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MORGAN MCKINLEY LONDON EMPLOYMENT MONITOR: 10 YEAR EDITION

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MORGAN MCKINLEY LONDON EMPLOYMENT MONITOR: 10 YEAR EDITION 1

The decade from 2005 has been witness to unprecedented change in banking and financial services. How has the City’s employment landscape changed over this decade, not just in terms of raw numbers but also in terms of culture and skills? Has London’s pre-eminence as a global financial centre been threatened by the rise of new markets in the East, particularly Singapore and Hong Kong?

This report brings together robust data from one of the City’s leading financial services recruiters with expert views from those at the sharp end of hiring and shaping the financial services workforce of the future.

Morgan McKinley has been collecting and publishing monthly data that show both the numbers of professionals seeking new roles in the City and numbers of open opportunities.

The London Employment Monitor is now ten years old.

Highlights:

  • From 2005 – 2014, there were a total of 665,306 Financial Services (FS) roles and 1,515,017 professionals seeking roles in London*
  • Number of new roles peaked in 2007 with 112,547 new jobs
  • Number of professionals seeking new roles peaked in 2011
  • Recruitment fell sharply in 2009, with just 46,353 new jobs but 2013 saw the largest drop in the number of new roles at 33,653 – just 30% of the 2007 job number peak
  • The number of professional job seekers was predictably high in 2007 (201,670) but this figure was beaten in 2011 when a spike in those seeking new roles hit a record 203,687
  • Recruitment since 2011, both in numbers of new roles and those seeking them, has not returned to pre-crisis levels. Total numbers of those seeking roles was 111,515 (2014) almost half the peak levels of 2011 and new jobs in 2014 were down 64% on the peak year of 2007, but 21% up on 2013

“It is evident that the last decade has been one of two extremes,” says HakanEnver, Operations Director, Financial Services for Morgan McKinley. “This in-depth review of our data shows us how the financial crisis didn’t just deliver a single blow to hiring activity in 2009, but has also continued to affect both numbers of jobs and those professionals seeking to move during the subsequent period.

“What we don’t necessarily see from the data however, are the seismic shifts in priorities and skills required by employers. Regulation, globalisation and diversity are now changing the shape of the talent being sought and hired.”

The financial crisis and its aftermath

During the period 2008 and 2009, there was a sudden wave of job losses and hiring freezes that brought an end to a decade of continual annual growth in London’s financial services and business services sector, reported to be 6% per annum. It is evident from our data that from as early as 2007, the number of job opportunities available was decreasing. The catalyst for the numbers to fall even further was back in August 2007, when BNP Paribas terminated withdrawals from three hedge funds citing “a complete evaporation of liquidity“. A bubble had formed in the market and with many banks heavily invested in US mortgages, suddenly found themselves at huge risk of loss.  Within weeks, there were the well reported queues outside Northern Rock branches, the first run on a leading UK bank for over 200 years.

Enver says “in April 2009, the G20 summit committed $5 billion of combined stimulus to the global economy. Much of this, along with the various monetary policies within each G20 nation, was the main reason for the global recession to bottom out in 2009. This partly explains why the data shows a rise in job opportunities during that year.  Whilst 2010 had a slight return in confidence, this was short lived, with the job availability declining, and continuing to do so for the following three years.  On the flip side, the number of professionals actively seeking employment from 2009 to 2011 rose. A proportion of this is explained by the number of redundancies made in the market during that time.  In 2013, the CBI employer’s group stated that around 132,000 jobs had been lost in finance and insurance since the downturn began. Six or seven years post-crisis, there continues to be reports of job losses in the City.

“From the moment JP Morgan acquired Bear Stearns for $10 a share in March 2008, through to Lehman’s eventual collapse six months later, the world’s economies would not function the same way again.” continues Enver. “The shifts in the shape of many of our client organisations have continued to impact on the hiring environment, as skills, such as risk and compliance become ascendant, while elsewhere whole teams have been removed.”

