Wacker Drive
Suite 3000
Chicago, Illinois 60606
312 236 5600
312 575 0602
www.internationalcounsel.com
info@internationalcounsel.com
David Laverty
312 575 0601
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