毕马威:后疫情时代下的集中式交易中心(英文版)(24页).pdf

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1、Understanding centralized trading centers in the post-Covid environmentTable of contents1.Introduction 32.What are centralized trading centers(CTC)?4 Why CTCs and what they are addressing?4 Benefits of CTCs 6 Operating models to consider with CTCs 83.History of setting up CTCs 11 Impact of global ta

2、x policy on CTCs 11 The world post-Covid is going digital 11 CTC location considerations:What modern CTC function needs to look like 134.Client case study 14 Leading technology company 145.Establishing a CTC 16 Governance(transfer pricing policy,exchange rate policy,invoicing policy)17 Locations in

3、Europe 18 New technology innovations that can help CTCs 196.Next steps 217.Summary 2323UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENT1.IntroductionThe Covid-19 pandemic has forced many global corporates to re-think their organizational structure to improve efficiency,reduce

4、costs,mitigate supply chain risks and enhance flexibility when it comes to reacting quickly to external shocks.As part of treasury transformation efforts,centralization structures are something that many corporates are considering optimizing to help simplify both business and treasury functions and,

5、thereby,maintain competitiveness in the current market environment.Centralized trading centers(CTC)are organizational structures that unite functional activities in one central hub location,streamlining business functions,leveraging larger economies of scale and allowing companies to scale without l

6、osing control.Europe is home to many large multinational corporates and is one of the early adopters of innovative organizational structures.It has also been an attractive location to set up centralized trading centers due to its access to a large pool of talent,capital markets,stable economic infra

7、structure and regulatory environment.This paper discusses the challenges and benefits that CTCs help solve for multinational corporates,as well as the considerations companies need to take into account when setting up CTCs in Europe.4UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRO

8、NMENTWhy CTCs and what do they address?A CTC is,at times,also referred to as a“principal company”or“central entrepreneur.”It is an organization structure that combines both physical and financial value chains into one central location,bringing a reduction in the cost of goods and an improved client

9、and supplier relationship.It can handle a host of functions,such as demand management,quality control and supply chain management.A CTC helps to generate business process efficiencies,along with foreign exchange management,liquidity management,optimizing working capital and providing flexibility to

10、manage counterparty risk all from one central hub.Source:“Creating value using Centralized Trading CentersA practical guide to setting up a CTC”by J.P.Morgan and KPMG2.What are centralized trading centers?SuppliersFinished goodsRaw materialsProductionPaymentCTCDistribution centerCustomersPaymentGood

11、sPaymentSales receiptsSales receiptsGoodsGoodsB2BB2CPhysical value chainFinancial value chainMaterialSupplierBuildDistributeRetailPay supplierInvest in P&PFinance retailersCollect from customersFund inventory5UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENTLegal titlePhysical

12、flowServices flowService fees,manufacturing costs and sales profitsPrincipalPurchase materialsManufacservicesmaterialsDeliver?turing?DelivergoodsLogistics and distribution servicesSells goods and after-sales servicesProcessing servicesSell goodsAdmin.ervices?sR&DservicesManagement?servicesSupplierPa

13、rentcompanyTollmanufacturerDistribution centerR&DserviceShared service centerLimited risk distributorCustomersThe key objective of CTCs is to help businesses overcome the challenges they may face due to having a decentralized business value chain and the inefficiencies it brings.For example:Having m

14、ultiple business functions running and managing their own supply chain,as well as customer management Lack of days payable outstanding(DPO)optimization(i.e.,non-standard supplier terms)Decentralized procurement and sourcing activities by entity and location,impacting the organizations ability to low

15、er total cost of ownership High days sales outstanding(DSO)due to multiple customer billing terms Inefficient collection and decentralized invoicing process Exposure to foreign exchange(FX)risk and higher FX costs due to lack of intercompany netting Decentralized R&D function that slows down product

16、 development Inefficient days inventory outstanding(DIO)The above challenges then negatively affect companies financially by having working capital inefficiencies and high costs:CTC modelSource:“Transfer pricing insight FAR analysis and most appropriate method”by Manas RindaniTreasury(Cash,funding,r

17、isk)Finance operationsTrading/Invoicing Visibility of bank accounts,cash and debt for all subsidiaries Forecasting of FX exposure Hedging centrally on behalf of subsidiaries Decentralized(Greater autonomyto local subsidiaries)Cash/Fundinglocal entity/subsidiaries Risktreasury Local entity/Subs Local

18、 entity/Subs Cash pooling in each country Forecasting of cash flows Centralized finance operations for G/L,AP,AR reconciliation Set up of re-invoicing center to intermediate cross-bordertrade flowsHybrid(Partiallycentralized)Regional treasury center Finance company Shared service center Re-invoicing

