Global Value Chains and the Separate-entity Principle: Rethinking intra-group relationships in Corporate Law and International Tax Law

Since the early 1990s, global value chains (‘GVCs’) have transformed how goods are made and moved, now driving almost 70% of global trade (see here). A single product might be designed in California, assembled in Vietnam, branded in Ireland, and sold across dozens of other jurisdictions. Legal literature (see here), especially in contract law, began to signal that the boundaries of firms and their relationships are not defined solely by corporate law but also by contracts. The strong influence of contract law in GVCs led to a differentiation between inter-firm relationships (relationships between entrepreneurial units not belonging to the same group, i.e., independent suppliers) and intra-group relationships within companies belonging to the same group.

Law faces challenges in conceptualizing the complex economic dimension of GVCs operating under a centralized business model with highly integrated operations. Different regulatory approaches coexist. On the one hand, power dynamics in GVCs drive regulatory approaches that emphasize the lead firm as the central actor; on the other hand, other regulatory approaches view GVCs as a horizontal network of interdependent economic operators  (see here). The overlapping, even contradictory, legal approaches to GVCs affect how sustainability challenges are enforced. There is a need to map regulatory strategies that shape, govern, and improve sustainability challenges in GVCs.1

The legal scrutiny of GVCs influences how the law treats intra-group relationships. Corporate law is anchored in the separate legal personality and limited liability. As a result, each company is treated as a distinct legal subject, responsible for its own obligations and shielded from the debts and decisions of other entities in the group. These principles support important legal functions: they limit shareholders’ liability, help manage and compartmentalize risk, and provide protection for other stakeholders such as creditors. Tax law follows the same logic. Each entity within a corporate group is considered a separate legal person and interacts with its affiliates at “arm’s length,” as if they were independent entities. Both disciplines, albeit with different justifications, align with the separate-entity principle.

In this blog post, we argue that business law and international tax law are struggling to maintain the separate-entity principle. Because of adherence to the latter principle, the integrated economic dimension of GVCs creates significant tensions when laws seek to regulate or tax how multinational groups operate. These multinational groups allocate profits, capital, and control regardless of the formal legal boundaries between separate entities. This short blog aims to spark debate on how legal forms should accommodate complex economic realities.

Corporate Law’s uneasy recognition of group reality

In most legal systems, with some notable exceptions such as Germany, each company in a group is treated as a separate legal person. It is assumed to act independently, in pursuit of its own corporate interest, even when its decisions are shaped by coordination at the group level. The result is a framework that preserves this formal separateness despite clear economic integration (see here).

At the same time, corporate law has not entirely ignored this economic reality. In a number of legal systems, it is acknowledged that companies within a group do not always act independently and that subsidiaries may implement decisions taken at group level, even when those decisions do not align with their own immediate interests. The idea of group interest illustrates this point: it allows a company, in certain circumstances, to act in a way that benefits the group as a whole. Yet this recognition remains cautious. In most systems, group interest does not function as a general standard guiding corporate decision-making, but rather appears in specific contexts, often as a justification for decisions that depart from what would ordinarily be expected of a stand-alone company (see here).

How far this acknowledgment extends depends on the jurisdiction. In Germany, group structures are addressed through the Konzernrecht regime, which provides a dedicated framework for certain types of corporate groups, particularly public companies (see here). In the Netherlands, there is no comprehensive group law regime, but group relationships are recognised across different areas of law, including disclosure, labour, and taxation. Directors remain bound to the interest of their own company, although that interest may be interpreted in light of the group context. In the United Kingdom, the principle of separate legal personality continues to dominate. Following Salomon v A Salomon & Co Ltd, each company is treated as a distinct legal person, and directors’ duties are owed to the individual entity rather than to the group (see here). While group structures are recognised for reporting and accounting purposes, they generally do not affect the allocation of responsibility, except in limited circumstances such as parent company duty of care established on a case-by-case basis.

Even where group strategy drives outcomes, legal responsibility continues to be assessed at the level of each entity. Directors’ duties, creditor protection rules, and liability doctrines are triggered only where a breach of obligation or identifiable harm can be established. Courts focus on whether a particular company has complied with its own obligations or whether the corporate form has been misused. They do not generally reassess how risks, responsibilities, or returns are distributed across the group as a whole. Veil piercing remains exceptional, and parent company liability depends on each case’s specific factual circumstances (see here).

The result is a limited recognition of group dynamics. Even where legal systems accept that subsidiaries may follow group-level decisions, the company remains the primary legal unit. Directors’ duties, liability rules, and creditor protections are applied at the level of the individual entity. Group interest may justify certain decisions, but it does not alter the underlying allocation of responsibility. In practical terms, group-level decision-making does not translate into group-level responsibility. Separate legal personality remains the starting point, and corporate law continues to accommodate economic integration without moving beyond an entity-based analysis.

