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Liquidity Management

U.S. Tax Reform Triggers a Deeper Look at Global Cash Management

Since the U.S. tax reforms went into effect this year, the near- and long-term implications have been the focus of much discussion. While multinational corporations are re-thinking the cost of capital, re-balancing and re-allocating debt and equity, and offshore cash repatriation, it is important to note that the reforms could also serve as a catalyst to review global cash management strategies. There may be untapped opportunities to optimize working capital across U.S. and non-U.S. companies. Strategies such as combining pooling solutions and re-distributing the return on global cash could be places to start.

There are two primary aspects to the big picture.

Fundamental to the reforms is a distinctive move towards a more global tax regime. Specifically, global earnings of U.S. companies are now included in the taxable base; both past earnings and future earnings. Coupled with additional scrutiny, and limitations, on interest expense deductions resulting from U.S. company borrowing from foreign affiliates, the intent of the reforms serves to remove many of the historic incentives for retaining earnings offshore. Rather they may motivate U.S. companies to direct those earnings onshore.



Changes for U.S. companies
(U.S. and foreign headquartered)

With the new tax law’s intent of addressing earnings stripping, the interest expense paid by a U.S. company to foreign affiliates may be subject to BEAT. As a result, there may be fewer benefits in structuring intercompany loans from foreign affiliates to the U.S.

Implications for U.S. companies
(U.S. and foreign headquartered)


Changes for U.S. companies
(U.S. and foreign headquartered)

With the adoption of the GILTI regime, the foreign earnings now included in the taxable base for U.S.-HQ companies is broad, with only limited exceptions to current taxation available. However, although the base is broader, the effective rate is lower. As a result, there may be less incentive to retain these earnings offshore.

Implications for U.S. companies
(U.S. and foreign headquartered)

To identify and leverage competitive advantages, treasurers may want to review their liquidity management strategies while considering the following:

  • Are there opportunities to optimize pooling arrangements involving U.S. and non-U.S.affiliates?
  • To what extent are notional pools treated exclusively as credit support?
  • Can interest income in the U.S. be increased by maintaining positive balances in the U.S., while retaining interest expense into CFCs?

Now could be a good time to work with your tax professional to fine-tune your treasury structure to realize tax efficiencies. J.P. Morgan has the flexible liquidity solutions to support your overall corporate goals.

Contact your J.P. Morgan Representative to learn more.

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