In 2008/9, the Treasury injected £37 billion of new capital into Royal Bank of Scotland Group PLC, Lloyds TSB and HBOS PLC, to avert financial sector collapse. Compliance hiring fluctuated until 2010, when the first wave of new regulations such as Dodd Frank saw hiring steadily increase once again. Further new regulations such as MiFID 2, EMIR, AIFMD and RDR and large anti money laundering sanctions and fines dealt by the regulator and US Treasury’s OCC saw firms’ compliance teams grow to unprecedented levels by 2013 and 2014.

Paul Murphy, director of recruitment, EMEA, at Royal Bank of Canada, says, “There was an overall shrinking and retrenchment in certain market areas – sub-prime, complex derivatives – that happened almost immediately post-Lehman. People who were kept on were simply winding those businesses down. As regulation followed, those able to combine product knowledge with compliance skills were highly – and remain highly – sought after.”

Some jobs simply moved home. “We can see how over this period, there was a migration of roles – especially middle and back office roles – from west to east.  Now, we see those roles moving back from Singapore and Hong Kong to the UK and US as economic recovery gains momentum” says Richie Holliday, chief operations officer, Morgan McKinley, Asia Pacific.

The increasing specialisation that followed the financial crisis, in which banking behemoths sought to become more focused in their activities, has still provided some new opportunities,

Murphy, for example, says that Royal Bank of Canada is now, “moving into sectors that have been de-emphasised by other banks, where our product capability, credit rating and broad client base gives us competitive advantage.”

The changing balance of global economic power has also shifted in this time-frame from west to east, and this has affected client-facing specialisms. “We have seen private wealth management move from its traditional homes in London, Switzerland and New York to China where new wealth is seeking a more sophisticated financial platform,” reports Andrew Evans, chief operations officer, at Morgan McKinley, South Asia. 

Additionally, not all roles are suited to US and European natives keen to take an international assignment. “In China to be successful in private client work, you must be native, a fluent Mandarin speaker, so there is a limited talent pool,” says Evans.

Remuneration and bonuses

Gordon Gecko’s infamous assertion that “Greed is Good” has been widely blamed for fuelling the financial crisis and putting the brakes on bonuses has been a regulatory priority, particularly in Europe.In October, 2008 Gordon Brown declared, “The day of big bonuses is over,” but was he right?

In 2013 the EU passed legislation that would cap bonuses at 100% of salary. The UK has vehemently opposed moves to cap pay, arguing that it will lead to a talent drain and reduce the City’s competitiveness in the global talent battle as rival jurisdictions (New York and Singapore, for example) can pay star performers what they like. Many believe fixed pay will also increase compensation considerably.

According to figures from HM Revenues and Customs, the finance sector (across the UK) paid out £67.6bn in bonuses between 2008/9 and 2012/13. London is still considered the main financial hub of the world. People want to move to London from all over the world, and we see many international professionals with excellent CVs looking to relocate,” says Enver. “The impact of bonus capping so far has not been as dramatic as had originally been expected.”

Despite this, bonuses continue to exercise the media and the public. “Remuneration and salary inflation,” says Enver, “reflects the market of supply and demand. We see professionals who can combine product knowledge with strong regulatory expertise commanding ever-higher remuneration packages. The number of executives who take home six figure bonuses is still relatively small and tends to falsify the overall picture of compensation in the banking sector.”

Banking culture – has it changed?

According to the CCP Research Foundation, between 2009 and 2013 the global banking industry managed to incur £166bn in fines, settlement fees and provisions. Many of the largest fines represented in this figure relate to the underlying causes of the financial crisis itself – sub-prime mortgage backed securities, for example.

But, as Libor rate manipulation and FX market fixing shows, banking culture does not appear to have changed as much as it needs to.

But for all the negative news, those in the driving seat of making hiring decisions, say that culture is changing. “There has been a change in focus at all levels of the people I see,” says Royal Bank of Canada’s Murphy. “Before the financial crisis there was a desire to move upwards as fast as possible. Now the motivation for joining the bank is more about balance sheet strength, our history. Culture is key. Pre-financial crisis, no-one would have asked about the culture of the bank. Now it’s the first question I am asked.”

