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Treasury Structures

There are various models for structuring treasury to manage international flows. The trend is toward greater centralization on a regional basis to realize economies of scale and reduce duplication of systems, people, and functions.

Tax-advantaged Centers
A number of countries offer tax incentives and other benefits to attract multinational businesses to manage their treasury and other shared functions through a local subsidiary. Attracting international business into the country provides revenue and employment. Some of the major vehicles include the International Financial Services Company (IFSC) in Ireland, the Belgian Coordination Center (BCC), Swiss and Luxembourg Holding Companies, and Singapore’s Operational Headquarters (OHQ).

Reinvoicing Centers
Reinvoicing centers are used by the larger multinational companies to centralize all intracompany buying and selling. Subsidiaries no longer deal directly with each other, but place their orders through the reinvoicing center. Although title passes to the center, the goods continue to be shipped directly to the purchasing subsidiary. The center gives the company more control over international flows, while providing both quantitative and qualitative benefits, including centralization of foreign exchange exposure and improved worldwide liquidity management. However, along with pooling and netting, reinvoicing centers are often highly regulated and frequently under scrutiny by local tax authorities for demonstrable arm’s-length pricing.

In the Real World: Pressure on Tax-advantaged Centers

It should be noted that centers within the Economic and Monetary Union (EMU) are under considerable pressure to phase out the benefits of these vehicles in favor of greater standardization and harmonization of tax regimes within the union. In the future, companies seeking the benefits of a tax-advantaged vehicle from which to manage their treasury may be forced to consider locations outside the EMU.

Taken From : Essentials of Managing Corporate Cash

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