Setting up a Corporate Treasury Center in Hong Kong

Transcription

1 Setting up a Corporate Treasury Center in

2 Why a Corporate Treasury Center? A growing number of multinational corporations (MNCs) are setting up Corporate Treasury Centers (CTCs) in Asia The size and scale of western MNCs in the region continues to increase as the balance of economic power shift towards Asia. There is also a growing recognition and awareness amongst Asian MNCs of the need to centralize the treasury function and the management of cash, to achieve liquidity efficiency and reduce funding costs across the corporate group. As these MNCs obtain better visibility over their cash and debt positions, considerations of these MNCs invariably turn to the centralization of the corporate treasury function into a CTC. Benefits of setting up a CTC include: 1. Reduced funding cost through minimizing the need for unnecessary external debt financing 2. Consolidated risk management across function to reduce P&L volatility 3. Optimizing cash and working capital through netting of cash pools and greater cash transparency 4. Centralized treasury operation offering broad treasury activities to serve multiple operating jurisdictions, legal entities and business units across the globe 5. With regional CTC setup, to provide regional currency and time zone management How to organize a Corporate Treasury Center? Treasury function operating models The operating models of CTCs vary between MNCs from decentralized country and entity level functional units to truly global/regional centralized treasury functions. In practice, many MNCs have a mixture of centralized treasury activities globally and/ or regionally and decentralized in operating jurisdictions, depending on their organisation and geographic footprint. The first step for any MNC is considering the scope of treasury activities to be covered and the degree of geographic centralization required based on the business footprint, cash and funding. An MNC treasury function in a single global hub is rare and generally MNCs have a mix of a global treasury center and regional treasury centers in country time zones in Asia, EMEA and the Americas. Considerations Economies of scale Regional presence Cost structure Adequate locations Business environment Characteristics Separate Treasury Center Tax efficient location Operating as service center Financial management, treasury transactions & support service for group entities Global Model Global Payment Factory Global In-House Bank/Investments Regional Model Netting, Pooling, Sweeping Structures Regional Re-Invoicing Center Regional Payment factory Active Treasury & Risk Regional Funding Concentration/Investments Decentralized Model In-country Accounts Basic PMTS/ Receivables In-country LM structures Active Treasury Payables Outsourcing Regional Liquidity Solutions Regional Treasury Centers Global Treasury Center Regional Shared Services Centers In-Country Liquidity Cash Flow Projections Global Regional Risk Regional Finance Solutions Receivables Outsourcing Country Entity Building Blocks

3 Why is a premium choice of location for CTCs? is well positioned for corporate groups (both western MNCs and Asia-based outbounds) to centralize their global and regional treasury functions because of its proximity to mainland China, the largest offshore RMB pool, well-developed banking system, efficient capital and foreign exchange markets, deep talent pool of experienced treasury, banking and asset management personnel, favourable regulatory and tax regime, and sound common law legal system. In addition, the recent tax law changes to introduce concessionary tax treatment for CTCs and those carrying on a money lending business should further enhance Hong Kong s competitiveness as a CTC hub. A simple and low tax system based on a territorial source principle of taxation Concluded 35 Comprehensive Double Taxation Agreements with Hong Kong s key trading partners, with some of these tax treaties providing competitive tax rates as regards interest No withholding tax on treasury related payments Reduced tax rate and other tax incentives catering to CTCs are introduced in 2016 The world s largest center for offshore RMB banking, financing and asset management High standard of market transparency, disclosure and prudent supervision The fifth largest foreign exchange (FX) activity 3 center globally No FX controls marexchang ket efficiency Tax policy Foreign and incentives as a CTC hub Banking capabilities and access to capital markets Human capital/ infrastructure Proximity to Mainland China Deep talent pool IT connectivity and infrastructure Sound legal and robust regulatory framework Economic stability Robust banking system (70% of the top 100 banks have operations in Hong Kong) 1 One of the most active equity capital markets for IPO 2 Well developed debt capital markets Active derivatives and commodity markets A world leader in providing services for RMB transactions Businesses in have a unique advantage in the region One Belt One Road initiative 2016 Tax Changes for CTCs in With effect from 1 April 2016: Tax deduction on interest payments to overseas associated corporations for companies carrying on an intragroup financing business (including a CTC). 8.25% corporate tax rate for qualifying CTCs in respect of its qualifying profits derived from corporate treasury activities 4. 1 As of December 2015, please refer to Banking Industry in published by Trade Development Council on 14 January As of December 2015, please refer to page 19 of the report : Asia s Premier Location of Corporate Treasury Centres issued by the Monetary Authority issued in December Triennial Central Bank Survey Foreign exchange turnover in April 2013 issued by Bank for International Settlements in September Corporate treasury activity includes (a) carrying on an intra-group financing business; (b) providing a corporate treasury service; and (c) entering into a corporate treasury transaction.

