Taxation is highly dependent on the specifics of the companies concerned and the tax jurisdictions to which they are subject.
This article, written by Martin O'Donovan, Assistant Director - Policy & Technical, ACT was originally published at QFinance, and is reproduced with permission.
Executive summary
- Efficient cash and liquidity management will involve centralizing cash within a single entity, on a country, regional, or even global basis.
- The movement of cash between entities and between countries will create complex tax considerations, so that all loans and rates of interest applied must be at arm’s-length pricing.
- The cash centralization is normally arranged with the group’s bankers who can offer a notional pooling or a physical movement of cash.
- Interest payable on the balances arising from the cash centralization or from the overall funding structure of the group can be subject to withholding tax (WHT), which may be reduced to zero by tax treaties or may be reclaimable through a variety of mechanisms.
The Basis of taxation
Taxation is highly dependent on the specifics of the companies concerned and the tax jurisdictions to which they are subject. Nonetheless, there are sufficient structural similarities between countries so that background generalizations can be made, although the specific rules and tax rates vary over time and will need to be verified with local tax experts...
