UK: Banking, Liquidity Management And Taxation - How Do You Manage Your Company’s Cashflows From A Banking, Liquidity And Tax Perspective?

Originally published in February 2007

Making the right banking, cash & liquidity management decisions, from an operational and a tax perspective, is essential for virtually any company. The Deloitte Treasury and Capital Markets team brings together seasoned and multidisciplinary professionals specialising in banking, cash & liquidity management and tax issues.

Elements of relationship management include:

• Acceptable service quality and pricing;

• Cash management services for national and international transactions; and

• Sufficient credit arrangements to meet short – and longer-term financing requirements.

Our specialists in banking relationship management can support you in establishing a comprehensive bank relationship strategy starting with a requestfor- information (RFI) letter to prospective banks with questions such as:

• Do you provide the various credit and cash management services we require?

• Is your institution interested in being considered as a key relationship bank for the company?

• What is the history of your bank in providing these services? Locations?

• Do the relative strengths of your bank provide a good current and future fit with the requirements?

• What is your bank's expectation in terms of being awarded business for the relationship to be sufficiently attractive and profitable?

Liquidity management involves the management of day-to-day cash deficits and surpluses.

The purpose of core or long-term debt is to fund the long-term development of the organisation. However the swings and fluctuations in a company's cashflow also need to be managed.

• A company having insufficient resources to pay liabilities when they fall due, resulting in penalty costs or loss of reputation;

• A company simultaneously making both cash deposits and short-term borrowings. This means that cash resources may not be effectively used to reduce short-term financings;

• Idle cash balances;

• Many banking providers in each territory; and

• Too many or an insufficient number of credit lines.

• How much cash does and will the company have and how much does it need?

• In which direction are interest rates and cash positions likely to move?

• Where is the cash? What are the different interest costs/opportunities available?

• Are the cash sweeping mechanisms efficient and cost effective? Our specialists in effective liquidity management can support you to:

• Create processes and systems for determining and predicting the timing and duration of cash surpluses and deficits (cash forecasting);

• Assistance in the design of an effective and efficient cash sweeping structure; and

• Strategy and procedures for management of surplus funds.

Your current business strategy is subject to change. Does your cash management function have the ability of supporting these changes? If you look carefully at the roles and responsibilities and day-to-day tasks of a treasurer and those of a tax advisor (inhouse or external), you will discover huge overlap of their respective working areas.

This is not surprising as all cash flows and transfers of assets and liabilities will catch the attention of both the treasurer and the tax advisor.

Deloitte’s experienced national and international Treasury and Capital Markets professionals have extensive knowledge and experience in the field of cash management structures, taking into account all relevant tax aspects.

You need to ensure you have covered off the tax risks. Such risks could include:

• Withholding taxes on inter-company loans;

• Specific country requirements on loan issuance;

• Tax deductibility of debt financing;

• Documentation to meet transfer pricing requirements;

• VAT issues on intercompany financing activities; and

• Avoiding multiple permanent establishments of treasury centres.

Deloitte’s Treasury and Capital Markets has broad and in-depth knowledge of cash management structures, is able to respond immediately to specific demands and can supervise the execution of each individual project. Our independent position, combined with access to local and up-tothe- minute expertise of our international network of Tax & Treasury specialists, ensures that issues surrounding cash management structures are addressed upfront and the optimal solution is achieved to meet the client’s specific needs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.