An increasingly important aspect of culture change is diversity. Dina de Angelo, director, at Pictet, the Swiss private bank, says, “Institutions that have a broad palette of financial services – an investment banking business sitting next to a private client business – still exert a great deal of pressure on women to be able to cope with tricky environments, although this is not the case at Pictet.”

She says women hired for senior positions are quizzed on their ability to cope. “The implication is that women have to adapt, not that the culture or environment will change,” says de Angelo.

For all the difficulties, “diversity has leapt up the hiring agenda,” says Enver. In UK banking and financial services, where diversity is seen as a priority, there continues to be a dearth of suitably qualified women, particularly at senior levels.  There has been a huge drive from a number of the major banks to focus on diversity.”

Morgan Stanley for example, has a wide range of recruiting events some of which are exclusively for women. These are presented in collaboration with the firm’s internal networking groups as well as non-profit partners in the interbank community.

De Angelo comments, “The key rests with each individual woman. I’m a ‘lean in’ person. I prefer to spend my time and energy focusing on what I can do to make a difference because if I make a difference for myself I can make a difference for all the other women in my organisation.”

Murphy sees diversity as an absolute hiring priority too. “We want to see women on all of our shortlists, whatever the role,” he says. “We have been committed to diversity for a long time. We have focused our efforts on bringing high numbers of women into banking at graduate level, but, as with all organisations our efforts now are focused on developing and promoting women through the organisation to create successful role models.

“The chair of our global diversity committee is our CEO – that’s how seriously we take this issue. It’s not a tag-on to HR: it’s a business issue.”

‘We as recruiters recognise the huge value we can and need to add here. We  use our expertise and resources to source talent from multiple channels and this plays a vital part in supporting our clients’ search for an increasingly diverse work force’ says David Leithead, Managing Director of Morgan McKinley, London.

The future

London’s long history of international trade, the strength of its deposits, equity trading and fund management, continues to place it at the forefront of global finance.

Enver says, “London continues to be an attractive place to live and work for high-achieving professionals. Many institutions are committed to growing their presence both domestically and internationally, investing in core and profitable functions.  Banks have gone back to basics, looking at their strengths and building on those, whilst assessing their weaknesses and minimising them.

“Ongoing regulation is helping to make the banking industry a safer place, by ensuring more robust contingency plans are in place.  By holding more capital and a sufficient level of liquid assets, enhancing their risk management systems and reporting financial positions accurately and efficiently, banks hope that are now able to withstand tough shocks to the system and thus limit systemic risk in the market.

“The talent pool required to drive many business units has changed, with strong technical knowledge, deep regulatory awareness and more often than not, a minimum of one European language, being preferred.  Shortly after the crisis, when banks cut back on their graduate hiring, they have since increased their appetite to recruit at this level.

An increase in 2014 in the number of jobs, compared to 2013, clearly suggests a return in confidence to the market, but there still exists some uncertainty as we head into 2015.  The recent crash in oil prices, geo-political risks – particularly Russia/Ukraine, ongoing volatility in the Eurozone (including a potential Grexit), as well as continued cyber threats to the banking industry, are a few concerns that could displace London’s foothold as a leading financial centre.

“Despite this, the last few years have seen unprecedented change in the sector.  Not only has regulation dictated how much of the industry now operates, but we have also seen a dramatic change in the kind of professional our clients see – which we believe will continue to form the hiring landscape over the next decade. Whilst there will always exist some form of outside risk, the industry is now well-advanced on a process of recovery and evolution, and its institutions are much stronger as a result. Therefore, Morgan McKinley predicts a positive outlook for the short to medium terms as hiring returns to levels witnessed in previous years.”

MM

Chart: Professionals seeking new roles in Financial Services, both in and out of employment, London

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Lockdown 2.0 – Here’s how to be the best-looking person in the virtual room

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Lockdown 2.0 – Here's how to be the best-looking person in the virtual room 2

By Jeff Carlson, author of The Photographer’s Guide to Luminar 4 and Take Control of Your Digital Photos

suggests “the product you’re creating is not the camera, the lens or a webcam’s clever industrial design. It’s the subject, you, which is just on e part of the entire image they see. You want that image to convey quality, not convenience.”

