Cost, Tax, and Coordination—Four Lawyers on What Really Drives Cross-Border Collaboration Choices
Opening Quote: “What kind of alternative model you choose depends on the costs. As a lawyer, we are also entrepreneurs. We have our employees, we have our cost at the end of the month. So we have to consider cost. And also the second point, we are working or living as a lawyer in a very regulatory space. So these two factors are decisive.” – Peter Ruggle
The Economic Realities That Trump Aspirations
When Peter Ruggle outlined his framework for choosing collaboration models, he cut through aspirational rhetoric with two decisive factors: cost and regulation. The hierarchy that emerges is straightforward: “if you choose a representative office, that is most expensive. If you choose only an alliance network, that’s less expensive. If you choose a legal tech platform, that might be very favorable in terms of costs.”
But cost calculations alone miss half the picture. “And certainly when it comes to the regulatory area, you have to see what kind of services are you providing? How do you collaborate? What is possible back and forth? We have to be careful in that respect,” Ruggle explains.
Pengfei Wu demonstrated these economic constraints with brutal specificity. His Kenya office serves “about 60 to 80 Chinese companies” annually—enough volume to justify the fixed costs of physical presence, local staff, and infrastructure. But neighboring Tanzania presents a different equation: “I have four clients. And it also gives me a lot of very good legal fees and very good profit. But the problem is that I only have four clients in Tanzania. So that’s why I cannot create another office in Tanzania.”
The threshold between viable and unviable markets isn’t about opportunity size or growth potential—it’s about sustained client volume sufficient to cover overhead. Wu’s solution for the fifteen African countries where he lacks this threshold is a curated “friends list” where “every country will have three law firms to put in our law firm’s friendslist.” The system includes detailed tracking: “we will comment on these law firms, which lawyer is expert in which sector, and some of them we even put their hourly rate and our comment towards this international law firm.”
This pragmatic network-building represents an alternative to expensive formal structures. Rather than joining networks with membership fees, governance requirements, and profit-sharing complexities, Wu built relationships that can be activated transaction by transaction. The cost to maintain the friend list is essentially zero between engagements, while a formal network demands ongoing investment regardless of deal flow.
Bernardo Cartoni reinforced the size-versus-suitability calculation: “the local law firm that wants to deal some international matters with a big law firm risks to pay a lot of fees or more precisely, the client risks to pay a lot of fees. From that perspective, a medium or a boutique law firm can be more suitable.”
The Fifteen to Twenty Percent Tax Gap
Penghu quantified what others described only generally: the actual cost differential between collaboration models driven by tax treatment. Her analysis drew on experience in both formal alliance structures at Dentons and best friends networks at Winteam Law Firm.
“I think Dentons used this kind of Swiss alliances and they have a kind of internal cost and profit sharing mechanism… to guarantee that everyone involved, all the lawyer involved, relatively fair profits,” Penghu explained. The systematic profit distribution within alliance structures creates tax efficiency that informal networks cannot match.
The mechanism that creates the cost gap is straightforward: “for the Chinese law firms, the tax is really calculated based on their total fees without the deduction of the cost of their foreign counsel.” When a Chinese firm using a best friends network bills a client and then pays a foreign law firm for its work, Chinese tax authorities calculate tax on the gross revenue rather than net profit.
The impact is substantial: “So that the total cost that we will charge of our clients would be normally would be like 15% or 20% higher than to use the kind of alliances structure,” Penghu explains. This isn’t a marginal efficiency difference—it’s a significant price premium that makes certain collaboration models systematically more expensive for clients.
For practitioners deciding between network structures, Penghu’s fifteen to twenty percent figure provides a concrete basis for business case analysis. The flexibility and simplicity of best friends networks comes at a quantifiable cost. Conversely, the investment required to establish and maintain formal alliance structures can be justified by tax efficiency that compounds across multiple transactions.
The tax treatment also explains patterns in how Chinese firms structure international work. “Sometimes the Chinese companies, they prefer to engage a Chinese law firm or a law firm with a Chinese branches or offices located here in China, so that they won’t face their kind of foreign exchange control issues,” Penghu notes. What appears as client preference for domestic firms often reflects regulatory realities around currency controls and tax treatment.
Making Invisible Coordination Visible and Billable
Ruggle argued forcefully for explicit recognition of coordination work in multi-jurisdictional matters. “If someone takes over the coordination in a difficult case with various jurisdictions, I support that, and I tell to my client, listen, this work is so important, has to be paid,” he explained. “So there must be a budget for the coordination only, especially if various jurisdictions are involved.”
Cartoni reinforced this position from a different angle: “the client needs a single stop. And also, many lawyers, many thoughts, 10 lawyers, 11 different opinions. There must be one coordinator.” The mathematical progression—ten lawyers producing eleven opinions—captures how legal advice proliferates without central authority.
