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On May 31, the US House of Representatives passed its latest extender’s Bill, the American Jobs and Closing Tax Loopholes Act, which true to its name extends unemployment benefits and certain jobs stimulating tax provisions (e.g., the R&D credit and CFC look through rule) along with further tax changes to pay for them. The Senate will take up the Bill when it returns from its Memorial Day recess on June 7.
June 10, 2010 -
The health care bill’s opponents said it would cause a massive budget gap. But one element of it is expected to raise some $4.5 billion over the next 10 years. This is an issue that’s of crucial importance to treasurers, since it narrows the parameters of “economic substance” for transactions and establishes the penalties for failing to meet the tests for these transactions.
May 18, 2010 -
The dire state of the US government’s finances has caused revenue-raisers in Washington to once again turn their eyes toward corporate cash overseas. Recent unflattering press reports about how some large corporates ended up not paying any taxes due to their earnings being generated in foreign countries didn’t help. The NeuGroup recently surveyed some of its members to find out how much of their total cash is held abroad versus domestically. The results are below:
April 30, 2010 -
A roundup of topics International Treasurer is investigating.
The NeuGroup’s Treasury Investment Managers’ Peer Group is taking a close look at how to benchmark member portfolios post-crisis. Of course, the question is complicated by the fact of the current low rate environment and the belief that rates will rise, so fixed income investments look dodgy. And any investment that one can make a DCF argument for now needs to be able to survive a higher discount rate, which may be coming soon.
April 08, 2010 -
The Obama administration’s $3.8 trillion FY 2011 budget will result in a yawning $1.6 trillion deficit. In an attempt to whittle that back, it has proposed a raft of corporate tax increases and loophole-closing measures, many of which it originally floated last year. However, some of the earlier revenue initiatives, like repealing “check-the-box,” were abandoned due to opposition from corporates and lawmakers.
February 28, 2010 -
By Ted Howard
It might not be getting as much press as the rest of the administration’s revenue plans. But it is a big part of the agenda nonetheless.
The Obama administration just gave corporate America 1.6 trillion reasons to worry about tax hikes. That’s the projected—and record—deficit offered in the $3.8 trillion FY 2011 budget unveiled on February 1. To help narrow the gap, the administration proposes to slam shut a series of loopholes regarding overseas activities by MNCs. One area is conspicuously absent from the president’s revenue proposals: transfer pricing. But treasurers shouldn’t take heart—in terms of stricter enforcement, this is among the items at the top of the administration’s agenda.
February 28, 2010 -
More disclosure demanded—with short time frame—on related-party transactions.
Cracking down on transfer pricing abuses is a high priority for the Obama administration. But it’s not only a US phenomenon. France has just passed new requirements for disclosure of related-party transactions in its amended budget law. While the requirements don’t specifically tighten transfer pricing guidelines, the additional documentation could shed unwelcome light on some related-party business practices.
February 12, 2010 -
UK’s Brown pushes measure despite widespread opposition.
UK Prime Minister Gordon Brown says backing for his Tobin Tax on financial transactions is gaining steam. But opposition to the measure remains overwhelming, according to a new survey by Greenwich Associates, which indicates that 90 percent or more of the financial institutions and corporations in the US and Europe are against it
February 05, 2010 -
Victory on check-the-box shows corporate lobbyists have more sway than financials.
The Obama administration’s budget plan contains some painful tax hits for financials. Private equity and hedge fund managers would see their carried interest taxed as income, not capital gains. And the $90 billion TARP bank levy remains intact, although Treasury officials now say it won’t apply to the repo market, which should be a relief to banks. But corporates have derailed on one big item that was worrying them: check-the-box isn’t being repealed, as many feared.
February 02, 2010 -
By Dwight Cass and Ted Howard
The aughts left few treasury functions untouched.
What a difference ten years can make. Despite the Y2K scare, the eve of the new millennium was freighted with hopeful expectations—the dotcom bubble had yet to pop and the internet appeared poised to transform many aspects of treasurers’ jobs. But in retrospect, the decade that followed rewrote the world of treasury more dramatically than anyone could have anticipated in 2000. Here’s a look at some of the big issues covered by International Treasurer, then and now.
January 12, 2010 -
By Dwight Cass and Ted Howard
The crisis has receded but much hard work remains.
With signs multiplying that the worst of the financial crisis is over, treasurers are hoping for a quiet year in which to regroup. They are unlikely to get it. The meltdown exposed deep-seated problems and challenged long-held assumptions. Treasury departments, for the most part, rose to the occasion during the maelstrom and kept their companies financially afloat. But like survivors of a natural catastrophe, they now face the big job of taking stock and rebuilding.
January 12, 2010 -
By Joseph Neu
Once the Obama Administration made clear that it would not be getting behind an HIA 2.0 in the name of stimulus and instead was proposing tax changes aimed at ending tax deferrals for offshore cash and overhauling “check-the-box” and foreign tax credit provisions in the US tax code, US multinationals have been on tenterhooks. How far might these proposals go and how soon?