International Tax Law: the progressive irruption of GVCs in the regulatory approach

Whereas corporate law addresses questions of responsibility and liability, tax law concerns the allocation of income across jurisdictions. It proceeds on the basis that each company within a multinational group is a separate taxable person. Under the arm’s length principle, intra-group transactions are to be evaluated as if they had been concluded between independent enterprises. Profits are allocated on an entity-by-entity basis. International tax law does not follow formulary apportionment (FA), which allocates the group's entire profit among jurisdictions based on objective formulas (e.g., sales, assets, workforce) (see here).  FA is the method to allocate profit more in line with the GVCs. The unsuccessful Pillar One proposal, which aimed to allocate residual profit to market jurisdictions, sought to introduce a sales-based formula to tax the profits of digitalized companies.

Despite the leading separate-entity approach, the complex integrated phenomenon of GVCs compels international tax law to adopt a group dimension. Such recognition is even more visible than in corporate law, which preserves an entity-based analysis. The footprints of GVCs are recognizable in recent regulatory approaches in international taxation. Under BEPS Action 13, Country-by-country Reporting (CbCR) is a standardized reporting framework that requires multinational enterprises to report annually, per jurisdiction, taxes paid, revenues, tangible assets, number of workers, etc (see here).The CbCR template provides crucial information for tax authorities to assess multinationals' base erosion and profit shifting strategies and assist them in auditing multinational groups. CbCR reporting transpires how the lead firm in GVC is responsible for paying the fair share of taxes in each jurisdiction in which the multinational operates.

Another good example is the global minimum tax (Pillar Two, also referred to as Global Anti-Base Erosion Rules,‘GLoBE Rules’) (see here). In broad terms, GLoBE ensures that the profits of a multinational are taxed at a minimum of 15% in each jurisdiction. The GloBE Rules go beyond the separate entity approach to clearly embrace the GVC architecture: (i) the scope (multinational groups that has annual revenue of EUR 750 million or more in the consolidated financial statements); (ii) computation of GloBE income and taxes paid is per jurisdiction to calculate the effective tax rate, regardless of the legal entities operating per jurisdictions; (iii) the minimum tax operates via interlocking top-up tax rules with a priority order, which basically means that if a country taxes lower than 15% effective tax rate, other jurisdiction in which the multinational group operate would top-up the difference. Unless a Qualified Domestic Minimum Tax applies, the lead firm (ultimate parent company in GLoBE terminology) has a priority to collect the top-up tax (i.e., Income Inclusion Rule) if this jurisdiction implements Pillar 2. The way the interlocked rules operate in GLoBE also aligns with a regulatory approach of a GVC as a horizontal network of interdependent economic operators: the top-up tax can be collected by the country in which a group subsidiary operates (i.e., the Undertaxed Profit Rule) if the country where the ultimate parent company has not implemented the Income Inclusion Rule. The Undertaxed Profit Rule was conceived as the ultimate backstop, in cases where neither the Income Inclusion Rule nor a Domestic Minimum Tax applied.

Both regulatory examples demonstrate the progressive penetration of GVC architecture in international taxation and the progressive erosion of the separate-entity approach.

A roadmap for further research

The analysis across corporate law and tax law reveals a common pattern: multinational groups operate as integrated economic organizations, yet legal/tax analysis largely proceeds on an entity-by-entity basis. Corporate law allocates responsibility at the level of the individual company, and tax law allocates profit in the same way under the arm’s length principle. Both fields recognize, to some extent, the integrated nature of multinational groups, but it is still a long way from fully reflecting on the impact of the GVC complex architecture. Yet corporate law is lagging behind the recognition of GVCs in comparison with international tax law.

A major recognition of the group interest (see here), making the lifting-of-the-veil doctrine less exceptional, Pillar 2 interlocked rules, transparency rules as CbCR, etc., are potential solutions that would temper the rigidity of the separate-entity principle in both fields of law and better accommodate the GVC assessment. Legal forms like the separate-entity principle should be responsive to GVC. This clearly shows the research path in the following years, how the law should regulate and tax multinational groups. Many answers remain to be found in the power dynamics and networks created within GVCs.

• 1This is precisely what this Handbook tries to do: Debadatta Bose, Ricardo Garcia Anton, Anne Lafarre, Bas Rombouts and Paul Verbruggen (eds), The Cambridge Handbook of Law and Responsible Business; Legal Strategies for Sustainability in Global Value Chains, (Cambridge University press, 2026) [forthcoming December 2026]