EuroFinance

Navigating the complex world of international treasury management requires a blend of foresight, strategy, and adaptability. A crucial element in this mix is cash repatriation – the process of returning foreign-earned capital or financial assets back to a company’s home country. 

This process, while integral to multinational corporations’ financial strategies, is often fraught with challenges, as was evident in a recent panel discussion at EuroFinance’s 9th annual Global Treasury Americas West Coast, featuring Regina Ochev, Senior Vice President of treasury at Prologis, and Bruce Edlund, Group director and assistant treasurer at Cloud Software Group. 

Navigating the complexities of cash repatriation

Ochev’s firm, Prologis, a global leader in industrial real estate, faces unique challenges in repatriating cash from diverse international markets. With operations spanning across several countries, each with its unique tax regulations and financial norms, the treasury team must navigate a myriad of regulatory frameworks and tax implications to effectively manage their cash repatriation. Ochev underscored this point, noting, “We’re trying to get capital out of countries where it’s very difficult to get it out, like Brazil, Argentina, and Mexico.”

In particular, Brazil posed an interesting challenge. Ochev explained that intercompany lending in Brazil is very tough and punitive, requiring the establishment of efficient vehicles for operations. To counter this, Prologis uses a structure called FII, which enables the repatriation of funds in a certain way, offering an efficient capital gains structure. It’s a practical solution reflective of Ochev’s pragmatic approach, navigating around a complex issue. She further emphasises, “Brazil is doable” even though it has a reputation for complexity with its myriad of taxes.

On the other hand, the Cloud Software Group, operating a portfolio of six privately held software businesses including computing and virtualization technology company Citrix, has had to navigate the intricate maze of cash repatriation. Prior to being taken private, the treasury team was under constant pressure to utilise its cash reserves efficiently, a sentiment familiar to any public company. An activist investor maintained this pressure for half a decade, suggesting various strategies for capital efficiency.

A significant shift in the company’s approach to cash repatriation occurred post-December 2017 with the implementation of tax reforms that made repatriations more tax-efficient. This reform sparked an expectation to make active use of offshore cash instead of allowing it to remain dormant. The company, which previously had approximately $2.5 billion sitting offshore, began to repatriate its cash reserves more regularly post-reform.

The treasury team operates a cash pooling structure, where participating countries send their surplus cash into the pool. Acting as a financial expert, the company then invests the pooled cash, offers a return, charges a fee, and ensures the cash is available in the US. In addition, the treasury team carries out straightforward repatriations, such as transferring retained earnings from holding companies back to the US, sometimes via loans until dividends can be declared.

Underpinning all these operations is a close working relationship between the tax and treasury departments, embodied by the Head of Tax and Treasury, who initially joined Citrix solely as a tax expert. The merging of tax and treasury functions underlines the interconnectedness of these two domains and their joint influence on the company’s repatriation strategies.

Implementing innovative solutions

Both the Cloud Software Group and Prologis have developed strategic approaches to navigate the complexities of cash repatriation and other treasury-related challenges they face.

At the Cloud Software Group, as Edlund explained, the treasury team leverages a web of entities to facilitate the movement of funds across borders. This complex entity structure allows the treasury team to tackle regulations and tax constraints in different jurisdictions. To mitigate tax implications, they utilise certain provisions in U.S. tax law that allows entities to choose how they’re classified for tax purposes and also employ intercompany lending, where funds are loaned between different entities within the organisation, to temporarily move cash where it’s needed.

Prologis, on the other hand, takes a more country-specific approach. As Ochev emphasises, understanding the regulatory and tax environment in each jurisdiction is crucial. In Brazil, for instance, they utilise a real estate specific vehicle, akin to a mini-REIT in the U.S., that allows for more efficient repatriation. Similarly, in China, where repatriation can be especially challenging, the treasury team capitalises on their status as a preferred industry to receive more favourable tax treatment.

Leveraging technology

Furthermore, both companies have made significant investments in technology to support their treasury operations. Cloud Software Group employs Oracle Cloud for their treasury management, which Edlund says has brought significant improvements to their processes and reporting capabilities. Similarly, Prologis has invested heavily in systems and processes to manage their vast portfolio and daily cash reconciliations across their more than 4,000 bank accounts worldwide.

Furthermore, the integration of efficient systems and processes, like the usage of PeopleSoft by Prologis for cash management and the effective collaboration with tax experts at Cloud Software Group, are fundamental to the successful management of international treasury operations. These systems and processes help in maintaining compliance, ensuring accuracy, and ultimately enabling these firms to operate effectively on a global scale.

Moreover, the global tax landscape continues to evolve, presenting new challenges and opportunities. The prospect of a common minimum global corporate tax, while it may simplify some aspects of cash repatriation, also presents a potential reshaping of investment strategies. As Ochev insightfully noted, changing tax rules could alter the calculus of investing in a country, thereby potentially impacting infrastructure development and overall economic growth. This underscores the need for treasury teams to keep abreast of global tax policy developments and their potential impacts on cash repatriation strategies.

In essence, the process of cash repatriation, while complex, is far from insurmountable. It requires strategic foresight, careful planning, and adaptability to navigate the challenges that come with it. In the face of an ever-evolving global tax landscape, it’s clear that the ability to adapt, innovate, and strategize will be key to effectively managing cash repatriation and maintaining the financial health and operational efficiency of multinational corporations.

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