Technology experts at Reincubate saw an opportunity in the rise of remote-working video calls and developed the app, Camo, to improve the video quality of our webcam calls. As part of this, they consulted the digital photography expert and author, Jeff Carlson, to reveal how we can look our best online. 

It’s clear by now that COVID-19 has normalised remote working, but as part of this the importance of video calls has risen exponentially. While we’re all used to seeing the more casual sides of our colleagues (t-shirt and shorts, anyone?), poor webcam quality is slightly less forgivable.

But how can we improve how we look on video? We consulted Jeff Carlson for some top tips– here is what he had to say.

  1. Improve the picture quality of your call

The better your camera, the higher quality your webcam calls will be. Most webcams (as well as currently being hard to get hold of and expensive), are subpar. A DSLR setup will give you the best picture, but will cost $1,500+. You can also use your iPhone’s amazing camera as a webcam, using the new app from Reincubate, Camo.

Jeff’s comments “The iPhone’s camera system features dedicated coprocessors for evaluating and adjusting the image in real time. Apple has put a tremendous amount of work into its imaging software as a way to compensate for the necessarily small camera sensors. Although it all works in service of creating stills and video, you get the same benefits when using the iPhone as a webcam.”

Aidan Fitzpatrick, CEO of Reincubate explains why the team created Camo, “Earlier this year our team moved to working remotely, and in video calls everyone looked pretty bad, irrespective of whether they were on built-in Mac webcams or third-party ones. Thus began my journey to build Camo: an iPhone has one of the world’s best cameras in it, so could we make it work as a webcam? Category-leading webcams are noticeably worse than an iPhone 7. This makes sense: six weeks of Apple’s R&D spend tops Logitech’s annual gross revenue.”

  1. Place your camera at eye level

A video call will never quite be the same as a face-to-face conversation, but bringing your camera up to eye level is a good place to start. That can involve putting your laptop on a stand or pile of books, mounting a webcam to the top of your display screen, or even using a tripod to get the perfect position.

Jeff points out, “If the camera is looking down on you, you’ll appear minimized in the frame; if it’s looking up, you’re inviting people to focus on your chin, neck, or nostrils. Most important, positioning the camera off your eye level is a distraction. Look them in the eye, even if they’re miles or continents away.

Lockdown 2.0 – Here's how to be the best-looking person in the virtual room 3

Low camera placement from a MacBook

  1. Make the most of natural lighting

Be aware of the lighting in the room and move yourself to face natural lighting if you can. Positioning the camera so any natural light is behind you takes the light away from your face, which can make it harder to see and read expressions on a call.

Jeff Carlson’s top tip: “If the light from outside is too harsh, diffuse it and create softer shadows by tacking up a white sheet or a stand-alone diffuser over the window.” 

Lockdown 2.0 – Here's how to be the best-looking person in the virtual room 4Lockdown 2.0 – Here's how to be the best-looking person in the virtual room 5

Backlit against a window Facing natural light

  1. Use supplementary lighting like ring lights

The downside to natural lighting is that you’re at the mercy of the elements: if it’s too bright you’ll have the sun in your eyes, if it’s too dark you won’t be well lit.

Jeff recommends adding supplementary lighting if you’re looking to really enhance your video calls. After all, it looks like remote working will be carrying on for quite some time.

“The light can be just as easy as a household or inexpensive work light. Angle the light so it’s bouncing off a wall or the ceiling, depending on your work area, which, again, diffuses the light and makes it more flattering.

Or, for a little money, use a softbox or a shoot-through umbrella with daylight bulbs (5500K temperature), or if space is tight, LED panels. Larger lights are better for distributing illumination– don’t be afraid to get them in close to you. Placement depends on the look you’re going after; start by positioning one at a 45-degree angle in front and to the side of you, which lights most of your face while retaining nice shadow detail.” 

In some cases, a ring light may work best. LEDs are arranged in a circle, with space in the middle to put the camera’s lens and get direct illumination from the direction of the camera.

