Although multilateral netting can help reduce the need for subsidiaries to make multiple payment transfers and offset foreign exchange transactions, the execution of an effective netting process can be complicated and time-consuming. During a spring NeuGroup Global Cash & Banking Group (GCBG) meeting, members discussed the challenges they encounter in this area.
One key takeaway is that automation is critical. To that end, ERP and third-party software solutions can bring much needed automation to the intercompany netting process. The group discussed various systems used to help collect and consolidate global exposures. Despite the advancements in technology, many still continue to track and consolidate information using Excel spreadsheets.
Another takeaway was that members should consider in-house banks. However, regulatory risks should be considered. For some time, in-house bank structures have been long considered a solution in consolidating intercompany flows and bringing efficiencies to the settlement of these balances. The problem is Dodd-Frank provisions have the potential to disrupt this structure based on the user exemptions and trade reporting requirements.
One other area where regulations, or in this case, tax authorities have been making their presence known is the increased scrutiny of transfer pricing. Corporates have used transfer-pricing tax strategies for years as a way to price services across a family of entities. As multinational corporations evolve into global enterprises, compliance with the differing requirements of multiple overlapping tax jurisdictions has become a complicated and expensive task, with the IRS taking particular notice of the growing volume of activity in this area.
Treasury’s responsibility is many times one of tactical processing with the creation of necessary intercompany invoices and the appropriate flow of funds that sometimes need to follow very specific routes based on guidance from tax. This sometimes adds complexity to the ability to net positions within the intercompany netting program.
The management of an intercompany netting process is sometimes seen as a time consuming process, but is necessary to comply with specific tax mandates. GCBG members continue to look for ways to automate this process without risking the important details of documentation and invoice creation.