Europe has much to offer as a treasury centre location. But which countries in Europe are seen as the most attractive locations and why? From tax considerations to availability of talent, there are plenty of factors to consider.

While every company is different, most businesses with significant commercial activities in Europe will have a treasury centre located in Europe, often covering Europe, the Middle East and Africa (EMEA). So which European countries do companies favour for their treasury centre locations? And which factors should companies consider when choosing a suitable location?

Treasury centres in Europe: the benefits

A treasury centre is an important structure used by multinational corporations (MNCs) to centralise and manage their treasury activities. While some companies operate global treasury centres, others use regional treasury centres (RTCs) to manage activities in a specific region.

David Stebbings, Head of Treasury Advisory at PwC, notes that Europe has much to offer as a treasury centre location, including stable political, legal and tax environments. “In most countries there is an ability to centralise risk and cash, and the banking and financial environments are well-developed,” he adds.

“The main benefit of running a treasury centre location in Europe is the Single Euro Payments Area (SEPA), a European Union (EU) payments integration initiative aimed at harmonising electronic euro payments in Europe,” comments Frédéric Vanderstuyft, Senior Client Advisor, BNP Paribas Cash Management. “Thanks to SEPA, citizens experience the same ease and convenience when making euro transactions across Europe with the same payment instruments – in particular, credit transfers, direct debits and cards – as they do when paying within their home country.”

Nevertheless, says Vanderstuyft, companies do need to address certain challenges when operating treasury centres in Europe, including a disparate tax environment and a lack of harmonisation in terms of the regulatory environment and timelines, “for example with e-invoicing and SEPA Instant payments.”

European treasury centre locations

Different countries and cities in Europe have different attractions when it comes to running a treasury centre. Sander Van Tol, Partner at independent consulting firm Zanders, notes that the main treasury centre locations in Europe include:

• Dublin – the Irish capital is noteworthy due to its US tax treaties, access to English-speaking talent and treasury outsourcing capabilities.
• Luxembourg – the EU’s second smallest country offers international tax treaties and an attractive corporate income tax rate and regulatory environment, “especially for debt capital market transactions.”
• The Netherlands – the Netherlands’ capital city boasts international tax treaties, access to talent, and an attractive business climate and regulatory environment for treasury services.
• Switzerland – Van Tol notes that the corporate income tax rate varies across different Swiss Cantons. Other benefits of Switzerland include bespoke tax arrangements between multinational and local tax authorities.

In addition, points out Stebbings, “treasury centres where labour cost is a key factor – namely transaction centres – tend to be located in Eastern Europe.” He adds that in recent years, certain Gulf states have begun to try and attract businesses to have their EMEA treasury in those locations, “although time zone differences can provide a challenge.”

Factors to consider

While there is no one-size-fits-all approach to choosing a treasury centre location, there are a number of factors that companies should consider when choosing a location, including tax, legal and regulatory considerations, as well as access to talent and developed financial markets.

As Stebbings explains, “The importance of each of these factors will be different for each business depending upon the nature and flows of the business, where the headquarters are located, tax and legal risk appetite, where the business has operations, its reliance on financial markets and whether it is in line with its peers, etc.”

Companies should also think about what their objectives are for the treasury centre – are they looking for efficiency, control, cost reduction, tax considerations or something else?

Frédéric Vanderstuyft, Senior Client Advisor, BNP Paribas Cash Management

Naturally, says Vanderstuyft, companies will look at where their main treasury activities are located, as well as the presence and capabilities of their core banks. “Companies should also think about what their objectives are for the treasury centre – are they looking for efficiency, control, cost reduction, tax considerations or something else?”

While different companies will have different priorities, some of the key factors that multinational corporations should consider when choosing a treasury centre location include the following:

1. Tax regime

   Tax is certainly an important factor where treasury centre locations are concerned. But as Van Tol points out, companies do not only focus on a location’s corporate income tax rate – “assuming that treasury centres also act as finance companies, and are able to generate a certain income by providing treasury activities and group funding.” More important, he says, are the tax treaties between the treasury centre’s host country and the countries in which the company’s legal entities are situated.
   “We see that with the further implementation/roll out of the G20/OECD Base Erosion and Profit Shifting (BEPS) project that tax planning from a treasury centre perspective is more limited,” comments Van Tol. “Especially with the release (11th February 2020) of the Transfer Pricing Guidance on Financial Transactions report, which includes new guidance to be added to the OECD Transfer Pricing Guidelines for Multinationals and Tax Administrations, the tax planning framework became more stringent.”

2. Regulatory environment

   Van Tol also notes the importance of treasury-specific regulations, such as capital market, financial market and banking regulations. These may include the existence of currency restrictions, requirements for central bank reporting and derivatives rules and whether or not banks are able to offer cash pooling solutions.

3. Access to talent

   Multinational corporations need trained and experienced professionals in order to perform the activities of a treasury centre – “so access to the specialist talent pool is of importance,” says Van Tol. While different countries will vary in terms of the breadth and depth of their treasury talent pool, he notes that there may be regional differences within individual countries.

4. Access to liquidity/currencies

   Treasury centres need to be established in countries that facilitate liquidity and the flow of money, meaning that countries with currency restrictions would not be an attractive choice.
   “Normally the location of the treasury centre would match the location of the external bank accounts for cash pooling and FX/money market purposes for tax reasons,” says Van Tol. “With regards to the locations referred to previously, we have seen global and European banks heavily investing on their capabilities in Luxemburg and Dublin to match those available in Amsterdam.” He adds, “It is beneficial for MNCs that they have the ability to get quick access to local liquidity and tap the local debt capital market.”
   Another consideration relating to access to liquidity is eligibility for the ECB’s purchase programme for the corporate sector, in which the ECB buys bonds from issuers located in the EU. “If your finance company or treasury centre is located in an EU country, this would provide additional access to liquidity for investment grade borrowers in the debt capital markets,” says Van Tol.

5. Time zone

   Aside from Russia and Turkey, Europe only includes three time zones (Western, Central and Eastern), meaning that the time zone location is not overly important from a European perspective. “But if the treasury centre also needs to perform activities for the Middle East, Africa and parts of Asia, time zone location is more important,” says Van Tol.

Other factors that companies may consider include the country’s legal system – including whether or not EU regulations apply – as well as its business environment and access to the international financial network. Language may also be taken into account: “In some countries the general level of English (as the main corporate language) is higher than others,” comments Van Tol.

On another note, Stebbings points out the importance of proximity to other business teams and global teams such as procurement, as well as the availability of office space.

Choosing a treasury centre location

When choosing a treasury centre location in Europe, Stebbings says the first steps should be to review the key factors under consideration, decide which activities the treasury centre will be carrying out, and then determine which of the factors are the most important. “The next step is to do an analysis,” he says. “This should be at the high level first in order to get to two or three favourites, at which point a more detailed analysis can be carried out.”

In carrying out this detailed analysis, says Stebbings, companies should “consider which issues might be the showstoppers – often these are the legal and tax implications of the treasury centre interacting with business entities across EMEA, but remember to take into account the operational factors.” He explains that these should include how cash will actually be centralised, which banking services are available and how the treasury centre will operate, as well as considerations relating to talent, offices and support.