Association Française des Trésoriers d'Entreprise
AFTE
L’Association Française des Trésoriers d’Entreprise – AFTE – créée en 1976 compte environ 1500 adhérents.
ID: 4479912317-33
Lobbying Activity
Response to Debt equity bias reduction allowance (DEBRA)
27 Jul 2022
The AFTE, representing 900+ non-financial companies with very diverse profiles, welcomes the amendments to the initial regulation proposed by the European Commission, notably the implementation of a harmonized notional interest deduction regime for the EU companies.
Nevertheless, the AFTE anticipates that, for the reasons, below the proposed directive may not result in increased equity funding by EU companies instead of debt.
First, the AFTE notes that the scope of the regulation is very broad and applies indifferently to most EU companies. Yet their profiles are very different with large companies primarily relying on the financial markets to finance their activities and small / medium / family-owned businesses (SMEs) for which debt is often the only reasonable option to finance their growth. As a result, the AFTE expects that the two measures provided by the Directive would be unfairly applied across EU companies depending on their profiles.
For many large companies, the proposed directive would only result in increased cost of debt. Indeed, the deductibility of interest would be limited to 85% for all taxpayers while the notional interest measure would generally not be applicable given the limitation related to “the tax value of its participation in the capital of associated enterprises and the value of its own shares” as well as the necessity to distribute dividends, which is a market requirement for shareholders and investors.
For SMEs, their size prevents them from accessing financing markets or private equity funding and as a result would still heavily rely on debt funding only to face increased cost . The AFTE also notes that the implementation of such regime would be particularly burdensome for SME, whose resources are limited, notably the determination of excess interest and the notional interest as the case maybe.
Then, the AFTE considers that the notional interest rate insufficiently encourages EU companies to finance their development through equity instead of debt. This measure could be improved by applying a similar debt-equity tax treatment, notably considering:
• The application of a notional interest rate that would be more attractive for instance by incrementing the 10-year interest by a fair-market equity risk premium significantly higher than 1 or 1.5%.
• The assurance for companies to deduct notional interest during the full allowance period to provide certainty to EU companies, unless in case of tax avoidance purpose.
Finally, the AFTE warns about possible counterproductive collateral effects. Indeed, in a globalised capital market, the denial of the interest deduction or increased fiscal pressure as a matter of principle would be highly detrimental to the economic growth of EU businesses. The profitability of EU companies would decrease compared to its non-EU counterparts and would not be able to generate net income and accumulate retained earnings. This is even more important in the current economic context.
The AFTE considers that the lower profitability that would result from the directive would also negatively impact the EU’s economic attractiveness compared to other territories. Investors currently operating in the EU could be encouraged to relocate part of their funding activities in non-EU countries.
Therefore, the AFTE bear the European Commission attention that this directive would be harmful to the competitiveness of its businesses without efficiently encouraging them to opt for equity instead of debt financing. If it still considers that the gap between debt and equity tax treatment must be narrowed, the implementation of a truly equivalent regime between debt interest and notional interest would be recommended.
Read full response23 Feb 2022
AFTE is the French Association of Corporate Treasurers representing the corporate treasury activities of non-financial companies or corporates (“NFCs”) including Small to Medium Sized Enterprises (“SMEs”).
AFTE welcomes the effort of the European Commission to implement the Basel 3 text and understands the importance of a robust European (“EU”) financial system to ensure financial stability and economic growth. NFCs have been extremely supportive of the banking regulatory efforts to strengthen the capital structure of banks as they need strong EU banks able to finance them.
Given that commercial exchanges are a vital form of relief for many NFCs particularly SMEs, AFTE encourage EU policymakers to pay careful attention to ensure that trade finance products are not penalized under the final transposition of December 2017, Basel III text. Otherwise this would also have adverse consequences on pricing and bank capacity for corporates and would be translated in a loss of competitiveness in Europe leading to job destructions and transfer of activities and expertise outside Europe.
Based on extensive consultations in recent weeks with financial institutions and EU companies, AFTE is deeply concerned by the transposition text of the December 2017 Basel III agreement that could have detrimental consequences on the provision of cost-effective trade finance products. This is particularly true in the context of a recovery of the real economy from the Covid-19 pandemic and the transition to a net zero carbon economy.
AFTE would like to highlight two main provisions in the draft regulation that would impact heavily trade finance products provided by EU banks.
1. The increase in the Credit Conversion Factor (“CCF”) for technical guarantees from 20% to 50% (referred in CRR3 Annex bucket 2 as Performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions and similar transaction-related contingent items).
This increase on CCF is a major concern for AFTE in terms of access to such product for NFCs to facilitate commercial transactions and to reduce the execution risk.