19、 center Set up centralized treasury entity(regional TC/in-house bank)Cash pooling regionally to RTC/globally to IHB Pay and receive on behalf of subsidiaries,where regulations allow Hedge centrally with RTC/IHB,and then hedge net exposures externallyCentralized(Centralized withfull control at RTC/IH

20、B)In-house bank Central trading centerPayment factoryBenefits of CTCsTo resolve the above challenges,CTCs become a centralized hub that procures,sources,and buys and sells raw materials and finished goods,thereby benefiting from economies of scale that subsequently create business process efficiency

21、.It can procure raw materials and finished goods from internal entities or third-party suppliers,as well as sell them to internal sales entities,third-party distributors or directly to the customer.CTCs can be positioned as a future center of excellence for an organization by providing value-added c

22、ontributions to the ultimate parent company.A CTC is often an entity that takes titular ownership of the underlying goods.Subsidiaries buy and sell in their local currency,while FX risk is transferred to the CTCs.Key profit drivers are placed with the CTC in its principal capacity,while other intern

23、al/external entities perform routine functions based on cost agreed.The advances in technology and computing,maturity of treasury systems and enhanced banking infrastructure have enabled and facilitated treasury centralization.At the same time,the treasurys scope has expanded,as financial risk manag

24、ement evolved into a core competency of treasurers.In the aftermath of the global financial crisis,and accelerated by the Covid-19 pandemic,the need for real-time data analytics,bolstering internal controls and efficient liquidity management have created additional demand for treasury centralization

25、.CTCs represent a high level of centralization,when activitiesincluding procurement,trading and selling,supply chain management,liquidity and working capital,foreign exchange and paymentsare consolidated in one entity.We see considerable interest among treasurers to re-examine treasury models and ce

26、ntralization structures to improve funding and operating efficiencies in a global context.Each centralization model provides specific benefits to a company.6UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENTCTCs help centralize key activities like procurement,manufacturing,sales

27、,marketing,finance,tax,treasury IP management and more.They help to consolidate functional activities across subsidiaries to leverage economies of scale.CTCs offer a way to consolidate and demonstrate cost efficiencies in a central location,while efficiently managing operating subsidiaries commercia

28、l flows and their foreign currency transactions.More and more corporates are re-examining centralization structures to improve efficiency,contain cost,mitigate risk and optimize funding as part of treasury transformation efforts,and CTCs are well-positioned to help corporates achieve those objective

29、s.Execute payments for goods in efficient and timely manner Streamline settlements Timely reconciliation of incoming collections to outstanding invoices Multicurrency accounts Full range of trade services Automated matching technology for incoming payments H2H integration with ERP and TMSTrading set

30、tlements Supplier term standardization/extension Proactively manage working capital positions Use surplus cash in CTC to self-fund short positions Real-time balance update Trade loans,receivable financing,payable financing Reports to track intercompany loan positionsWorking capital management Net FX

31、 exposures and reduce overall transaction cost Access to different currencies to cover short-term working capital positions Invest surplus cash in different currencies FX servicesDesk-based services for hedging,auto FX for low-value payments Investment options across all key currenciesFX management

32、Cash concentration Optimize trapped cash Visibility of exposure across entities Cash concentration and multicurrency pooling structures to support self-fundingLiquidity managementObjectives of CTCBenefitsCompanies may needDrives operational efficiency through the execution and handling of specific t

33、asks Provides treasury process efficiency through regional centralization Streamlines to a single,legal entity that holds the corporations balances and manages its market-facing exposuresImproves business process efficiencyShared service centerIn-house bankRegional treasury centerCentralized trading

34、 center(CTC or principal company)Centralization models7UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENT8UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENTOperating models to consider with CTCsThere are many options available for CTCs depending on the natur

35、e of the company,geographical spread,industry,etc.Below,we will explore various existing operating models and what role CTCs play in them.Multinational corporations(MNCs)consist of several individual group entities.It also is practical for them to have separate entities for their production and sale

36、s activities.The location of a companys production facilities is dependent on their access to raw materials,staffing and logistics;while sales offices need to be established in the groups target markets.Manufacturing entities in many MNCs“sell”their output to the sales offices.Due to economies of sc

37、ale,sales offices may import goods from different countries.Thus,a sales office may import from within the group,denominated in several different currencies.It also may have to pay for these goods in currencies other than its operating currency,which can make managing FX risk complex.A CTC also acts

