Treasury Today Country Profiles in association with Citi
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June 2005

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Is your American parent taking advantage?

Keeping on top of legislative changes is part of a treasurer’s life. Among the latest to be aware of are updates to the US legislation on repatriation of foreign earnings. The Homeland Investment Act was introduced last year and the US Internal Revenue Service (IRS) has now made some amendments to the act, which will remove the uncertainties of the initial legislation. For more information, see our news item on page 4 in the magazine.

The principle of the original legislation was to allow US corporations a one-time tax break on the repatriation of foreign earnings from overseas-controlled subsidiaries. It forms part of a larger Government policy to promote greater investment into the US. The process could result in the repatriation of up to $600 billion in foreign earnings to the US. Politicians hope this will create hundreds of thousands of jobs – in addition to stimulating economic growth in the US.

The short and long-term ramifications of such huge financial sums moving from one region to another remain unclear. However, what is certain is all businesses – not just those with direct ties to the US – should monitor the likely effects on the wider business community.

Indeed, this expected shift in investment from Europe to the US, in addition to growing competition from China, could have a serious impact on Europe’s fortunes – in terms of employment, international competition and perhaps interest rates. This will be particularly acute in Eurozone countries, which have the additional burden of the weakening Euro. In a new section in this month’s magazine (Economic View) we highlight the important issues facing the Eurozone both now and in the future.

The Eurozone, like a fully functioning treasury department, has to remain focused on its objectives and the overall wider economic picture, so it can adapt internal policy to complement the activities of the outside world. Similarly, treasury departments should be aware of the external economic environment and align their business’ interests accordingly.