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HMRC internal manual

International Manual

HM Revenue & Customs
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Intra-group funding: group finance companies and the treasury function: Centralising the finance function - commercial considerations

Points to examine

Tax savings are a factor when groups reorganise or centralise functions and finance is no exception. The general guidance on tax planning structures is worth considering when finance or treasury functions are moved to a new location or centralised (see INTM465000 onwards).

However it is very common for groups of companies to centralise some or all of their finance function, and non-tax considerations will play a significant part in the decision to centralise. The finance function may be centralised within a group’s holding company but it is increasingly common for it to be concentrated in a special-purpose subsidiary or group finance company. More complex treasury management operations may locate treasury management and control in a separate company from transaction execution. A factual and functional analysis should be applied to each entity.

Commercial reasons for centralisation can include:-

  • improved co-ordination of finance functions across the group
  • location of functions close to financial markets
  • greater economies of scale
  • increased bargaining power
  • recognition of the status of treasury personnel
  • the need to measure the effectiveness of the treasury function by making it a separate cost or profit centre
  • the implementation of a management strategy to enable group companies to focus exclusively on their core business
  • maximisation of liquidity and minimisation of external borrowing through cash pooling

In terms of commercial factors, a group will need to consider

  • how conducive any location is to the activities themselves, including access to markets (trading floors, etc), availability of staff, feasibility of relocating staff to the new location, communication links (both with group personnel and third party providers of finance), local regulation and funding regimes
  • the costs that would be involved in the move
  • co-location savings
  • the nature of the proposed activities (treasury management strategy and/or execution of transactions) in any given jurisdiction
  • ease of monitoring and managing group risks
  • the scope/scale (national/pan-European/international/global) of the proposed activities in any given jurisdiction

Access to markets is a factor that will influence groups in considering location of the finance function, which helps explain why many multinationals locate their treasury companies within the UK.