North America Winners : Taxing Times

The key problems that companies in North America are likely to grapple with in 2017 are cross-border regulatory issues, says Ian Stewart, CEO of BNY Mellon Treasury Services. “As in 2016, corporate treasurers will be looking to banks for guidance in managing increasing regulation, particularly as these regulations’ demands vary—and must be reconciled—from region to region,” explains Stewart.

Regulations are costly in terms of both money and manpower, he notes. “As one example,” says Stewart, “the regulatory cost and complexity of dealing with regulation, particularly anti–money-laundering and know-your-customer demands, has created a $1.6 trillion trade finance gap globally.”

Both multinationals and US domestic companies with operations across state lines will be impacted by Section 385 regulations, which were released last October by the Internal Revenue Service and the Treasury Department. The regulations aim to address the issue of earnings stripping and certain tax-free repatriations of capital via intercompany debt issuance. Section 385 significantly increases the documentation requirements on companies and includes the general recast and funding rules, which would see specific types of transactions funded by domestic debt issuance—and possibly certain trade payables—recast as equity.

Other regulatory actions requiring the attention of US-based corporations include Base Erosion and Profit Shifting (BEPS)—the OECD’s transfer-pricing initiative set up by the G20. As consultants at information firm Thomson Reuters explain: “New global tax requirements [under BEPS] will result in the need for worldwide standardization of data
collection and processes, centralized control, up-to-date monitoring of global transfer-pricing legislation updates, and accurate risk assessment.”

For treasurers, this means working more closely with the tax and finance departments and company boards, to ensure compliance with these new regulations as they are rolled out in each jurisdiction. How this ultimately plays out for US companies could depend on the new Donald Trump administration, which is expected to take a business-friendly approach to tax and regulatory policy.

Then there is the issue of technology. “There’s a lot to monitor,” says Stewart, “including the role of Big Data, mobile banking, challenges—and opportunities—from
fintechs [financial technology companies], real-time payments, same-day ACH payments, application programming interface development, tokenization and Swift’s global payments initiative, to name a few,” he says.

Rapid development in the world of payments provision creates a number of decisions for transaction bankers, such as whether to invest in these technologies or work with technology partners. For corporate treasurers, one key question is how to weigh the contrasting offerings and costs of bank and nonbank providers.

The world is full of unknowns, including potential trade conflicts between the US and its trading partners.“Like financial institutions the world over,” says Stewart, “we are closely monitoring the effects of the new presidential administration in the US—and the effect of Brexit in the UK and Europe—on the global economy.”

TABLE OF CONTENTS