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ACCA Strategic Professional · Advanced Financial Management · The role of the treasury function in multinationals

A group treasury centre in a low-tax jurisdiction operates an in-house bank and uses leading and lagging. Which issue is most likely to be a constraint on this approach?

The main constraint is regulatory: exchange controls may restrict the timing and movement of funds, and tax authorities may challenge intra-group interest and payment timing. Netting and central cash holding remain beneficial, and subsidiaries need not share a common currency.

  1. AExchange control regulations and tax authority scrutiny of intra-group payment timing and interest charges in the subsidiaries' countriesCorrect
  2. BThe inability to net any intra-group transactions
  3. CThe lack of any benefit from holding cash centrally
  4. DA requirement that all subsidiaries use identical currencies

Explanation

Leading and lagging and in-house banking can be restricted by exchange controls, and tax authorities may challenge transfer pricing of interest or withholding taxes. The other options are untrue or irrelevant to such arrangements.

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