38、 as a form of internal clearing house for all intercompany transactions.Manufacturing entities sell their output to the CTC,which then sells it to the sales offices.The CTC takes legal title to the goods,although physically they are transferred straight from the production site to the sales offices

39、depot.Corporates may often decide to centralize intangibles,risk and various business processes/functions with profit potential and incorporate them into a principal company/CTC.To complement centralized trading treasury functions,a broad suite of models should be evaluated and implemented across th

40、e physical value chain.Manufacturing models for CTCsDoes not take any titular ownership in the physical and financial flow of goods;converts raw materials supplied by CTC into finished goods;does not take title to either the raw materials or finished goods;and does not bear any significant risks.CTC

41、s bear all risks.Produces goods for CTC under a guaranteed sales arrangement and invoices CTC directly;sources its own raw materials;and bears limited risk with guaranteed sales agreement from CTC.Bears all risk and ownership prior to sales to CTC and shipment to distributor.An FFM purchases its own

42、 raw materials.Consignment or toll manufacturerContract manufacturerFull-fledged manufacturer(FFM)There are three overall CTC operating models:Sales company models for CTCsThe seller typically acts as a low-risk sales representative,commissionaire,limited-risk distributor,etc.,that implements the ma

43、rketing and selling plans developed centrally by the CTC.They also perform specific functions in selling the products in the respective areas/countries,thereby receiving either a cost plus commission or a low margin on sales.Due to the consolidation of the functions and better supply chain optimizat

44、ion under a CTC,the corporate is able to generate process efficiencies and economies of scale,and as a result,the total profits of the entity increase.Converts raw materials supplied by CTC(or supplier)into finished goods,in the name of CTC Manufactures finished goods for CTC under a guaranteed sale

45、 arrangementActs in its own name and for its own account with full risk in manufacturing finished goodsSummarySupplier to CTC Contract manufacturer to CTC FFM to CTCSupplierContract manufacturerFFMInvoice to CTCVery limitedType of risks:Working capitalLowType of risks:Working capital Capital HighTyp

46、e of risks:Working capital Capital Inventory Credit FX,price Warranty,intangiblesAssets+risk Lowest margin(between sales and purchase)Margin(between sales and purchase)Highest margin(between sales and purchase)RewardLegal title to goodsVAT refund would not be applicableVAT refunded,if deemed an expo

47、rt(VAT refund amount would be lower than FFM)VAT refunded,if deemed an exportVAT refundSource:“Tax-efficient Supply Chain Management(TESCM)&Transfer Pricing,”Ernst&YoungConsignment or toll manufacturerContract manufacturerFull-fledged manufacturer(FFM)There are four models:Full-fledged distributorLi

48、mited-risk distributorCommissionaire modelSales rep officeBears all risk and ownership of goods before sales to customers Buys the goods from the CTC as a“reseller”and sells directly to customers,but bearing limited risk through“flash ownership”Similar to limited-risk distributor model,however accou

49、nting rules and various tax implications differEssentially an agent or a“branch”of the principal and distributes goods on behalf of the CTC9UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENT10UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENTSummaryLegal tit

50、le to goodsInvoice to CTCAssets+risk RewardVAT refundSource:“Tax-efficient Supply Chain Management(TESCM)&Transfer Pricing,”Ernst&Young,;Tax Management Consultancy,“Limited Risk Distributor,”2014Below is high-level comparison of the four distinct models.The location of the CTC and other tax and stru

51、ctural implications will determine the optimal model for a company.Acts in its own name and for its own account with full risk(and profit than LRD)CTC to FFDFFDHighType of risks:Credit Capital Inventory Working capital FX,price Highest margin(between sales and purchase)Buy-sell transaction from CTC

52、to FFDFull-fledged distributorActs in its own name and for its own accountCTD to LRD(flash title),LRD to customerLRDLowType of risks:Credit Capital Working capital Margin(between sales and purchase)Buy-sell transaction from CTC to LRD to customerLimited-risk distributorContracts in its own name for

53、account of CTCCTC to customerCommissionaireVery limitedType of risks:Credit(limited)Commission(%of sales)Deemed to be a buy-sell from CTC to commissionaire to customerCommissionaire modelContracts in name and for account of CTCCTC to customerCTCVery limitedType of risks:Limited Total compensationSal

54、es by CTC to customer,with rep office services Sales rep office11UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENT3.History of setting up CTCsImpact of global tax policy on CTCsHistorically,tax efficiency has been a key consideration when determining where to establish a treasu

55、ry center,and tax remains an important factor in formulating an MNCs strategy in this regard.Indeed,tax and transfer pricing are key outcomes to manage when setting up an effective CTC.However,the tax landscape is rapidly evolving,and current global tax reform will impact the tax profile of a corpor

