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A Call to Action: Preparing an Intercompany Lending Strategy Today for Tomorrow's Changes
Over the past year, our government has been tinkering with US tax law for multinational companies. In some cases, this tinkering resulted in law change. In others, it has created a sense of uncertainty. In the former case, we have seen changes to fundamental long-standing international tax law that will become effective at the beginning of 2011. In the latter, it's been loosely defined proposals to make major change. Although these changes affect many areas of a multinational company's tax profile, one aspect that seems notably affected is intercompany lending. Taxand US highlights a few examples that capture how some of these recent changes and proposals could impact intercompany lending and how to prepare for a new lending strategy.
Consider devising an intercompany lending strategy that manages the change and uncertainty we now see in the tax law. An effort should be made to quickly and efficiently adapt to change, continue with current planning and pursue new planning in order to minimise the impact of the known and proposed changes described above.
Creating a successful intercompany lending strategy includes evaluating the impact of foreign exchange rates. This becomes especially relevant when implementing loans between two entities with differing functional currencies. It is important to understand how foreign exchange rate activity factors into determining the appropriate loan denomination. This past year we have seen a significant amount of foreign exchange rate volatility, which could unnecessarily expose a financial statement to significant earnings swings if this activity is not properly considered.
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