  1. Centre yourself in the frame

Make sure you’re getting the right angle and that you’re using the frame effectively.

“You should aim for people to see your head and part of your torso, not all the space between your hair and the ceiling. Leave a little space above your head so it’s not cut off, but not enough that someone’s eyes are going to drift there.”

  1. Be mindful of your backdrop

It’s not always easy to get the quiet space needed for video calls when working from home, but try as best you can to remove anything too distracting from your background.

“Get rid of clutter or anything that’s distracting or unprofessional, because you can bet that will be the second thing the viewers notice after they see you. (The Twitter account @RateMySkypeRoom is an amusing ongoing commentary on the environments people on television are connecting from.)”

A busy background as seen by a webcam

  1. Make the most of virtual backgrounds

If you’re really struggling with finding a background that looks professional, try using a virtual background.

Jeff suggests: “Some apps can identify your presence in the scene and create a live mask that enables you to use an entirely different image to cover the background. While it’s a fun feature, the quality of the masking is still rudimentary, even with a green screen background that makes this sort of keying more accurate.”

  1. Be aware of your audio settings

Our laptop webcams, cameras, and mobile phones all include microphones, but if it’s at all possible, use a separate microphone instead.

“That can be an inexpensive lavalier mic, a USB microphone, or a set of iPhone earbuds. You can also get wireless lavalier models if you’re moving around during a call, such as presenting at a whiteboard in the camera’s field of view.

The idea is to get the microphone closer to your mouth so it’s recording what you say, not other sounds or echoes in the room. If you type during meetings, mount the mic on an arm instead of resting it on the same surface as your keyboard.”

  1. Be wary of video app add-ons

Video apps like Zoom include a ‘Touch up your appearance’ option in the Video settings. This applies a skin-smoothing filter to your face, but more often than not, the end result looks artificially blurry instead of smooth.

“Zoom also includes settings for suppressing persistent and intermittent background noise, and echo cancellation. They’re all set to Auto by default, but you can choose how aggressive or not the feature is.”

  1. Be the best looking person in the virtual room

What’s important to remember about video calls at this point in time is that most people are new to what is, really, personal broadcasting. That means you can easily get an edge, just by adopting a few suggestions in this article. When your video and audio quality improves, people will take notice.

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Bringing finance into the 21st Century – How COVID and collaboration are catalysing digital transformation

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By Keith Phillips, CEO of TISATech

If just six or seven months ago someone had told you that in a matter of weeks people around the world would be locked down in their homes, trying to navigate modern work systems from a prehistoric laptop, bickering with family over who’s hogging the Wi-Fi, migrating online to manage all financial services digitally, all while washing their hands every five minutes in fear of a global pandemic… You’d think they had lost their mind. But this very quickly became the reality for huge swathes of the world and we’re about to go through that all over again as the UK government has asked that those who can work from home should.

Unsurprisingly, statistics show that lockdown restrictions introduced by the UK government in March, led to a sharp increase in people adopting digital services. Banks encouraged its customers to log onto online banking, as they limited (and eventually halted) services at branches. This forced many customers online as their primary means of managing personal finances for the first time.

If anyone had doubts before, the Covid-19 pandemic proved to us the importance of well-functioning, effective digital financial services platforms, for both financial institutions and the people using them.

But with this sudden mass online migration, it’s become clear that traditional banks have struggled to keep up with servicing clients virtually. Legacy banking systems have always stilted the digitisation of financial services, but the pandemic thrust this issue into the limelight. Fintech firms, which focus intently on digital and mobile services, knew it was only a matter of time before financial institutions’ reliance was to increase at an unprecedented rate.

For years, fintechs have been called upon by traditional players to find solutions to problems borne from those clunky legacy systems, like manual completion of account changes and money transfers. Now it is the demand for these services to be online coupled with the need for financial services firms to cut costs, since Covid-19 hit the economy.

Covid-19 has catalysed the urgent need to bring digital transformation to a wider pool of financial services businesses. Customers now have even higher expectations of larger institutions, demanding that they keep up with what the younger and more nimble challengers have to offer. Industry leaders realise that they must transform their businesses as soon as possible, by streamlining and digitising operations to compete and, ultimately, improve services for their customers.