56、ate group.In particular,the Organization for Economic Co-operation and Developments(OECD)latest Base Erosion and Profit Shifting initiative(BEPS 2.0)will ultimately lead to tax reform aimed at counteracting tax benefits of structures or arrangements involving profits booked in low-or no-tax jurisdic

57、tions,making commercial rationale and business process efficiencies key to decision makers.In short,BEPS 2.0 will likely see a globally consistent and coordinated approach to how much tax MNCs pay and where they pay it.This will include,in accordance with“Pillar II”of BEPS 2.0,a mechanism that requi

58、res corporate groups to pay a minimum of 15%tax in the jurisdictions in which they operate.Accordingly,any tax benefit that may have emerged from booking profits in a jurisdiction that imposes tax in a lower rate is anticipated to be counteracted in the future.The world post-Covid is going digitalTh

59、e Covid-19 pandemic has had a significant impact on the structure,roles and priorities within treasury organizations.Two major themes are discernible:On one hand,treasurers push for automating time-consuming and labor-intensive activities;on the other hand,they are keen to explore new areas that pro

60、vide additional value to their organizations.Digital transformationThe need to automate treasury processes is driving digital transformation in many companies.Surveys indicate that treasurers are keen on automating administrative and compliance work,cash management and FX functions.Businesses are,th

61、erefore,prompted to implement a host of technological solutions:RegTech for alleviating the compliance burden and digital payments;and TreasuryTech,which helps automate and efficiently manage a number of activities.A rising focus is on 12UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID EN

62、VIRONMENTdata management,particularly capturing all the data in one place in order to enhance transparency and allow businesses to make more informed decisions.Due to the CTCs nature as“centers of excellence,”digital transformation projects facilitated by them are not limited to the treasury functio

63、n.They also extend to other areas,such as supply chain management,quality control or compliance,all of which are of central importance in the post-Covid world.Modern treasury function/digital transformationNew agendasDue to the disruptions precipitated by the Covid-19 pandemic,treasurers are increas

64、ingly focused on the resilience of their supply chains,from both the operational and financial perspectives.Other areas of interest are the opportunities that have come with the fast rise of environmental,social and governance(ESG)interests and green financing.As real-time data has become crucial in

65、 navigating the evolving environment,treasurers have embarked on digitization programs that leverage large amounts of data in decision making.CTCs are well-positioned to spearhead the rollout of ESG and digitization initiatives,as they leverage the benefits of co-location with other business functio

66、ns.The highly skilled staff they typically employ provides strategic,organizational and technical guidance to teams across various functions and assists in enhancing their digital and ESG capabilities.In terms of ESG,CTCs can supervise procurement practices in order to identify and terminate unethic

67、al suppliers,to ensure compliance with sanctions,local laws and regulations,as well as to measure the environmental impact of a firms activities.CTCs may also drive diverse ESG-enhancing programs,such as reducing the amount of packaging,lowering the use of energy and increasing employees safety stan

68、dards.Remote workAs indicated above,one of the lasting effects of the Covid-19 pandemic has been the shift towards remote and virtual working.Physical location is becoming increasingly irrelevant,as most functions can be performed remotely.The degree to which a treasury can accommodate remote and vi

69、rtual working is defined by two criteria:The level of centralization and standardization of processes,and the level of technology adoption and automation.However,treasurers should weigh the pros and cons of remote work.There are certainly a number of tangible and intangible benefits in embracing it,

70、including cost reduction(in both overhead,as well as labor costs),access to a larger talent pool and the push towards technology utilization.As top-level human capital is one of the key advantages of CTCs,the enhanced ability to access and retain employees with expert skills through remote work deli

71、vers synergies across the whole business.Remote working allows for the CTC staff to sit in various locations,thus enabling the set up of virtual CTCs,which combine the benefits of a CTC jurisdiction with reduced labor costs.On the other hand,remote work entails higher cybersecurity risks(including f

72、raud),complexities arising from managing employees in multiple jurisdictions and the employees lack of corporate identification(feeling“peripheral”).The legal,regulatory and tax implications of an agile workforce also need to be considered for both employer and employee.There are a myriad of potenti

73、al consequences of an employee working in a jurisdiction other than the location in which their employer was established,and there can be significant additional tax and other costs associated with this.Finance and payments Multi-funder models Digital payments and collections End-to-end workflow auto

74、mation In-house bankData and systems Data analytics Centralized master data management API Internal systems integrationCompliance Sanctions screening Cybersecurity and IT governance Digital signatures Mobile access and remote approval13UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVI

