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2019 Financial Services Tax ConferenceJuly 18, 2019___________

tax.kpmg.us

Changing Business Modelsin a World of Changing Tax Currents – Implications for Transfer Pricing

2© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 834883 2© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 834883

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

3© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 834883 #KPMGFSTax

Today’s PresentersName Title Firm/Company

NameEmail

Burcin Nee Global Leader, Global Transfer Pricing Services - FS KPMG in the US [email protected]

Bao Ho Director, Transfer Pricing MUFG [email protected]

Sherif Assef Principal, Washington National Tax KPMG in the US [email protected]

Maggie Fritz Banking Leader, Global Transfer Pricing Services - FS KPMG in the US [email protected]

Graeme Webster Director, Transfer Pricing KPMG in the UK [email protected]


Changing Business Models – Transfer Pricing Implications

Changing Tax Landscape – Impact on FS Transfer Pricing

LIBOR Transition – Considerations for TP

Agenda

5© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 834883 5

Changing Business Models and Considerations for Transfer Pricing


Top 10 Drivers of Change

RegulationUncertainty surrounding a complex and inter-connected global issues

Evolving infrastructure(Tax reform, LIBOR, CECL)

Economic shifts/geopoliticsUncertainty related to economical and geopolitical developments; demographic shifts; credit cycle changes, and rising interest rates

Business model re-freshM&A, divestures & other organizational changes to transform, achieve scale, and meet customer goals

Digital transformationBecome customer obsessed, seeking to simplify the business. Customers want: “make it easy, know me, value me, and protect me.”

CostImprove margins through unceasing focus on people, processes, and scale

Customer experienceOn-demand, customized products and service akin to Amazon

Data & analyticsSkillful management of data for product, service, and strategic-planning purposes

Disruptive technologiesLeveraging an array of current and developing technologies: RPA, cognitive, AI, VR and blockchain

CyberShifting to an opportunity versus a threat and becoming more of an experience due to company’s digital transformation

Talent management: leading millennials, skill evolution (e.g., I.A. and D&A), and building the right culture.

People/talent/culture permeate all 10


Changing Tax Landscape and Considerations for FS Transfer Pricing


OECD Policy Note – January 29, 2019

1st PillarAddress Nexus and Profit Allocation issues

2nd PillarAddress broader BEPS issues/Low taxation

Accuracy & Tax Certainty Simple & Administrable Avoid Double Taxation

User Contribution

Market Intangibles

Significant Economic Presence

Go beyond arm’s-length principle/Affect larger group of MNEs

Inspired by the U.S. tax reform/Introduction of a withholding tax?

Recommendations on implementation of a LONG-TERM solution by the end of 2020

Income Inclusion

Rule

Tax on Base Eroding Payment

Coordination Rules


New Profit Allocation Considerations

1

3

5

2

4

6

Modified RPSM

Fractional apportionment method

Distribution-based approaches

Business lines and regional segmentation

Scoping limitations

Develop rules on losses


LIBOR Transition and Considerations for Transfer Pricing


Based on impacted exposures, the decommission of LIBOR will significantly impact not only products, butmost functions and businesses within institutions. Examples include, but are not limited to:

The product types affected by the discontinuation of LIBOR include both contracts that directly and indirectly reference LIBOR

(e.g. for valuation purposes)

OTC Derivatives

Exchange TradedDerivatives

Securitized Products

Deposits

Bonds

Mortgages

Loans Repo and FinancingTransactions

LIBOR Exposures$2001 trillion of assets

reference LIBOR globally, of which approximately

90% is in derivatives

Markets

Trading

Counterparty

Investor

Products

What will the LIBOR transition impact?LIBOR replacement – Managing the transition

1Federal Reserve Bank Alternate Rates Reference Committee, Second Report, March 2018

Business Units Applications and Systems Operations Risk Management

• Retail Banking• Commercial Banking• Capital Markets• Wealth Management• Mortgage• Corporate Trust

• Treasury• Finance• Securitization• SPV• Legal Entity Tree

Assessment

• Lending• Deposits• Capital Markets• Mortgage• Mortgage Servicing• Corporate Trust

• Pricing• Risk applications• Commercial

Banking• Wealth

Management• Vendor applications

• Loan underwriting• Loan servicing• Capital Markets• Finance• Balance Sheet Mgmt• Customer

management

• Call centers• Third Party

Vendor Management

• Wealth Management

• Balance Sheet• Interest Rate Risk• Product Pricing• CCAR / Stress

Testing• Model Risk Mgmt

• Funds Transfer Pricing

• Treasury Risk• Customer compliance• Hedging

The LIBOR transition has a wide impact due to its incorporation within a broad range of financial instruments used across various market participants. Differences in industry working group positions and legal opinions add to the complexity of this transition.


Key Takeaways


Thank you

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 834883

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

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