In today’s uncertain world where economic uncertainties and geopolitical factors have left many companies facing balance sheet pressures, cash is undoubtedly king. So, it’s not surprising that more and more companies are looking to repatriate cash and this is increasingly becoming an area of focus for legal and treasury functions.
Repatriation of cash, however, is not always straightforward. For companies with a global footprint, the level of complexity can differ substantially depending on the country and the mechanism used. Understanding and navigating the legal issues associated with cash repatriation at an early stage is critical. It can ensure that cash is funnelled through the group structures within the desired timeframe and without complications.
Some of the most common corporate legal mechanisms to implement a cash repatriation programme include:
The timing and legal implementation of each of the mechanisms above can differ significantly depending on local laws and entity type.
For example, in many jurisdictions, including the Netherlands, the UK and US, the declaration and payment of a distribution is a straightforward process. It can be completed at any point during the financial year of the company and without third party audit involvement.
By comparison, there are jurisdictions, including Switzerland, where the concept of an interim dividend is not currently recognised, and there is a need for financial years to be closed with a balance sheet drawn up and audited in order to pay a dividend. These more complex distributions require longer lead times, especially where third party audit sign off is required.
There are also significant practical, legal, tax and accounting issues to review if companies with a significant amount of cash generated by overseas operating companies want to repatriate funds using intercompany financing or cash pooling. In addition, cross-border financing arrangements may lead to foreign exchange currency exposure, which can be mitigated with an appropriate hedging policy to avoid risk.
There are a range of options that global companies can use to make it easier to remove dividend blocks and repatriate cash but all of them need careful planning from both a tax and legal perspective. These include:
We have found, for example, that global organisations can unlock large amounts of cash locked in legacy structures by implementing domestic and cross-border corporate simplification projects.
Whichever cash repatriation strategy is adopted our recommendations for a successful implementation include:
At PwC, we have developed a tool to provide multi-jurisdictional clients with access to information about cash repatriation from entity types within certain jurisdictions. The tool highlights:
In addition to our project management offering - which ensures that all stakeholders within the respective group and their external advisers are apprised of all recent developments - we work seamlessly with our tax and accounting teams from the outset of the project to advise on the successful implementation of any cash repatriation project.