75、RONMENTCTC location considerations:What modern CTC function needs to look likeTo realize the anticipated benefits from developing a CTC structure,an appropriate and tax-efficient location,as well as the related tax-aligned operating model for the CTC,would need to be determined.This process requires

76、 consideration for various tax and transfer-pricing issues,including potentially the availability of any tax incentives/specific regimes,profit repatriation strategies,transfer pricing,trade and customs planning and managing cross-border matters for multinational corporations with such permanent est

77、ablishment(PE)risk,controlled foreign company(CFC)rules,and indirect tax issues.As mentioned earlier,this all needs to be evaluated in the context of evolving global tax law and practice.Co-locating a CTC with other functions,primarily with the trading principal headquarters or the corporate headqua

78、rters,is another important factor,as it delivers two benefits for the company.Firstly,it leads to cost reduction,as the CTC uses an already existing business infrastructure.The second benefit of a treasury sitting next to business operations is an increase in controls,monitoring and oversight,as wel

79、l as communication.In fact,it is uncommon for companies to separate CTCs from their headquarters,as there would have to be a strong and compelling business case for opening a CTC in a new location.Additionally,CTCs can provide strategic guidance to other teams,especially by helping them navigate thr

80、ough geopolitical events,sharing best practices in managing a firms finances,as well as increasing focus on emerging markets.A modern treasury function employs highly skilled staff.Therefore,an access to a pool of highly qualified workforce is essential.CTCs are commonly found in established global

81、financial centers with a high number of finance professionals.Considerations for a CTC locationGovernment incentivesBusiness environmentAccess to capital marketsTax attractivenessBanking factorsMarket uncertaintyTelecommunicationCost of livingHuman capitalGeographic proximityInternational accessTran

82、sportation networkOperational considerationsFinancial considerations14UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENT4.Client case studyLeading technology companySituation The goal was to set an innovative structure that would help manage both treasury and commercial flows th

83、rough the combination of a global treasury structure with a re-invoicing structure Adopt a treasury model that would help the client unlock value from cash trapped in emerging markets with restrictive capital controls Achieve goals of financial globalization by establishing a CTC structure,as well a

84、s a re-invoicing center in a single hub at Singapore Enable transformation and supply chain optimization Simplify cash flow management to solve for trapped cashed due to operations in restricted capital control economies15UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENTIntegra

85、tion of acquirers business and targets global business without the existence of any global treasury system/CTC offered unique challenges:Complex model of cross-border intercompany agreements when manufacturing unit sold directly to any subsidiaryCash trapped in emerging markets like India,Brazil and

86、 South Africa with restrictive capital controls due to a decentralized structure Minimize duration of trapped liquidity in emerging markets(which could be as long as one year)Solve problems related to intra-month mismatches of liquidity positions across different currenciesFX risk compounded due to

87、expenses of resulting entity concentrated in USD,while revenue received across international currenciesEstablished a CTC with an innovative structure a combination global treasury center and re-invoicing centerThe results:Management of both treasury and commercial flowsCash pooling achieved through

88、remittance of funds into one location to eliminate cross-border company loans/agreementsAutomated concentration of balances into one region without loss of value-dateOne-stop shop for transacting in short-term investmentsChallengeCTC solution16UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-CO

89、VID ENVIRONMENT5.Establishing a CTCThe following considerations should be made when evaluating the establishment of a CTC in Europe:A firms strategy for Europe Business requirements and priorities Location considerations Regulatory awareness Tech/digital readiness Governance and supervision Access t

90、o talent Partners(clients,banks)The trend towards centralizing of treasury functions in regional centers has been gaining traction in Europe since the turn of the millennium.During that period,four European cities have emerged as the top locations for establishing CTCs:London,Zrich,Amsterdam and Lux

91、embourg.All four offer superb financial,technological and legal infrastructure that facilitates treasury operations.Nevertheless,there are differences between individual locations,and an MNC must carefully consider the specifics of each financial center.From a macroeconomic view,Amsterdam and Luxemb

92、ourg are located in both the European Union(EU),as well as the eurozone.After the United Kingdom left the EU in 2020,Londons interconnectedness with other EU countries has decreased.While Zrich traditionally sits outside of both the EU and the eurozone,its membership in the European single market fa

93、cilitates deep embeddedness in the European financial and trade infrastructure.The four cities also differ in three governance-related policies that significantly impact the operations of any CTC,namely transfer pricing,exchange rate and invoicing policy.GovernanceTransfer pricing policyA CTC struct