“So there must be a lawyer, a law firm that takes the leads and supervise. And this is the link with the client,” Cartoni continues. When asked whether this coordination role deserves compensation, his answer was immediate: “Yes, of course.”
Penghu described the coordination burden from direct experience: “many Chinese clients, they’re quite pushy and demanding. I think if we let the Chinese client facing the California councils, there might be a very much kind of cultural difference.” The result is significant unpaid labor: “I will receive a lot of complaints, which I cannot charge because it’s just a kind of like coordination or just like to comfort both sides.”
Wu demonstrated coordination through translation work that exemplifies invisible labor. “Most of my client’s issues… their legal department, they prefer to work in Chinese. So every time we revise a contract, when our local team makes some revision, my team will translate it into Chinese and also make some additional amendments and discuss with our client in Chinese.” The result: “So actually, most of the work is from my side, I always have to translate over and over again.”
This translation work isn’t incidental—it’s the core service that enables everything else. Yet it’s work that doesn’t fit neatly into hourly billing categories and often goes unrecognized in fee discussions. Wu’s practice demonstrates that language mediation, cultural translation, and ongoing coordination constitute the actual value proposition for clients working across legal systems.
The speakers’ collective position challenges how coordination is traditionally treated in cross-border legal work. Rather than overhead to be absorbed or business development to be written off, coordination is specialized work requiring compensation. Without explicit budgeting for coordination, firms avoid complex international matters or perform coordination work without compensation—neither outcome serves client interests.
The Quality Control Problem Networks Avoid
Cartoni identified quality control as the differentiator between lawyer directories and genuine platforms. “If they are only a list of lawyers in a given jurisdiction, I think it’s only not a waste of time, but not a guarantee,” he argued. “Where a platform can make a difference is if the platform can guarantee a sort of quality control.”
But meaningful oversight requires investment most networks avoid: “at the centre of the network of the platform, it should be a centralised structure that can perform quality control, but this requires very skilled lawyers, of course, because they should be able to supervise the job done by the single lawyers in the various jurisdictions. This requires very good lawyers, very well-trained lawyers. And this, of course, is costly.”
Cartoni suggested this cost could be a competitive advantage: “it’s easier for the client to say, okay, maybe I can spend a little bit more, but going into that platform, I’m sure that the outcome will be good.” The qualification matters: “Of course, outcome of skills deployed, not outcome of, for instance, a litigation. No platform can guarantee you that the judge will award you the claim.”
Wu’s friend list approach represents an alternative to formal quality control systems. Rather than central oversight, Wu maintains detailed comments on individual lawyers’ expertise, hourly rates, and performance. The system relies on relationship knowledge rather than institutional mechanisms.
When Ruggle raised the client-attorney privilege objection to network quality control—”the network is another body than my law firm. And my client’s privilege is at the door of my office”—Cartoni proposed a structural solution: “If the client hires somehow the network, it is the network to be also bound by confidentiality and privacy.”
The key is redefining relationships: “So the quality control is not something external to the legal team, but the quality surveyor is someone that is a part of the legal team as a supervisor, like in an internal team in a law firm, you have say five associates and the partner that coordinates them.”
Cartoni’s proposal requires reimagining networks not as referral mechanisms but as integrated service providers where the network itself becomes the client’s law firm. This level of integration demands investment which explains why most networks remain loose affiliations rather than quality-controlled platforms.
Cartoni also exposed a transparency problem that quality control should address: “I remember at the beginning of my career, more than 30 years ago, I was just a fresh graduate… The client hired and paid for the partner, but who did the work? The young Bernardo. And this is a little bit unfair to the client.”
The Swiss Verein Paradox
Ruggle brought unique perspective on the Swiss Verein model that has become popular in international legal networks. “When I heard that and read about that, that this is obviously in focus of some law firm, I was laughing, because the Verein, that means an association, is here in Switzerland one of the… It’s a tool of… A most democratic tool.”
The historical significance runs deep: “The association was the founder of our Switzerland, because without any associations, even the athletics associations were part in our democratic movement, because people gathered together to do some sports and said we need to have a democratic structure. That was 200 years ago.”
But the tax challenge undermines the model’s appeal for international networks: “whenever you have physical equipment office, people working or whatever, you are taxed. You are taxed. And if you try to get a tax exemption, that’s nearly not possible because you’re not a charitable organization when you try to set up a network and go back and forth with referral fees.”
Penghu offered a case study of Swiss Verein complexity from her Dentons experience: “I think they have a very good internal system for sharing the cost and the profit… but yes, it doesn’t have a very good ending. I don’t know exactly the reason, but I guess the cultural difference might be one of the reason… the quality issue is also another reason.”
