This article provides a summary of the current state of affairs, including the opinion of scholars, tax authorities and the OECD regarding the tax implications of stripping out functions of local affiliates. The scope of this study is limited to (1) the implications of restructuring or relocating a producing affiliate not owing intangibles of the integrated activity and (2) the question of the eventual buy-out for the stripped affiliate as a result of disposing of its existing business. Restructuring issues are considered in the light of concepts and analysis derived from economics of contracts.