In this context, AFTE emphasizes that technical guarantees will play a crucial role in a wide range of energy-transition projects under the European Green Deal. AFTE considers this new proposed treatment would have with severe negative impacts on the business activities of NFCs for the following reasons:
- Increase the risks to do business for NFCs as they will operate in a less secured environment.
- Increase the cost of technical guarantees for NFCs for domestic and international projects ; This will have further negative consequences on competitiveness, jobs, execution of commercial contracts in industrial sectors where margins are already extremely tight.
- Increase the cost of corporate guarantees provided by the NFCs for the benefit of suppliers as the cost of those instruments is the mirror of the cost of technical guarantees provided by EU banks.
- Reduce the operating margin of NFCs impacting directly the suppliers through the supply chain reducing ultimately suppliers’ competitive
- Reduce the bank capacity: AFTE has understood that the new measure will reduce the market capacity for this product due to an increase in banks’ RWAs. Consequently, this will leave room for non-EU banks to increase their market share with NFCs and will reduce the number of EU financial institutions able to allocate capacity.
- ... More details in the attached file
2. The 2.5y fixed maturity
By nature, trade finance transactions have very short maturities.
Applying an average 2.5y fixed maturity to this kind of transaction will create a significant price increase for NFCs or a reduction of exposure to those products and thereby putting EU exporters in a weaker position than their competitors outside the EU.
Read full responseResponse to Instant Payments
7 Apr 2021
L’AFTE, Association des Trésoriers d’Entreprise, salue l’initiative de la Commission Européenne de promouvoir les paiements instantanés à l’échelle européenne et de solliciter les avis des différents acteurs du marché.
Déjà fortement mobilisée avec ses adhérents sur le sujet, l’AFTE est favorable au déploiement des paiements instantanés de manière large et accélérée. Afin que cet élargissement puisse s’opérer, l’AFTE recommande l’adoption de mesures législatives combinées à des actions incitatives et de communication pour généraliser le déploiement à tous les acteurs intervenants dans le domaine du paiement.
Ce cadre règlementaire devra veiller à déployer une interopérabilité et une normalisation entre les différents acteurs (banques et PSP) via des API standards, apporter des réponses concrètes aux contrôles de lutte contre la fraude tout en garantissant une tarification similaire à un virement SEPA standard.
Ces différentes mesures permettront de renforcer la confiance des utilisateurs et par conséquent favoriser une meilleure adoption du paiement instantané.
Malgré les bénéfices indéniables de l’Instant Payment, l’instantanéité soulève un certain nombre de problématiques notamment dans les échanges B2B pour la gestion de la Trésorerie 7/24/365. Dans ce contexte, il est nécessaire de laisser la possibilité aux corporates d’opter pour le virement instantané ou le virement classique en fonction des cas d’usage. En effet, une généralisation de l’instantanéité soulève des problématiques de trésorerie en temps réel telles que la gestion des soldes des comptes bancaires, les cut off… ; un cadre règlementaire serait alors à mettre en place auprès des banques pour en fixer les modalités.
Read full response18 Dec 2019
AFTE is the French Association of Corporate Treasurers representing the corporate treasuries of non financial companies (about 1 000 French members).
We welcome the effort to increase the resilience of the EU financial system but we would urge for a careful risk based analysis of prudential requirements under Basel 3.
Non financial companies (NFCs) have been extremely supportive of regulatory efforts to strengthen capital structure of banks, their main financial partners. However, the upcoming transposition of the Basel agreement of December 2017 could indirectly have detrimental impacts for the non financial sector in Europe:
- By disallowing the internal risk calculation models and lower recognition of the guarantees, European banks will have to increase their capital charges far more than American banks. According to FitchRatings + 21% for EU banks and only 1.5 % for US banks.
- Specialised lending projects and Trade finance could be negatively impacted and bring a negative impact on companies on their ability to develop their business.
- By withdrawing the counterparty risk exemption (Credit Value Adjustment) on derivatives traded with non financial companies, capital requirements for banks on these transactions will increase by 2 to 4. This will result in a significant increase in the hedging costs (exchange and rates) for non financial companies. For an BBB rated company, corresponding to an investment grade company, the cost of the CVA could increase by 0.25%, meaning a prohibitive additional cost of 250,000 euros for a swap portfolio of 10 million euros.
- Finally, the clearing obligation linked to the point above mentioned, would force companies to post margin collateral which would create a liquidity risk, and, in addition will absorb credit lines.
However, non financial companies need strong regional banks:
- able to finance companies, especially small and medium-sized businesses which still rely massively on banks loans (for more than 60%).
- but also having the ability to invest in digitalization in order to reduce costs for their customers (non financial companies and customers) instead of having to pay shareholders more (capital requirements).
Read full response