Treasury Today Country Profiles in association with Citi

October 2004

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How much is too much?

One of the biggest challenges for a treasurer is to understand the myriad of legislation, regulation and rules which affect the way a company does business. The challenge is three-fold – the need to keep track of changes, to make sure the company stays within the law and to try to identify the most efficient way of operating within those laws.

This task is magnified for multinationals, whose treasurers have to understand the impact of decisions taken by legislators and tax authorities around the world. Of course, there is a significant opportunity for the treasurer here too. Identifying an efficient treasury structure encompassing operations in many different countries will add significant value to the company as a whole.

There is clearly a need for some regulation. Consumers need protection. Governments need revenue. Increasingly, drug traffickers and terrorists need to be prevented from laundering cash.

Yet, there is also a balance to be drawn. Governments need to consider carefully what the impact of any new regulation will be. Every rule which is introduced places an additional burden on the company which needs to comply.

Taking Sarbanes-Oxley as an example, some of its requirements, such as ensuring appropriate procedures are in place, are largely welcome. But in general, the ever more complicated tax and regulatory regimes force companies to divert resource away from growing the business. Instead companies are forced to spend time ensuring compliance and in trying to identify tax advantageous activities, which may then change shortly afterwards.

Complying with the various legislation, regulation and rules is a fact of life for all treasurers. Yet, as the rules get ever more complex, the cost of doing so increases. At some point, the regulatory burden will become too heavy. The question is, when?