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Businesses fear reforms will lead to double taxation - Industry roundup: 22 January

Businesses fear global tax reform will lead to double taxation

Global tax reform, ineffective use of technology and economic uncertainty are putting significant strain on businesses’ transfer pricing (TP) capabilities, according to the 2024 EY International Tax and Transfer Pricing Survey. Transfer pricing is a critical tax function for organisations worldwide that oversees internal corporate transactions, including cross-border payments between subsidiaries, property leases and intellectual property (IP) licenses. Responding businesses expect that we are entering a period of effective tax rate instability, driven by shifting supply chains, global tax reform and inflation.

The global survey of 1,000 transfer pricing professionals and stakeholders in 47 jurisdictions finds that 84% of respondents face a “moderate” or “significant” risk of double taxation as a result of global tax reform, and 71% say that global minimum taxes will have a “moderate” or “significant” impact on their transfer pricing policies. Demand for advanced certainty on TP positions doubles. The cascade of outside pressures impacting broader business decisions complicates TP leaders’ roles. Of those surveyed, 77% say inflation will have a “moderate” or “significant” impact on their transfer pricing policy over the next three years, while 51% say higher interest rates have impacted their medium and long-term intercompany debt pricing.

Changes in supply chains and commitments to environmental, social and governance (ESG) objectives add further challenges. Over a quarter (28%) have already changed their transfer pricing policy to account for ESG policy. Meanwhile, 42% say their organisations have relocated production from one jurisdiction to another in the last three years because of geopolitical issues. More than six in ten (62%) anticipate changes to supply chains having a moderate or significant impact on their TP policy in the coming three years as well.

Three-quarters (75%) of respondents say that ineffective use of technology was their first or second biggest challenge, while 67% ranked “poor data quality” as their first or second most significant challenge. Interestingly, 73% say that investing in more sophisticated operational transfer pricing technology would result in “moderate” or “significant” improvement in risk management, and 88% cite they expect TP technology to save their organisation money over the next three years.

The survey shows a dramatic increase in companies turning to advance pricing agreements (APAs), which allow businesses to negotiate the terms of their intercompany transactions with tax administrators for multiple years before filing tax returns to create greater certainty around their TP positions and more value in a Base Erosion and Profit Shifting (BEPS) 2.0 world: 61% and 59% say bilateral and multilateral APAs, respectively, will be “very useful,” up from 34% and 30%, respectively, in 2021. In addition, 59% of respondents say unilateral APAs will be “very useful” to managing TP-related controversy over the next three years, more than double the 29% of respondents in 2021.

“The complexities around implementing global tax reform continues to take its toll on tax departments,” commented Tracee Fultz, EY Global Transfer Pricing Leader. “With the heightened risk of double taxation, getting certainty is at a premium. This requires a fundamental pivot from tax planning to building as much certainty as possible into transfer pricing positions, which means being as proactive as possible in dealing with anticipated and current controversies.”


Global VC deals volume drops to lowest level since 2016

Global venture capital (VC) investment sank from US$531.4bn across 51,894 deals in 2022 to US$344bn across 37,808 deals in 2023, according to the Q4 2023 edition of KPMG Private Enterprise’s Venture Pulse. This was amid a thematic backdrop of geopolitical, macroeconomic, and other challenges, including conflicts in Ukraine and the Middle East, high interest rates and inflation, a parched exit environment, and ongoing concerns related to startup valuations. 

The Americas accounted for over half of VC investment this year (US$183.6bn), while the Asia-Pacific region attracted US$92.4bn and Europe US$62.3bn. Q4 2023 was a particularly soft quarter for the VC market, with global investment falling to US$74.9bn across 7,572 deals - the lowest levels since Q2 2019 and Q3 2016, respectively. Europe experienced the sharpest decline in funding - from US$18bn in Q3 2023 to US$13.8bn in Q4 2023. The Asia-Pacific region also saw quite a slump, with investment falling to US$18.8bn in Q4 2023 - the lowest level since Q1 2017.

As VC investors globally continued to pressure their portfolio companies to reduce costs and enhance their focus on profitability, their investments and deal speeds slowed significantly. The one significant light in an otherwise dim quarter was the artificial intelligence (AI) space - where investments were incredibly frothy as investor interest accelerated. During the quarter, AI-focused startups accounted for three of the funding rounds greater than US$1bn this quarter, including a US$2bn raise by Anthropic, a US$1.7bn raise by Metropolis, and a US$1bn raise by Relativity - all in the US.

Despite hopes that the exits of UK-based Arm and US-based Instacart and Klaviyo in Q3 2023 would help open the IPO door, results were mixed, and global exit value dropped from US$85.8bn to US$43.5bn quarter over quarter. 