94、ure is subject to a whole set of regional tax issues,covering the CTC jurisdiction,as well as all the other jurisdictions where the transactional counterparties of the CTC are located.The key issue from a transfer pricing perspective is that both the business model/transaction structure and the actu

95、al intercompany pricing policies should be determined on an arms-length basis.17UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENTAn appropriate intercompany transactional structure and the corresponding pricing policies and arrangements should be established to ensure that the

96、actual functionality of the CTC and its counterparties are properly reflected in the intercompany pricing policies.It is important that the CTC has economic substance,and the actual practices are in line with the planned CTC structure(e.g.,presence of people/management that are in charge of the cent

97、ralized functions in the CTC,capital and control of risks).Also,if the CTC operates as a trading hub,customs duty considerations often enter into the mix and,particularly when interacting with transfer pricing policies and adjustments,can increase the complexity of the structure.Equally,indirect tax

98、es(VAT,GST)may apply to CTC transactions in various countries.As such,the CTC structure should be supported by a robust intercompany transfer pricing policy,legal agreements and appropriate economic analyses should be conducted to determine the arms-length arrangements among the group of companies.T

99、ransfer pricing can be a complicated area,but with appropriate planning and analysis,both tax efficiency and the increasing compliance and documentation obligations can be managed.Without a robust transfer pricing policy,rigorous implementation and supporting documentation,the purported benefits fro

100、m setting up a CTC may not be sustained.Another consideration to be made would be for treasury-related functions to be involved,since the establishment of a CTC would often involve centralized intercompany settlements.To appropriately compensate the centralized treasury functions,for example,isolate

101、d investment activities or individual funding arrangements may need to be separately considered and benchmarked.In the case of short-term working capital funding,financing M&A,structural finance or bespoke transactions such as structured subordinated debt arrangements can differ from day-to-day fund

102、ing items.In particular,intercompany financing transactions are one of the areas many tax authorities in the region are currently focusing on.To come up with a sound mechanism to determine the groups inter-or intracompany transaction rates,specific market data would need to be analyzed to demonstrat

103、e that the company is depositing or borrowing at the rate that it is able to secure on a standalone basis.Applying a broad-based group borrowing or lending rate may not necessarily be a good reflection of the individual entity required rates in many situations.More general tax considerations will in

104、clude the domestic tax system of the jurisdiction in which the CTC is established,with any potential beneficial tax outcomes for the CTC needing to be considered in the context of the MNCs broader operations in the current tax environment.In addition,the possible application of withholding and indir

105、ect taxes in one or more jurisdictions,including VATs/GSTs and sales taxes,as well as customs and excise duties,needs to be considered before a holding and operating model is finalized.Exchange rate policyA FX risk is another consideration for the set up of CTCs.In determining the right location for

106、 a CTC,the macroeconomic environment that impacts FX rates should be evaluated,in particular,factors such as regulatory changes,political uncertainty stemming from events such as Brexit,inflation and changes in interest rate policy.The exchangeability of a currency is a factor that needs to be incor

107、porated into any exchange rate policy.However,this is less of a concern in Europe than in other parts of the world.Exchange rate policies must also consider transaction and translation risks.Transaction risks are generated by the changes in exchange rates occurring between when a transaction is sign

108、ed and when it is executed.Translation risk stems from currency fluctuations between when funds in foreign currency are received and when they are reported on financial statements.Invoicing policyIn deciding a location for a CTC,regulatory frameworks defining invoicing policies must be closely exami

109、ned,as there has been considerable change in recent years.Many European countries still employ a traditional post-audit policy,in which firms first exchange invoices and only then are accountable to the administration.However,with the advent of e-invoicing,a number of countries are moving towards th

110、e clearance model,which mandates firms to first send invoices to a government agency for pre-approval.There are considerable differences between individual European countries.Italy was the first to implement the clearance model,with France and Poland moving in that direction,as well.On the other han

111、d,countries such as the Netherlands and Germany have adopted a more laxed approach and do not go beyond mandating the use of e-invoicing.18UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENTLocations in EuropeLondon,Amsterdam,Luxembourg and Zrich have emerged as top locations for

112、 CTCs in Europe.They differ significantly in their financial infrastructure,cost of labor,regulatory environment and a number of other aspects.The most appropriate location would depend on a firms own preferences,such as size of a CTC,need for access to capital markets,or costs.For instance,larger C

113、TCs are typically set up in London due to access to financial markets,while smaller ones opt for Amsterdam for cost reasons.An emphasis on tax considerations would favor a CTC in Luxembourg or Zrich.As many CTCs are co-located with their principal business or trading centers,Zrich would be a top CTC

