Tax, Transformation, Threats — and China — at Tech20 Mid-Year Meeting
Tech20 members gathered recently in Sunnyvale, California, for a mid-year meeting sponsored by HSBC. Here’s just a sampling of some of the standout topics and key takeaways from the event.
Once repatriated money is home, you have two quarters. First on everyone’s mind vis-a-vis tax reform are cash repatriation questions: where is the offshore cash; how much can we bring home; how soon can we bring it back; what do we do with it; and how much time do we have to deploy it? There are many considerations. For example, is any part of previously taxed income considered for tax credits? And absent clear signals about what other jurisdictions will do in response to US tax reform, you don’t want to move too quickly in case something changes, for example in the EU. “Smart is better than speedy,” as one member noted. But the truth is that low effective-tax rate companies have a target on their backs. Firms keeping IP onshore now have an advantage; those with IP structures offshore may have to justify it if the additional cost of moving it onshore is not significant enough. Whether or not you have announced what you’re doing with your repatriated cash, once you bring it back, “investors will give us two quarters” to deploy it, a member who is head of treasury and tax asserted.
“What? Cash forecasting? Me?” After the “lazy” offshore cash is home, formerly cash-rich subsidiaries are in for an attitude adjustment. Under the old US tax regime and trapped cash, there was no need for forecasting except when money needed to be mobilized to, say, pay for an acquisition. From now on, an entirely new mindset needs to sink in: how much cash do foreign subs need to operate (and how do you determine that?), and how can accurate cash forecasting processes be taught and implemented? Precise cash and exposure forecasting just went from Holy Grail to Holy Imperative.
Good communications with regulators = opportunities, but don’t be selfish. One Chinese member updated the group with a few pointers on PBOC and SAFE decision making and communication. He brought to light some cultural differences in how Western and Chinese companies view rules and guidance. The former often ask for written confirmations and, in effect, treat the absence of one as a no, while Chinese companies view verbal guidance as an opportunity to proceed. But, don’t focus only on what you need from regulators. Find out how they are measured (what their KPIs are) and try to contribute to those (e.g., bringing investment into the province), and you’re more likely to face a smoother process for your own requests. And if you have entities that straddle multiple jurisdictions, it’s ok to go “branch shopping.”
Cyberthreats call for collaboration and a “culture of security.” Becky Pearson, cyber insurance broker at Willis Towers Watson and John Schaefer, director of risk management at Lam Research, talked about what John called a “culture of security, and what insurance companies and tech firms are doing together to mitigate cyberthreats and transfer the residual risk via insurance. John said, “A breach is much cheaper if handled well,” and that the recovery will be faster. First, engage the organization beyond just information security to create resiliency, including the board, legal, HR, etc., and educate employees to be part of the solution. Negligent or malicious employees are your greatest risk. If security processes make jobs much harder, people will circumvent them and you still won’t be secure.
Following are NeuGroup Founder Joseph Neu's key takeaways from the meeting:
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