Amid mounting geopolitical tensions and regulatory shifts like the OECD’s BEPS 2.0 initiative, multinational corporations are being forced to reassess how they structure intercompany financing. The traditional models of centralized treasury hubs and tax-efficient structures are increasingly under scrutiny, as governments worldwide tighten their grip on cross-border financial flows.
LSEG has highlighted how recent trends—especially a rise in economic nationalism post-pandemic—are reshaping the landscape of international tax planning. Countries are now adopting neo-mercantilist policies, prioritizing the reshoring of industries, protecting local tax revenues, and enforcing tighter controls on supply chains. As a result, tax authorities are more rigorously evaluating the economic substance behind intercompany transactions, particularly those involving low-tax jurisdictions.
A key driver of this shift is the OECD’s BEPS 2.0 framework. Pillar One reassigns taxing rights to markets where consumers reside, even if a business has no physical presence there—undermining traditional strategies that allocate profits to intellectual property entities in tax havens. Pillar Two establishes a global minimum corporate tax rate of 15%, effectively curbing the appeal of profit shifting and forcing firms to justify their transfer pricing practices more robustly.
This has led to heightened expectations from regulators, who now demand detailed documentation showing that treasury activities reflect real economic value. Companies are expected to apply sophisticated financial methodologies, including credit rating analysis, risk assessments, and benchmarking against real market interest rates.
Moreover, indirect taxes like VAT and withholding taxes are becoming significant factors in assessing the efficiency of cross-border funding arrangements.
In response, corporate treasury and tax teams are advised to align financing structures with actual business operations and value creation, possibly shifting from centralized to more decentralized models. Building genuine substance—via local staffing and governance—is now crucial. Proactive modelling of tax reforms and engaging with regulators are also key strategies to navigate this evolving and complex regulatory environment.