114、 location choice for many firms seeking to leverage the synergies of co-location.Firms concerned with access to a large talent pool would favor London.In terms of connectivity,London and Amsterdam host airline hubs with direct flights to a large number of destinations.While all localities have advan

115、ced infrastructure,Zrich stands out slightly in terms of road,rail and IT networks.In terms of reputation,London is ranked second on the global financial centers index and clearly stands out in this metric.Our rating in the below table provides a high-level comparison between the four localities,in

116、which“high”stands for the best.Note that the notions of“high,”“medium”and“low”are used solely in a comparison between the four locations,and it is not a general statement about an individual city.As each company places a different emphasis on individual factors when choosing a location for their CTC

117、,proper evaluation of the best CTC location would,at minimum,need to add weighting to individual factors,in order to reflect the firms needs and requirements.LondonAmsterdamZrichLuxembourg19UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENTLondonAmsterdamZrichLuxembourgCost of l

118、aborIncome tax rateOther tax considerationsAccess to talentCo-location with business opsConnectivityHousing and quality of lifeAccess to capital marketsReputation as a CTCLess attractiveMedium attractiveMore attractiveInfrastructure20UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRO

119、NMENTNew technology innovations that can help CTCsA discussion of the digital aspects impacting CTCs would be incomplete without mentioning blockchain and related technologies that will likely play an increasing role in the future.CTCs will likely adopt blockchain-based solutions in the payments dom

120、ain,as these are faster,more reliable and safer.Blockchain-based applications provide added value for CTCs in a number of treasury,procurement and trading functions,such as:The adoption of blockchain technology requires a technical readiness of both a corporates internal IT infrastructure,as well as

121、 that of a wider financial infrastructure.It also requires acceptance of business partners and coordinated rollout across subsidiaries.Apart from technology and cost considerations,a deployment of blockchain-based solutions requires a revision of regulatory and tax implications and the ensuing devel

122、opment of internal governance frameworks,especially regarding the use of cryptocurrencies.CTCs can act as internal drivers in the adoption of blockchain technologies by companies,as they roll out digitization projects and provide experienced guidance in the governance,tax and regulatory matters.Whil

123、e the adoption and implementation of blockchain-based technological solutions may require significant effort and investment,they can return considerable benefits.Increases in speed,efficiency,operational efficiency,transparency and automation can yield large cost reductions.The transparent trail of

124、records on blockchain facilitates audit in supply chains.CTCs have a higher visibility into the movement of goods,which allows them to identify fraudulent behavior,breach of sanctions or the use of suppliers engaging in unethical operations.Immutable records of laws,events and rightsWhen executing t

125、ransactions on blockchain,CTCs can accelerate payments to suppliers and collections from customers,while at the same time achieving cost reduction by removing intermediaries from payment processing.Financial transactions without intermediariesAs part of working capital management,CTCs can use blockc

126、hain-based trade finance solutions in supply chain management.Enhanced tracking,transparency,real-time view,automatic settlement and disintermediation increase operational efficiency and decrease costs.Cross-border trade finance solutionsFirms that use cryptocurrencies and tokens in their transactio

127、ns with customers benefit from the CTCs expertise in the areas of securitization,custody and brokerage of digital assets.Securitization,custodian and brokerage services21UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENT6.Next StepsThe impact of the Covid-19 pandemic has acceler

128、ated the uptake of digital tools and solutions by treasury organizations.When setting up a new CTC or upscaling an existing one,corporates should apply a holistic approach,as multiple components of a treasurys operations are being transformed.The following table compiles the main impact areas,organi

129、zed into the following categories:People,process,technology,metrics,governance and service delivery.Remote work The post-pandemic shift towards remote and virtual work provides access to a larger talent pool,which is likely to increase the expertise and competence of CTC staff to the benefit of all

130、functions.At the same time,risks in the areas of cybersecurity and human resources management need to be addressed.Cultural change management The extension of treasury functions leads to changes in the organizational structure of a company.Work activities are conducted within larger and more complex

131、 operational designs.Organizational politics Movement in internal roles and responsibilities will lead to internal power shifts.PeopleChange management Deployment of new technologies and related alterations in process need to be budgeted,planned and rolled out in a consistent manner.A CTC supports c

132、hange management in providing skillful advice on the implications in compliance,regulation and tax areas,which need to be addressed within a project delivery.Digitalization,automation and standardization Understand the need to streamline treasury processes,as well as select and implement tools that

133、facilitate automation and digitalization.Tax considerations Changes in processes and tools employed often have tax implications that need to be carefully considered.Process22UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENTDigital strategy Plan for maximizing the business benef

