It was a pleasure to encourage knowledge exchange on global and Latin American treasury trends with Citi clients in Miami.
Citi’s Treasury Advisory and Market Management Global Head Ron Chakravarti invited me to do a workshop with him on Managing Regulatory and Tax Change as Part of the Treasury Playbook at the bank’s 14th Annual Latin America and Finance Conference this week in Miami. We both shared insights from client engagements on what’s driving treasury priorities and tied then back to how treasury is managing regulatory and tax change to a very significant extent. As NeuGroup shares a similar MNC client base with Citi, our priorities map was in sync. And we agreed on some of the key drivers on the regulatory and tax side. More importantly, we received validation from Citi clients in our workshop, which we conducted with four different sets of clients over the course of the conference.
Here are some key points that clients validated or shared:
- Global bank regs are challenging the greater presence desire of MNCs in the region. There’s no doubt that MNCs want a greater global bank presence in Latin America. This takeaway from NeuGroup's LatAm Treasury Peer Group meeting a few weeks ago was validated again here. [A summary of that meeting is available here.] Citi has an advantage being in more markets than any other global bank and it is likely to have a window of time where this advantage is maintained before technology and bank streamlining of KYC and other compliance rules make opening and closing bank accounts less of a nightmare. Until they do, treasurers will think twice about switching banks or giving up on bank rationalization to set up additional accounts with local banks, even when they are in an effective partnership with one of their global bank partners.
- Global tax change as a driver. As a CFO for the region noted, OECD BEPS is going to be a driver for the next several years and while US tax reform is top of mind for US MNCS, treasurers can't ignore tax reforms elsewhere, including in Latin America. Areas of concern include arm’s length transfer pricing on interest and intercompany financial transactions from loans to royalties, documentation of intercompany transactions to more closely mimic external financial transactions and data gathering. If your company has not undertaken a thorough review of intercompany transaction procedures and documentation recently you should do so. Also, as with US tax reform, there is a concern about broadening efforts to mitigate interest expense deductibility and introduce or step up value added tax collection.
- VAT tax collection creativity. Latin American treasurers are ever more creative in looking for ways to work around challenging rules. One treasurer for a company with a substantial retail presence described a practice in a growing number of Central American countries to automatically withhold VAT taxes on credit card payments. As they tend to cast a wide net on potential transactions subject to VAT, this is tying up significant cash flow. He is looking for a solution and thinks some local governments might be open to securitization as a way to continue to use withholding to accelerate tax receipts but also give companies a date certain on when they will receive back over withheld amounts, which would enable securitization backed by government receivable assets.
- Digitalization positives. On the positive side of tax revenue collection, some Citi clients noted how the effort to digitalize transactions, both with payments and electronic presentment of invoices to curb tax evasion across the region, was actually making it easier to standardize payments and collections. This will increasingly aid centralizing them from a shared service center or payment/collection factory structure as legacy tax and regulations fall away. It will also empower working capital solutions leveraging e-presentment of invoices.
These and other takeaways from the Citi conference give me added confidence in treasurers' ability to create value in Latin America that will only increase as the region moves further along its current path to growth. My thanks to Ron and Citi for allowing me to exchange knowledge with their clients in Miami.