4 EY s approach on setting up a corporate treasury center in EY is well placed to help you take your first step in setting up your corporate treasury center in. As you navigate through this important business decision, it is extremely important that you have a definitive plan of action and a trusted advisor that helps you validate your decision at each step Process & Execution Continual Support Competitive Analysis Tax & Regulatory Review Strategy & Design Approach Alternative location study Tax Regulatory & Risk Legal Cost Peer location analysis Legal entity structure Benefits realisation Feasibility of Rationale Cost benefits Business registration Business registration, bank account setup Review of tax CTC eligibility analysis Corporate income tax implications of setting up a CTC profits tax analysis on treasury products Withholding tax planning Transfer pricing policy design Interest rate and Fee Benchmarking Indirect tax planning Documentation support Gap analysis on regulatory and tax Strategy Growth plans Product impact Infrastructure support Approach Validate assumptions Understanding short/ medium/long term business plans Commence legal liaison on Consider technology and support framework i.e. vendor beauty parade and selection for any potential options vs tactical semiautomated options Project charter Objectives & drivers Scoping Approach Resource & timing Execution Statutory registrations Account opening Operational readiness, testing Finance/funding/ liquidity Compatibility with the treasury center in other country particularly for FX hedging and cash pooling Co-create access to funding channels (e.g. banking arrangements) Education/training Ongoing support in key areas of operations Systems Documentation Procedures Framework Compliance Assurance Confirming the above are futureproofed for anticipated/ future regulatory changes Why EY EY was consultant to a major government body, providing recommendations on enhancing s attractiveness as a global and regional treasury center. EY has a large global treasury network with industry experts specifically focused on treasury operations within MNCs. EY has extensive experience in advising clients on the design of target operating model of regional CTCs, organization of cross-border/ intra-group cash pooling and provision of relevant tax support (e.g. peer location analysis, eligibility study, transfer pricing risk assessment, group policy design, documentation and implementation support for intra-group funding transactions, guarantee arrangements and cash pooling etc.). Our experience covers clients across different sectors, including: Financial sector (investment banks, domestic retail banks, asset managers and brokerage firms) Supply chain management sector Retail and consumer products sector Power and utilities sector Chemical and electronic sector EY is a global leader in assurance, tax, transaction and advisory services with more than 700 offices across 150 countries. EY s distinct and integrated Financial Services practice has deep relationships across the banking industry globally and in Asia-Pacific (including Greater China).

5 Areas EY can assist your Treasury Function EY understands the market drivers and has a breadth and depth of professionals and teams to serve the below spectrum of needs. 8. IT 1. Operations Define system Derive system specification Procure & implement system Perform process re-engineering/stp Manage treasury function IT Operations Put in place payment infrastructure Design cash pools, netting systems Perform liquidity planning & management Agree on working capital management 7. Legal/Compliance Ascertain regulatory impact Execute organizational changes Implement governance & policies Education (tailor made seminars, workshops) Legal Control risk and volatility Risk Tax The evolving Treasury function Efficiently finance the business Controller FP&A Finance Corporate 2. Financial Planning and Analysis (FP&A) Define financing Prepare financing strategy Develop business cases/feasibility studies 6. Risk Make risk exposure assessments & plan sensitivity analysis Derive hedge & trading strategies, asset allocation Conduct valuations & market data quality assessments Design risk reporting 5. Tax Perform tax planning Support in understanding rules and regulations Design supportable transfer pricing policies Support in managing direct and indirect tax costs 4. Controller Conduct treasury reviews and benchmarking Identify relevant accounting principles Assist in classification & measurement of investments Understand hedge, and day-to-day accounting 3. Corporate Finance Review potential mergers & acquisitions (integration, treasury build-up) to enhance position Aid in debt procurement Documentation support Build out trade and asset finance considerations and next steps Recent recognition in the market Best Auditor (Funds and Tax) 2016 and Asian Investor s Asset Awards Best Audit Services HFM Asia Hedge Fund Services Awards Asia Risk Consulting Firm of the year Asia Risk Awards Best Consulting Firm BRW (Beaton Research +Consulting) Client Choice Awards Best Consultancy Firm for Operational Risk Operational Risk & Regulation Awards Best Advisory Firm HFM Week Best Auditor Tax Advice Magazine

6 Contacts James Badenach Partner, International Tax Services Leader Cherry LW Lam Partner, International Tax Services Florence Chan Partner, Business Tax Services Leader Andrew Choy Partner, International Tax Services Beijing Ernst & Young (China) Advisory Limited Rohit Narula Partner, Transaction Tax Effie Xin Partner, Greater China Financial Services Advisory Leader, Shanghai Ernst & Young (China) Advisory Limited Justin Kyte Partner, Transfer Pricing David Wu Partner, Business Tax Advisory Financial Service, Shanghai Ernst & Young (China) Advisory Limited Vanessa Chan Executive Director, International Tax Services Joel Grant Director, Advisory Financial Services Risk Ernst and Young Advisory Services Limited EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com Ernst & Young, China All Rights Reserved. APAC no ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com/china