“There is a different US tax implication for each of these, and lending between CFC and check-the-box entities is not tax efficient,” says Lo. For example, in a CFC, any cash that moves away, or that is construed as an active investment into another entity, will be viewed as a deemed dividend back to headquarters. “If it’s deemed dividend, there are complex calculations to see what its tax implications are, but the simple consequence is, about 34 percent of the amount will be exposed,” says Lo.
That amount practically negates whatever cost benefits a pooling structure offers. Lo’s solution: He is giving himself until the middle of 2003 before he converts all entities in the region into a CTB structure. “Check-the-box seems to have a better way to move funds across the region, and even from the region to the US,” says Lo. The US government introduced CTB only in 1996, long after many of AT&T’s subsidiaries were established in the region under the CFC structure. In the meantime, “our philosophy is, if there is excess cash in any country, we’ll find the best way to just repatriate it back to the headquarters” in New Jersey, says Lo.
That doesn’t mean Lo doesn’t orchestrate intercompany funding. “Lending from CFC to CFC, or check-the-box to check-the-box, is not much of an issue. But in each instance we have to do a tax analysis to see if it makes sense doing that,” he says. The reason for the self-imposed 2003 deadline is that AT&T will have more companies under its fold this year. Concert, an AT&T joint venture with British Telecom, has been dismantled, and seven entities are coming back to AT&T — two in Australia, and one each in Singapore, Hong Kong, Japan, South Korea and New Zealand — which may have different legal or tax structures. These new entities are expected to add substantially to AT&T’s current turnover in Asia of about $500 million a year.
“The practical reality is, in today’s corporate world, restructuring is happening every two or three months, so by the time you have streamlined legal entities, there might be another set of entities coming,” he says. When Lo has finished consolidating the AT&T units in 2003, his own balancing act should have been much, much easier.
Abe De Ramos is a senior writer for CFO Asia based in Hong Kong.
Moving Money on the Net: Power to the People
The vigilance of treasurers in local Asian companies is growing. John Laurens, head of cash management products at HSBC in Hong Kong, says the drive for efficiency through treasury hardware and software upgrades was the most notable trend in treasury management last year and will continue to top the agenda this year. “There has been an ongoing focus among companies on investing significantly in terms of IT infrastructure, enterprise resource planning systems, and using their rich functionality to optimize relationships with clients and customers,” he says.