Do mega projects signal a renaissance for US manufacturing?

Goldman Sachs Research has been tracking over US$1 trillion in announced manufacturing and infrastructure investments, over US$500bn of which are mega project investments (greater than US$1bn in size). These include semiconductor plants (US$222bn, or 43%), electric vehicle and battery plants (US$114bn, or 22%), and clean energy projects (US$86bn, or 17%). 

Based on this data, Goldman Sachs Research analysts Joe Ritchie, Vivek Srivastava, and Aanvi Patodia expect a renaissance in American manufacturing and increased equipment orders for these projects this year.

Instead of looking just at projects that have been announced, Goldman Sachs Research dug deeper into individual projects that have broken ground since 2021 to understand the timing of construction schedules and any increased costs.

Project activity, a subset of announced projects that have already broken ground for construction, is on track to be more than US$80bn in 2022 and 2023, compared with around US$23bn per year between 2011 and 2021. But project development is still in the early stages, and only a small proportion of equipment orders has been recognised so far.

It has taken longer than expected for some of these mega projects to translate into equipment orders because of the nature of the work. A typical non-residential construction project takes 18–24 months from breaking ground to the start of production, whereas a semiconductor plant usually takes 36–60 months. Equipment providers should see an uptick in orders from these projects in the first half of this year, according to Goldman Sachs Research.

Texas is the leading state in terms of projects that have broken ground (with about 25% of all projects in US), driven in part by semiconductor plants from major manufacturers.


TreviPay and Mastercard partner to launch B2B financing capabilities for suppliers 

B2B payments and invoicing network TreviPay has announced the launch of its Universal Acceptance solution in partnership with Mastercard to expand supplier access to and faster implementation of its payments and invoicing technology. Suppliers who accept Mastercard can extend net terms, trade credit financing, and SKU-level invoicing to business buyers through the solution using Mastercard’s commercial card payment capabilities. 

With TreviPay leveraging Mastercard’s global acceptance network and commercial card payment capabilities, suppliers can provide approved buyers with a net-terms card for purchasing, offering the checkout convenience of a credit card and the auditability and purchase controls of trade credit. The TreviPay platform then automatically delivers invoices directly to the merchant’s buyer, eliminating the costs associated with chasing outstanding or late payments, assuming all risk associated with collection and guaranteeing settlement to the merchant upfront.  

With the addition of the the Universal Acceptance solution, the TreviPay platform can now be implemented for suppliers in two ways: the original API integration of the platform directly into the seller’s point of acceptance or without API integration, by instead leveraging Mastercard’s global acceptance network. 


Cybrid adds B2B payments to its embedded finance API platform

Embedded finance provider Cybrid has announced the expansion of its Fintech API platform to now encompass business-to-business (B2B) payments. The company says that this latest enhancement brings a host of advanced features tailored to meet the needs of modern businesses.

Building on its success in B2C payments via API and software development kits (SDK), Cybrid's platform is equipped with a range of financial services, including KYC identity verification processes, money transmission using wire and ACH transfers, virtual for-benefit-of (FBO) accounts for USD connected to digital wallets with integrated crypto onramp and offramps. The addition of B2B payment capabilities is integrated with a know your business (KYB) process, facilitating smooth onboarding of business customers to support fiat and cryptocurrency transactions.

The firm says that critical advantages of this development include real-time transactions with fast confirmations, ensuring businesses benefit from near-instant payment processing for rapid access to funds and improved liquidity management. It also features high transaction limits, specifically tailored to accommodate large sum payments, thereby reducing the complexities often associated with high-value transactions. Additionally, the solution provides rich remittance data, streamlining record-keeping by enabling businesses to reconcile transactions with less reliance on paperwork. 

A crucial platform component is the crypto onramp/offramp for USD Coin (USDC) and Bitcoin (BTC), offering a way for businesses to send and receive cryptocurrency payments. This feature adds versatility in payment rails and aligns with the growing global trend towards digital currencies.


Ebury named as FX transfer partner of Rangers Football Club 

Ebury has partnered with Rangers Football Club to become the club’s official FX transfer partner. The partnership will run until the end of the 2025/26 season, with Rangers becoming the latest addition to Ebury’s growing Sports portfolio.

A statement says that the partnership encompasses a range of benefits for both Ebury and Rangers, which include Ebury providing solutions for Rangers’ global finance operations.

“Our plans working alongside them as a club, but also to support the local business network in Scotland, are extremely exciting and we’re very much looking forward to bringing this partnership to life,” commented Karim Virani, Chief Commercial Officer at Rangers Football Club.

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