Bridget Walsh

By Bridget Walsh (pictured) , EY EMEIA Area Managing Partner – Tax and Matthew Mealey, EY Global International Tax and Transaction Services’ Innovation Leader 

The global tax landscape has undergone significant shifts in the past decade, driven by a range of political and economic factors, including the need for governments to close significant tax gaps by increasing revenues. As a result, tax has risen steadily up the boardroom agenda, with the tax function integral to corporate strategy, business operations and workforce planning. 

Tax costs, including access to tax reliefs and incentives offered by governments, are but one of many variables corporations consider when designing business models. For many decades, the traditional principal company model, where multi-national corporations centralize ownership of assets and business functions in certain locations, has been favored or being the most cost-effective. However, rising tax costs as a result of tax legislative and regulatory change, as well as the expense of managing rising tax controversy around transfer pricing and permanent establishment issues in some jurisdictions, is causing a re-examination of the value of existing models. 

This phenomenon, occurring in the wake of the OECD’s Base Erosion and Profit Shifting initiative (BEPS) is affecting industries as diverse as consumer products, life sciences, technology, media and advanced manufacturing. 

The combined effect is that there is a growing rationale for multi-national companies to rethink and reorganize their global businesses, with multi-hub operating models proving to be a compelling business alternative. 

This approach involves sharing assets and centralized functions across more of the countries and jurisdictions that represent an organization’s most critical business locations. This multi-hub framework can deliver financial, operational and intangible benefits, both today and in the future. 

Drivers of change

The ongoing implementation of the BEPS initiative globally, combined with the recent historic agreements made at the G7 in June and the OECD and G20 last month to further reform international corporate taxation accelerates the need for multi-national organizations to re-evaluate their business operations.

These tax changes have been taking place against a backdrop where globalization has been evolving, a trend which began following the global financial crisis of 2008. Protectionism, populism and pragmatic pandemic nearshoring are among the factors now combining to accelerate this trend. These pressures have also led to a range of public policy initiatives. These include the EU’s new industrial strategy, “Made in China 2025”, “Buy American” executive orders on US supply chains, and the UK’s changing trading relationships with the EU post-Brexit. 

The advantages of a multi-hub model

In the face of such change, large multi-national organizations are increasingly questioning the status quo, and are exploring new business models, better suited to the current economic and political environment.

A review of a global business through tax, trade and regulatory lenses is guiding many to consider a fundamentally different approach and the adoption of a multi-hub model where key business functions and activity are  relocated to the larger economies in the G7. The benefits of this model include:

Reducing tax controversy. The BEPS initiative has been accompanied by an increase in global tax complexity and controversy. In some cases, this controversy has led to reputational damage. A multi-hub operating model can limit cross – border tax controversy, simultaneously reducing risk mitigation costs and making regulatory compliance less onerous. 


Creating more stable, sustainable tax costs. Tax controversy management and closer alignment with the new tax architecture should reduce tax rate volatility, creating more predictable and stable tax costs.  


Bridging the talent gap. Multi-hub models can improve talent recruitment and retention by reducing the limits on workforce locations that are inherent in traditional single country centralized models. The pressure for change here has been strengthened by the COVID – 19 pandemic and the emergence of new ways of working, including remote and hybrid work. With a multi-hub framework, companies can recruit with fewer restrictions across the G7/G20 economies and the largest talent hubs, as well as in traditional lower tax locations such as Ireland, Dubai, Switzerland, Luxembourg and Singapore. 


Improving operational flexibility. In the world of centralized business models, companies often create processes and controls to ensure business risks are controlled from the hub location.  Such controls are necessary consequences to comply with the framework of international tax law. Multi-hub models allow those limits and restrictions to be reduced or eliminated in order to increase operational flexibility and reduce cost.There is an assumption that the traditional, highly centralized, single-hub operating model is more cost effective. However, our experience of working with early movers to a multi-hub operating model suggests this is frequently not the case and that when all factors are accounted for, the cost of the multi-hub approach is comparable to the alternative. 


Whilst early movers in many sectors have already implemented a multi-hub model, traditional models are still commonplace. One reason may be inertia. The traditional single country principal model has served businesses well for a long time, making it familiar and comfortable for many executives and tax and trade professionals. By doubling down on what they know, however, companies risk being left behind.

Side-by-side analysis of traditional – versus multi-hub models suggests that companies often underestimate the value of the reduction in tax controversy; underestimate the benefits they might get from incentives that are now available in larger developed countries; and underestimate the impact of penal provisions that increasingly apply to traditional models. When coupled with the strength of doing business in major economies and the broader benefits that this can bring, such as access to talent, supply chain agility and greater operational flexibility, exploring alternative business model options is a good first step. 

Change is rarely straightforward, but as the pandemic continues to make clear, existing trends are accelerating and this is necessitating the rapid evolution of well-established business structures. Those who lead the charge may be in the best position to thrive in the future. 


The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organization or its member firms.  This Publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Member firms of the global EY organization cannot accept responsibility for loss to any person relying on this article.