The Dentons-Dacheng dissolution suggests that operational excellence—”a very good internal system”—cannot overcome deeper structural problems. Penghu identifies cultural differences and quality control as probable causes, though she acknowledges uncertainty about the full explanation.
Wu explicitly rejected the Swiss Verein model for his Africa expansion: ” When my law firm expands overseas, I completely declined the option of Swiss Verein.” His reasons are multiple: “The first one is, of course, the double taxation. And the second one is conflict of interest. If we build a Swiss varying mechanism with a foreign law firm, we have to sort out the conflict of interest issue.”
But Wu identified a third, more fundamental problem: “the most important one is when the client looks for us, they come for us because they have some trust with us and whichever law firm we choose in another country is not their first priority.” The client relationship attaches to the specific firm, not to a network structure. Swiss Verein may facilitate internal operations but doesn’t necessarily enhance client value.
What Clients Actually Need
All four speakers converged on client preference for one-stop solutions, though their explanations varied. Cartoni emphasised synthesis necessity: “the client needs a single stop. And also, many lawyers, many thoughts, 10 lawyers, 11 different opinions. There must be one coordinator.”
Penghu agreed while adding Chinese-specific factors: “I think Chinese companies, they also prefer one-stop solutions because for many reasons, first of all, as Pengfei said, the language barriers, they prefer someone who can speak Chinese.” But regulatory constraints prove equally decisive: “there’s also a very practical issue, which is, it’s a kind of the foreign exchange control. So sometimes the Chinese companies, they prefer to engage a Chinese law firm or a law firm with a Chinese branches or offices located here in China, so that they won’t face their kind of foreign exchange control issues.”
Cultural mediation emerged as another driver of one-stop preference. “Many Chinese clients, they’re quite pushy and demanding,” Penghu explains. “I think if we let the Chinese client facing the California councils, there might be a very much kind of cultural difference.” The coordination burden this creates—”I will receive a lot of complaints, which I cannot charge”—makes distributed service models unattractive even when theoretically possible.
Ruggle emphasized cultural calendar respect as essential to sustainable relationships: “we have to learn to understand that when Chinese New Year happens, nobody is reachable. That’s it. When we have Christmas break, forget about that.” The repetition—”forget about that”—underscores his conviction that pushing against cultural calendars is both disrespectful and futile.
“At the end of the day, from my perspective, personally said, it’s the respect which has to be observed, respect to each other, respect to the needs of each other,” Ruggle concluded. “We are all lawyers. We are all human beings. We have clients. We have other clients. We have deadlines. We have specific deadlines. We have specific issues in our countries and everywhere.”
The Technology Boundary
Penghu described rapid AI adoption for routine domestic legal work in China. “One of my friends who’s the in-house counsel of a listing company… told me that they have stopped, they are kind of, they have stopped hiring an external law firm for its day-to-day legal work. And they have recently engaged an AI legal platform company to help them to review their daily contracts and to help them to do their legal research.”
The appeal is economic: “they think it’s a very kind of cost-efficient because it’s much, much more cheaper than engage external company.” But Penghu immediately identified the limitation: “AI, as we always said, AI cannot be held liable, right? So they must, alternatively, kind of engage internal in-house counsel to help them to review the work that the AI does.”
The accountability gap means AI adoption doesn’t eliminate human oversight—it shifts it from external to internal lawyers. “If they engage a lawyer, like us, engage an external lawyer, then a lawyer will help to review all the work and I will be responsible and liable for the work they have done,” Penghu explains. This liability assumption matters particularly for “state-owned Chinese companies. Sometimes they should have a person to be responsible for the work that they have done.”
For international work, the technology boundary becomes even clearer. “For domestic, I think from the cost perspective, I think the legal tech platform, especially domestically, I think it’s a kind of a lowest method,” Penghu argues. “But for the international ones… I don’t see there’s one legal tech platform that help the Chinese clients to solve all their questions, to answer all their questions.”
The multi-jurisdictional challenge proves insurmountable for current platforms: “many Chinese companies ask about, ask questions relating to a lot of jurisdictions.” The result is a bifurcated approach: “So I think they are either the best friends network that I use most often for the transactions or the strategic alliances is the kind of mass for international transactions or international issues.”
Profit Sharing and Time Horizons
Cartoni offered a framework for sustainable profit-sharing that emphasises patience: “don’t be afraid, don’t be too greedy. From a point of view, the lawyer who has contact with the client should not be afraid to share his profit, his fees with the other law firm, the other lawyers operating in another jurisdiction. And from the other side of the coin, of course, the foreign law firm should not be too greedy and take everything.”
