The Perfect Treasury

Backed by the latest IT advances, treasurers of multinationals in Asia leave nothing to chance.

But if it happens, Nokia’s cash management process will reach a kind of cash Nirvana, because its payment system is already fully automated globally. The system, called Nokia BankLink, is custom-designed in-house to act as a gateway between the invoices in SAP and the payment systems run by the banks. Enabling this is Nokia’s global ERP implementation. Subsidiaries all over the world post invoices on Nokia’s SAP system. BankLink then extracts the invoice data from SAP, generates the appropriate payments and remittance advices, and executes them on behalf of group companies globally. Cost efficiency is achieved through netting internal payments, or payments between Nokia subsidiaries. (Netting refers to lumping remittances, which reduces transaction fees.)

Blair complements his efficient cash management system with US-dollar pooling, to offset day-to-day liquidity imbalances, at least in the countries where US-dollar pools are allowed. The regional pool is swept daily into the global US dollar pool. In terms of longer-term funding, Blair transfers funds where regulations allow. “We try to get as much [surplus funds] into the treasury center as is legally possible, and then lend out to the companies that need it. This is on a monthly cycle,” explains Blair.

Nonetheless, transactions such as these are rare, as most of Nokia’s units are liquid. Also, in almost every country it is present in, Nokia has already consolidated its business units into a single legal entity.

How Taxing

Consolidation is what Timothy Lo, regional director of treasury and mergers and acquisitions at AT&T in Hong Kong, is trying to accomplish. His goal is to rationalize the legal structure of all AT&T units in Asia, and ultimately make regional cash and treasury management more tax-efficient. Paula Eastwood, partner at PricewaterhouseCoopers in Singapore, says tax is a common pitfall in establishing regional treasury centers in Asia. “Active tax planning, as an integral part of the corporate treasurer’s overall risk management function, is crucial in order to realize opportunities for tax savings,” says Eastwood. “If left as an afterthought, tax has the potential to significantly erode the commercial benefits achieved on a pre-tax basis,” she says.

Tax issues, in fact, spoil Lo’s otherwise efficient cash management operation in Asia. He runs a shared service center in Hong Kong that handles the accounting, payables and receivables of entities in eight countries. He and a staff of two manage foreign exchange identification for the region. “Once FX exposure is identified, we report it to the headquarters, and then we arrange hedging instruments for the subsidiaries in the region, but the trade is actually executed in New Jersey,” says Lo. That goes for amounts above $1 million. Spot and hedging transactions under US$1 million fall into Lo’s hands.

Currently, AT&T is present in 13 countries in the region, with an average of two legal entities in each country. These subsidiaries fall in either of two legal structures governing US multinationals: check-the-box (CTB) and controlled foreign corporation (CFC). The two categories make a distinction whether a US multinational is a partnership or a corporation, and each has its own tax treatment. Having separate legal entities within the same country, and having different legal structures around the region complicate Lo’s ability to run a regional treasury center.

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