IGTA Journal - Summer 2018

-3- index to the secured SOFR rate, basis adjustments will have to be provided. The G-20 has urged strictly arm’s-length pricing for inter-company loans to assure they are not being used by multinational corporations to manipulate taxable income among jurisdiction with differing tax rates. Consider a loan from a U.S. parent company to its subsidiary in a country with exchange and central bank controls on cross-border transactions. If the past rate had been LIBOR + 150 basis points, the new rate might be SOFR + 180 basis points, based on an analysis of past basis differences. The foreign tax authorities might think the U.S. parent is using inter-company loans to increase the interest rate, reducing the taxable income and tax revenues to the foreign country’s treasury. Explaining all this internally and negotiating with fiscal authorities across a large multinational group will be a time sink for our colleagues around the world. When I talk with treasurers about the need to develop a LIBOR transition plan now, well in advance of the possible end-date for LIBOR submissions, I often observe they are in what a grief counselor would call the denial phase. We all must move as quickly as we can to the acceptance phase because we could well be confronted with a blank screen one morning in the not too distant future when we look for the day’s LIBOR fixing. Further Reading NACT Testimony on “Fostering Economic Growth: The Role of Financial Companies – U.S. Senate Committee on Banking, Housing, and Urban Affairs – March 28, 2017 Principles for Financial Benchmarks – Final Report of the International Organization of Securities Commissions – July 2013 The Future of LIBOR – Speech by Andrew Bailey, Chief Executive of the FCA at Bloomberg London – July 27, 2017 Remarks of [U.S. Commodity Futures Trading Commission] Chairman Gary Gensler on LIBOR before the Global Financial Markets Association’s Future of Global Benchmarks Conference – February 28, 2013 Final Report of the Market Participants Group on Reforming Interest Rate Benchmarks – Financial Stability Board – July 22, 2014 Website of the Alternative Reference Rates Committee – Sponsored by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York – 2014 to the present Thomas C. Deas, Jr. Chairman, National Association of Corporate Treasurers Thomas C. Deas, Jr. is the Chairman of the National Association of Corporate Treasurers (www.nact.org ), having also served a previous term as its Chairman from 2011 through 2013. From 2001 until his retirement in 2016, he served as Vice President and IGTA eJournal | Summer 2018 | 44