2019 Financial Services Tax ConferenceJuly 18, 2019___________
tax.kpmg.us
Changing Business Modelsin a World of Changing Tax Currents – Implications for Transfer Pricing
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The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
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Today’s PresentersName Title Firm/Company
NameEmail
Burcin Nee Global Leader, Global Transfer Pricing Services - FS KPMG in the US [email protected]
Bao Ho Director, Transfer Pricing MUFG [email protected]
Sherif Assef Principal, Washington National Tax KPMG in the US [email protected]
Maggie Fritz Banking Leader, Global Transfer Pricing Services - FS KPMG in the US [email protected]
Graeme Webster Director, Transfer Pricing KPMG in the UK [email protected]
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Changing Business Models – Transfer Pricing Implications
Changing Tax Landscape – Impact on FS Transfer Pricing
LIBOR Transition – Considerations for TP
Agenda
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Changing Business Models and Considerations for Transfer Pricing
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Top 10 Drivers of Change
RegulationUncertainty surrounding a complex and inter-connected global issues
Evolving infrastructure(Tax reform, LIBOR, CECL)
Economic shifts/geopoliticsUncertainty related to economical and geopolitical developments; demographic shifts; credit cycle changes, and rising interest rates
Business model re-freshM&A, divestures & other organizational changes to transform, achieve scale, and meet customer goals
Digital transformationBecome customer obsessed, seeking to simplify the business. Customers want: “make it easy, know me, value me, and protect me.”
CostImprove margins through unceasing focus on people, processes, and scale
Customer experienceOn-demand, customized products and service akin to Amazon
Data & analyticsSkillful management of data for product, service, and strategic-planning purposes
Disruptive technologiesLeveraging an array of current and developing technologies: RPA, cognitive, AI, VR and blockchain
CyberShifting to an opportunity versus a threat and becoming more of an experience due to company’s digital transformation
Talent management: leading millennials, skill evolution (e.g., I.A. and D&A), and building the right culture.
People/talent/culture permeate all 10
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Changing Tax Landscape and Considerations for FS Transfer Pricing
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OECD Policy Note – January 29, 2019
1st PillarAddress Nexus and Profit Allocation issues
2nd PillarAddress broader BEPS issues/Low taxation
Accuracy & Tax Certainty Simple & Administrable Avoid Double Taxation
User Contribution
Market Intangibles
Significant Economic Presence
Go beyond arm’s-length principle/Affect larger group of MNEs
Inspired by the U.S. tax reform/Introduction of a withholding tax?
Recommendations on implementation of a LONG-TERM solution by the end of 2020
Income Inclusion
Rule
Tax on Base Eroding Payment
Coordination Rules
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New Profit Allocation Considerations
1
3
5
2
4
6
Modified RPSM
Fractional apportionment method
Distribution-based approaches
Business lines and regional segmentation
Scoping limitations
Develop rules on losses
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LIBOR Transition and Considerations for Transfer Pricing
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Based on impacted exposures, the decommission of LIBOR will significantly impact not only products, butmost functions and businesses within institutions. Examples include, but are not limited to:
The product types affected by the discontinuation of LIBOR include both contracts that directly and indirectly reference LIBOR
(e.g. for valuation purposes)
OTC Derivatives
Exchange TradedDerivatives
Securitized Products
Deposits
Bonds
Mortgages
Loans Repo and FinancingTransactions
LIBOR Exposures$2001 trillion of assets
reference LIBOR globally, of which approximately
90% is in derivatives
Markets
Trading
Counterparty
Investor
Products
What will the LIBOR transition impact?LIBOR replacement – Managing the transition
1Federal Reserve Bank Alternate Rates Reference Committee, Second Report, March 2018
Business Units Applications and Systems Operations Risk Management
• Retail Banking• Commercial Banking• Capital Markets• Wealth Management• Mortgage• Corporate Trust
• Treasury• Finance• Securitization• SPV• Legal Entity Tree
Assessment
• Lending• Deposits• Capital Markets• Mortgage• Mortgage Servicing• Corporate Trust
• Pricing• Risk applications• Commercial
Banking• Wealth
Management• Vendor applications
• Loan underwriting• Loan servicing• Capital Markets• Finance• Balance Sheet Mgmt• Customer
management
• Call centers• Third Party
Vendor Management
• Wealth Management
• Balance Sheet• Interest Rate Risk• Product Pricing• CCAR / Stress
Testing• Model Risk Mgmt
• Funds Transfer Pricing
• Treasury Risk• Customer compliance• Hedging
The LIBOR transition has a wide impact due to its incorporation within a broad range of financial instruments used across various market participants. Differences in industry working group positions and legal opinions add to the complexity of this transition.
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Key Takeaways
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Thank you
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 834883
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