The race for digital acceleration began far before the recent pandemic – in fact, following the 2008 financial crisis is likely more accurate. Since the credit crunch, there has been a wave of new fintech firms, full of young, bright techies looking to be the next big thing. Fintechs have marketed themselves hard at big conferences and expos or by hosting ‘hackathons’, trying to prove themselves as the fastest, most innovative or the most vital to the future of the industry.

However, even during this period where accelerating innovation in online financial services and legacy systems is crucial, the conditions brought about by the pandemic have not been conducive to this much-needed transformation.

The second issue, which again was clear far before the pandemic, is that fact that no matter how nimble or clever the fintechs’ solutions are, it is still hard to implement the solutions seamlessly, as the sector is highly fragmented with banks using extremely outdated systems populated with vast amounts of data.

With the significance of the pandemic becoming more and more clear, and the need for better digital products and services becoming more crucial to financial services firms and consumers by the day, the industry has finally come together to provide a solution.

The TISAtech project was launched last month by The Investing and Saving Alliance (TISA), a membership organisation in the UK with more than 200 leading financial institutions as members. TISA asked The Disruption House, a specialist benchmarking and data analytics business, to create a clearing house platform for the industry to help it more effectively integrate new financial technology. The project aims to enhance products and services while reducing friction and ultimately lowering costs which are passed on to the customers.

With nearly 4,000 fintechs from around the world participating, it will be the world’s largest marketplace dedicated to Open Finance, Savings, and Investment.

Not only will it provide a ‘matchmaking’ service between financial institutions an fintechs, it will also host a sandbox environment. Financial institutions can pose real problems with real data and the fintechs are given the space to race to the bottom – to find the most constructive, cost-effective solution.

Yes, there are other marketplaces, but they all seem to struggle to achieve a return on investment. There is a genuine need for the ‘Trivago’ of financial technology – a one stop shop, run by an independent body, which can do more than just matchmaking. It needs to go above and beyond to encompass the sandboxing, assessments, profiling of fintechs to separate the wheat from the chaff, and provide a space for true collaboration.

The pandemic has taught us that we are more effective if we work together. We need mass support and collaboration to find solutions to problems. Businesses and industries are no different. If fintechs and financial institutions can work together, there is a real chance that we can start to lessen the economic hit for many businesses and consumers by lowering costs and streamlining better services and products. And even if it is just making it that little bit easier to manage personal finances from home when fighting with your children for the Wi-Fi, we are making a difference.

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What to Know Before You Expand Across Borders

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What to Know Before You Expand Across Borders 7

By Sean King, Director of International Tax at McGuire Sponsel

The American retail giant, Target Corporation, has a market cap of $64 billion and access to seemingly limitless resources and advisors. So, when the company engaged in its first global expansion, how could anything possibly go wrong?

Less than two years after opening its first Canadian store in 2013, Target shut down all133 Canadian locations and terminated more than 17,000 Canadian employees.

Expansion of an operation to another country can create unique challenges that may impact the financial viability of the entire enterprise. If Target Corporation can colossally fail in its expansion to Canada, how might Mom ‘N’ Pop LLC fare when expanding into Switzerland, Singapore, or Australia?

Successful global expansion requires an understanding of multilayered taxes, regulatory hurdles, employment laws, and cultural nuances. Fortunately, with the right guidance, global expansion can be both possible and profitable for businesses of any size.

Permanent establishment

Any company with global ambitions must first consider whether the company’s expansion outside of the U.S. will give rise to a taxable presence in the local country. In the cross-border context, a “permanent establishment” can be created in a local country when the enterprise reaches a certain level of activity, which is problematic because it exposes the U.S. multinational to taxation in the foreign country.

Foreign entity incorporation

To avoid permanent establishment risk, many U.S. multinationals choose to operate overseas through a formal corporate subsidiary, which reduces the company’s foreign income tax exposure, though it may result in an additional level of foreign income tax on the subsidiary’s earnings. In most jurisdictions, multinationals can operate their business in the foreign country as a branch, a pass through (e.g., partnership,) or a corporation.