134、its of data assets and technology-focused initiatives.Operational efficiency Reduce the amount of time dedicated to non-value-added activities.Service deliveryAnalytics Standardize and harmonize data in order to gain new insights and support operational and strategic decision making.Prioritization o

135、f KPIs Enhance decision-making efficiency by creating a hierarchy of KPIs in order to better use available data.Management reporting Use management reports and business intelligence tools in order to achieve real-time visibility and enhance decision making.MetricsTechnology as an enabler Leverage a

136、host of technological solutions that reduce manual and repetitive tasks and drive efficiency.Treasury management systems,APIs or cloud-based solutions are seeing wide adoption across treasury centers.Data management Capture data generated across your organization and centralize master data managemen

137、t.Digital payments Accelerate and centralize payment processing,reduce cost and enhance cash management efficiency.TechnologyRegTech and LegalTech Leverage technology to address the legal and regulatory requirements your company must comply with.Oversight and governance frameworks Establish control

138、of the operations,and implement policies and security measures to ensure compliance with the jurisdiction guardrails.Governance23UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENT7.SummaryThere are number of benefits for MNCs in setting up CTCs across the financial and physical

139、value chain.In the post-Covid era,this requires careful planning,deep knowledge of regulatory,tax and related areas,readiness to embrace digital transformation,leveraging economies of scale,and driving operational efficiency.The dynamic developments in the post-Covid global economy place demands on

140、companies to make smart strategic decisions,stay on top of the latest regulatory and tax developments,and continuously streamline operational activities.MNCs opt to establish a CTC for their European operations in order to manage their value chains,enhance oversight,leverage operational synergies,an

141、d increase specialist knowledge and capabilities.24UNDERSTANDING CENTRALIZED TRADING CENTERS IN THE POST-COVID ENVIRONMENTVISIT US AT JPMORGAN.COMCONNECT WITH KPMGThis guide is produced jointly by KPMG Advisory(Hong Kong)Limited(“KPMG”)and J.P.Morgan.Tax related content in sections 3 and 5 is produc

142、ed by KPMG,who is solely responsible for the contents and editorial oversight of such tax related information at the time when the content is compiled.Neither KPMG nor J.P.Morgan makes any representation or warranty,whether express or implied,in relation to the completeness,accuracy or reliability o

143、f such content nor as to the legal,regulatory,financial or tax implications of the matters referred to herein.This guide is of a general nature only,is accurate as of the time of compiling the content,is subject to change without notice and is not intended to provide,and should not be relied on for,

144、accounting,legal or tax advice or investment recommendations.This guide is provided solely for general informational purposes,is not intended to be legally binding,does not attempt to be comprehensive and is not prepared to address any specific situations or needs of a recipient.Please consult your

145、own independent tax,legal,accounting or investment advisor with respect to the risks and consequences of any matter contained herein.This guide has NOT been prepared by J.P.Morgans Research Department and therefore,has not been prepared in accordance with legal requirements to promote the independen

146、ce of research.It is not a research report and is not intended as such.IRS Circular 230 Disclosure:JP Morgan Chase&Co.,its subsidiaries and affiliates,do not provide accounting,legal or tax advice.Accordingly,any discussion of U.S.or any other applicable jurisdictions with respect to tax matters inc

147、luded herein(including any attachments)is not intended or written to be used,and cannot be used,in connection with the promotion,marketing or recommendation by anyone not affiliated with JPMorgan Chase&Co.of any of the matters addressed herein or for the purpose of avoiding U.S.tax-related penalties

148、.J.P.Morgan and KPMG expressly disclaim any and all liability to any person or entity,whether a purchaser of the guide or not,in respect of anything and of the consequences of anything done or omitted to be done by any such person or entity in reliance upon the content of the guide.This guide may no

149、t be reproduced,redistributed or disseminated,in whole or in part,without the prior written consent of both J.P.Morgan and KPMG.Any unauthorized use is strictly prohibited.J.P.Morgan is the marketing name for the Wholesale Payments business of JPMorgan Chase Bank,N.A.and its subsidiaries and affilia

150、tes worldwide.JPMorgan Chase Bank,N.A.Member FDIC.Deposits with JPMorgan Chase Bank,N.A.,Toronto Branch,are not insured by the Canada Deposit Insurance Corporation.JPMorgan Chase Bank,N.A.,organized under the laws of U.S.A.with limited liability.2022 JPMorgan Chase&Co.All Rights Reserved.2022 KPMG A

151、dvisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.Printed in Hong Kong(SAR).The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.Date of last compilation for tax related information:September 2022Date of last compilation for non-tax related information:September 2022

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