His most important advice concerns time horizon: “in profit sharing and fee sharing, we should be foresight. So, don’t think only about today, but the following five or ten years. Maybe giving a little bit more to the other law firm today will allow us to earn a lot of money in the following years.”
Wu acknowledged that profit sharing remains unsolved in his practice: “currently, we are still finding a good way. It takes time… Currently, all the perfect sharing is case-to-case basis, so really, I don’t do a fixed arrangement.”
The case-by-case approach reflects the reality that transactions vary too much for formulaic splitting. A matter requiring extensive coordination deserves different compensation than simple referral. Work requiring translation services justifies different fees than English-language transactions. Wu’s flexibility acknowledges these variations while avoiding the overhead of formal profit-sharing systems.
Navigating Referral Fee Prohibitions
Both Ruggle and Cartoni addressed how lawyers navigate jurisdictions where referral fees are prohibited. “Referral fees, it’s not possible in Switzerland,” Ruggle states. “I’m not going to disclose what we are doing here, but we have to find other models.”
His preferred approach emphasizes paying for substantive work: “I really like to work with quotes, with quite good quotes, with elaborated quotes, paid quotes. I also said, listen, when you provide me with a quote which is three, four pages long, this is paid.”
Cartoni offered the Italian perspective: “In Italy, pure referral fees are prohibited. So change the label. So not pure referral fees, but helping in contacting the client, helping in gathering evidence, and so on. And you have the solution, changing the label of the fees.”
Both approaches recognise that lawyers perform multiple services beyond making introductions. Preliminary research, quote preparation, evidence gathering, and client coordination are all compensable work. Calling this work what it is rather than “referral fee” maintains compliance while sustaining relationships.
The strategies require more work than simple referral fees—lawyers must actually perform the services they bill for. But they also create value for clients who receive preliminary analysis and coordination rather than just contact information.
Implications for Network Design
The discussion revealed that successful cross-border collaboration models must address multiple dimensions simultaneously:
Economic viability: Wu’s eighty-client threshold demonstrates that physical presence requires sustained volume, not just opportunity. For markets below this threshold, relationship networks offer service capacity without fixed costs.
Tax efficiency: Penghu’s fifteen to twenty percent cost gap shows that structural choice significantly impacts client costs through tax treatment. Formal alliances create complexity but deliver efficiency that compounds across transactions.
Coordination recognition: Ruggle and Cartoni’s advocacy for explicit coordination fees challenges the treatment of orchestration work as overhead. Multi-jurisdictional matters require someone to synthesize advice, manage relationships, and take responsibility for the complete client experience.
Quality assurance: Cartoni’s analysis of quality control costs explains why most networks remain directories rather than platforms with genuine oversight. Meaningful quality control requires skilled lawyers—”very good lawyers, very well-trained lawyers”—making it costly but potentially differentiating.
Cultural competence: Ruggle’s emphasis on respecting cultural calendars and Penghu’s description of cultural buffering work demonstrate that cross-border collaboration requires more than legal expertise. Language mediation, expectation management, and cultural translation constitute essential but often invisible services.
Regulatory compliance: Both Ruggle and Cartoni showed how referral fee prohibitions and tax treatments constrain collaboration models. Successful networks must design around regulatory limitations rather than aspiring to models that local rules prohibit.
The speakers collectively suggest that the most effective collaboration models match structure to actual constraints—cost, tax, regulation, client needs—rather than aspirational frameworks imported from different contexts. There is no single best model; there are models appropriate to specific combinations of practice area, client base, regulatory environment, and resource availability.
Wu’s curated friend list works for serving Chinese companies across multiple African jurisdictions where individual market volumes don’t justify offices. Penghu’s experience at Dentons demonstrates that formal alliances deliver tax efficiency worth the investment for high-volume cross-border practices. Cartoni’s quality-controlled platform vision addresses clients willing to pay premiums for assured competence. Ruggle’s coordination fee advocacy recognizes work that all models require but many fail to compensate.
The session revealed that cost, tax, and coordination aren’t merely operational details—they’re the fundamental factors that determine which collaboration models survive in practice. Firms that align their network choices with these realities position themselves for sustainable cross-border work. Those that pursue aspirational structures without addressing economic fundamentals build networks that look impressive on paper but fail in operation.
About the Session: This LexChina Forum roundtable discussion, moderated by Tianze Zhang, brought together four practitioners with diverse geographic and structural perspectives on cross-border legal collaboration. The discussion explored alternative models to traditional representative offices and branch structures, examining strategic alliances, best friends networks, legal tech platforms, and Swiss Verein arrangements through the practical lens of lawyers operating across Switzerland, China, Italy, and Africa. The conversation revealed that successful international collaboration depends less on adopting fashionable structures than on understanding the economic, tax, and coordination realities that make or break cross-border legal services.