As a branch, the U.S. multinational does not create a subsidiary in the foreign country. It holds assets, employees, and bank accounts under its own name. With a pass through, the U.S. multinational creates a separate entity in the foreign country that is treated as a partnership under the tax law of the foreign country but not necessarily as a partnership under U.S. tax law.

U.S. multinationals can also create corporate subsidiaries in the foreign country treated as corporations under the tax law of both the foreign country and the U.S., with possibly two levels of income taxation in the foreign country plus U.S. income taxation of earnings repatriated to the U.S. as dividends.

Check-the-box planning

Under U.S. entity classification rules, certain types of entities can “check the box” to elect their classification to be taxed as a corporation with two levels of tax, a partnership with pass-through taxation, or even be disregarded for U.S. federal income tax purposes. The check the box election allows U.S. multinationals to engage in more effective global tax planning.

Toll charges, transfer pricing and treaties

When establishing a foreign corporate subsidiary, the U.S. multinational will likely need to transfer certain assets to the new entity to make it fully operational. However, in many cases, the U.S. multinational cannot perform the transfer without recognizing taxable income. In the international context, the IRS imposes certain outbound “toll charges” on the transfer of appreciated property to a foreign entity, which are usually provided for in IRC Section 367 and subject to various exceptions and nuances.

Instead, the U.S. multinational may prefer to license intellectual property to the foreign subsidiary for a fee rather than transfer the property outright. However, licensing requires the company and foreign subsidiary to adhere to transfer pricing rules, as dictated by IRC Section 482. The U.S. multinational and the foreign subsidiary must interact in an arms-length manner regarding pricing and economic terms. Furthermore, any such arrangement may attract withholding taxes when royalties are paid across a border.

Are you GILTI?

Certain U.S. multinationals opt to focus on deferring the income recognition at the U.S. level. In doing so, they simply leave overseas profits overseas and delay repatriating any of the earnings to the U.S.

Despite the general merits of this form of planning, U.S. multinationals will be subject to certain IRS anti-deferral mechanisms, commonly known as “Subpart F” and GILTI. Essentially, U.S. shareholders of certain foreign corporations are forced to recognize their pro rata share of certain types of income generated by these foreign entities at the time the income is earned instead of waiting until the foreign entity formally repatriates the income to the U.S.

The end goal

Essentially, all effective international tax planning boils down to treasury management. Effective and early tax planning can properly allow a company to better achieve its initial goal: profitability.

If global expansion is on the horizon for your company, consult a licensed professional for advice concerning your specific situation.

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Lockdown 2.0 – Here's how to be the best-looking person in the virtual room 20 Lockdown 2.0 – Here's how to be the best-looking person in the virtual room 21
Top Stories2 days ago

Lockdown 2.0 – Here’s how to be the best-looking person in the virtual room

By Jeff Carlson, author of The Photographer’s Guide to Luminar 4 and Take Control of Your Digital Photos suggests “the product you’re creating is...

Banks take note: Customers want to pay with points 25 Banks take note: Customers want to pay with points 26
Banking2 days ago

Banks take note: Customers want to pay with points

By Len Covello, Chief Technology Officer of Engage People ‘Pay with Points’ – that is, integrating the ability to pay...

Are you a fighter or a freezer? The 4 “F’s” of Surviving Danger 27 Are you a fighter or a freezer? The 4 “F’s” of Surviving Danger 28
Business2 days ago

Are you a fighter or a freezer? The 4 “F’s” of Surviving Danger

By Dr.Roger Firestien, Author of Create In a Flash. The fight, flight, freeze survival response – or FFF for short...

Why the FemTech sector might be the sustainability saviour we have been waiting for 29 Why the FemTech sector might be the sustainability saviour we have been waiting for 30
Technology2 days ago

Why the FemTech sector might be the sustainability saviour we have been waiting for

By Kristy Chong, CEO & Founder Modibodi ® Taking single use plastics out of circulation is no easy feat, but...

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