November 03, 2009 -
Unfortunately, the tax shield advantage of corporate debt will not be in synch with the deleveraging of balance sheets. Despite numerous efforts to make corporate tax cuts a part of US government stimulus plans, the news out of Washington is that the government is only interested in grabbing revenue, where ever it can, to fund its spending plans. HIA 2.0 is certainly off the table, but so likely is the compromise prospect of green-lighting more intercompany (Sec. 956) lending from cash-rich subs offshore without penalty. And what’s worse is that the long-term fix of taxing offshore cash in exchange for a lower corporate tax rate and a gradual migration toward a territorial tax regime no longer looks likely.
May 27, 2009 -
Countering hopes that an HIA 2.0 might still be part of US economic stimulus plans, the Obama Administration has been floating a proposal to raise taxes on overseas profits. This would put the excess cash of US multinationals, largely accumulating off-shore where tax liabilities are deferred, at risk to current taxation.
April 21, 2009 -
By Joseph Neu
Efforts by US-based multinationals to see a repeat of the 2004 American Jobs Creation Act (AJCA, aka the Homeland Investment Act, or HIA) tax break for offshore cash repatriation have broken out into the open. A recent article in the Wall Street Journal, for example, noted that a US Senate proposal to re-introduce such a tax break as part of the stimulus legislation “has generated one of Washington’s hottest debates.”
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As word spread in October that the IRS issued Notice 2008-91, which would permit US MNCs to extend borrowings from offshore-controlled foreign corporations (CFCs) without triggering US taxation (a deemed dividend), treasurers received the news cautiously.
Under section 956 of the tax code, a US shareholder of a CFC is required to currently include in income (as a deemed dividend) its pro rata share of any increase in the earnings of the CFC that are invested in United States property. For this purpose, “United States property” includes any obligation of a US person (taxpayer). However, the IRS made an exception if the obligation was repaid within thirty days and such obligations were held by the CFC for no more than 60 days in a tax year.
November 18, 2008 -
By Joseph Neu
An article in the spring 2008 edition of the Journal of Applied Corporate Finance by Stephen Curtis, a transfer pricing economist with Ernst & Young, made the case that treasury, and not the tax department, should be in charge of setting transfer pricing and related policy for intercompany financial transactions at multinationals. With many treasurers of US MNCs advocating the same as they struggle to utilize off-shore liquidity without taking a tax hit, the article and its argument are timely.
August 20, 2008 -
Three recent and dramatic tax changes have brought much-needed relief to managers of cash and liquidity in Brazil and significantly altered the landscape for treasury practitioners in the region.
1) The CPMF’s death. The much-maligned “temporary” CPMF tax, a 0.38 percent levy on the movement of funds, which raised 40 billion reais annually during its 12-year lifespan was discontinued by a late-2007 Congressional vote.
Effective January 1, 2008, cash managers in Brazil would no longer be hampered by the negative economics of moving cash out of current accounts into investment accounts. Previously, the CPMF took a large-enough bite out of each cash transaction to render the investment income moot.
2) A limited-scope IOF. Then, last month, the tax authorities made a surprise move and narrowed the focus of another painful tax, the IOF. Going forward, the IOF will not apply to currency trades that are related to imports and exports, another relief for risk managers in Brazil; and
3) More offshore options. Finally, the Brazilian Central Bank loosened the rules for offshore accounts, opening up more investment opportunities for US MNCs.
April 21, 2008 -
US MNCs with onshore captive companies dodged a big bullet recently, when the IRS withdrew a proposal that would have stripped the captives of favorable tax treatment.
The proposed reg (1.1502-13(e) issued last September would have eliminated the tax deduction for reserves established by US-based single-parent owner captive insurers for insurance sold to company sub; the IRS would only allow tax deductions at the time when claims are actually paid. According to Chaz Lavelle, an attorney in the tax and finance practice group at Greenebaum Doll & McDonald PLLC, an expert in this field, the changes proposed by the IRS would have nuked the entire idea of setting up a captive as part of a broad revenue-raising effort by the IRS; plus (and counter-productively), the IRS’s move would have forced Vermont and other onshore captives to flee offshore.
April 02, 2008 -
With Libor rates spiking (one month USD Libor pierced 5.80 percent at one point vs. 5.59 a month ago), corporate treasurers may be either dreading or looking forward to repricing “risk” on Libor-linked liabilities and assets.
However, should such short-term rate spikes (which may be temporary) also affect internal polices on setting rates for intercompany liquidity management, e.g., rates on short-term interco loans, in-house bank (IHB) arrangements and cash pools? Most are linked to Libor, but how quickly should treasury be obliged to adjust them, and to what extent? For example, should a month-end rate be good enough for the prior month’s
transactions, or even the next month’s? Alternatively, would an average be better suited?
September 24, 2007