The document discusses how the COVID-19 pandemic has increased complexity for transfer pricing compliance. Multinational enterprises may be incentivized to change internal pricing between affiliates in different countries due to tax rate differences. However, economic substance rather than tax avoidance should be the key consideration. The pandemic presents an opportunity to quantify and adjust for its extraordinary impacts, reconsider business strategies and risks, and ensure optimal customs practices. It also introduces Bannockburn Global Forex, which provides foreign exchange hedging services and helped one client save $375k annually by analyzing historical exchange rates.

1. Global Business
Disruptions from
COVID-19MAY 20, 2020

2. Transfer Pricing + Covid-19 Disruptions
May 20, 2020
 Transfer Pricing Complexity Increases with Covid-19 Disruptions
 Objective of Transfer Pricing Regulations Around the World is to Prevent Tax
Manipulation by Companies with Common Ownership
o Incentive for MNEs to Change Internal Pricing for Goods, Services, Royalties, or
Financing based on Different Country Tax Rates
o Economic Substance is the Key to Tax Minimization vs Tax Manipulation
o Arm’s Length – Market Rate – Pricing… Tax Authorities Expect Affiliated Companies
to Operate as if Total Strangers
 World Pandemic is not “Normal Business” and has Nothing to do with Transfer Pricing
or Tax Rate Arbitrage
 Quantify + Adjust: Transfer Pricing Compliance Impact of Covid-19
 Revisit Global Strategies via Transfer Pricing: Consider Opportunities to Address
Weaknesses in Business

3. Transfer Pricing Compliance FY2020
May 20, 2020
 Capture the New Story of Your Business
 Quantify + Adjust for Extraordinary Events
o Supply Chain Disruptions
o Reduced Sales
o Increased Expenses
o One-off, Non-Recurring Costs
 Reconsider Evolving FAR – The Functions, Assets, + Risks
 “Low Risk” Entity is Not a “No Risk” Entity

4. Revisit Global Transfer Pricing Strategies for Value-Added Impact
to Operations
May 20, 2020
 Review Global Trade Practices: Product Pricing + Customs Declarations to Ensure
Optimal Approach
 Opportunity to be more Strategic about Customs Declarations + Minimize Customs Duty
 Cashflow Management – Weaknesses Exposed During Challenging Times – Need to
Access Cash Quickly + Reallocate where Needed
 Repatriation of Funds
 Transfer of Intellectual Property
 Tax Minimization
 Review + Revise Intercompany Legal Agreements to Reflect the New Global Business

5. Introduction to
Foreign Exchange
Risk Management
MAY 20, 2020

6. Bannockburn Global Forex
Who We Are:
11+ year old capital markets trading firm specializing in foreign currency advisory, hedge
analytics, and forex transaction execution
What We Bring:
Experienced forex strategists that assist globally active companies in hedging against
potential loss, while providing basic FX execution to safely fund daily operations.
How We Serve:
We function as a forex treasury partner so that all processes and procedures are seamless
from pre-trade analytics through settlement. No change to their existing bank relationship
necessary.
How It Begins:
Our team provides forensic services to evaluate FX prior performance seeking to identify
and then recapture earnings (EBITDA) lost to inefficiencies.
May 20, 2020

7. Foreign Exchange Risk Exposure
May 20, 2020
Key Risks Exist When Companies
• Are doing business outside of their home country, creating exposure to currency
movements even if only doing business in USD
• Import purchases and export sales, typically denominated in local currency
• Hold international assets and liabilities on their balance sheet, creating noise when
revaluing those assets/liabilities in functional currency
• Perform cross-border intercompany transactions such as loans, dividends, royalties,
franchise & license fees
• Acquire or divest international entities

8. Currency Volatilities Explode – Beginning of Year vs. Now
May 20, 2020

9. Select Currencies’ YTD Gains/Losses vs. USD
May 20, 2020

10. Forward contracts are a purchase / sale of one currency against another at a set rate for a future
settlement date or range of dates.
Key Benefits:
• Eliminates exposure to fluctuations in currency values and locks in an exchange rate as of the trade date
• Provides fixed hedges and increased accuracy for foreign line items that impact budgeted financials
• No out of pocket premium associated with locking into a forward contract.
Variables in determining if and how to hedge:
• Certainty of exposure (forwards create obligation between the executing counterparties)
• Ability to forecast exposures further out in time.
• Many companies ‘layer into’ their forwards, creating a dollar-cost-average of executed hedges
Introduction to Hedging: Forward Contracts
May 20, 2020

11. Case Study 1: OpCo cash flow risk – Long AUD vs. USD
Company: U.S. HQ company that sells into Australia in local currency.
Market Situation: AUD depreciated against the USD at the beginning of the pandemic but has
sizably recovered in recent months. Company is uncomfortable with the vol.
Opportunity: Lock into forward contracts to fix margins
The company can deliver the AUD to gross settle each contract or offset the contract at maturity and
net settle the gain/loss. If timing of settlement/receivables changes, company can roll the contract
in/out to match maturity dates.
May 20, 2020
Vanilla Forwards
Spot Rate: 0.6560
AUD Amount USD Amount
Maturity Client Sells All-in Rate Client Buys
1M AUD 4,000,000 0.6558 $2,623,200
2M AUD 3,000,000 0.6557 $1,967,100
4M AUD 1,000,000 0.6557 $655,700
6M AUD 2,000,000 0.6556 $1,311,200
7M AUD 1,000,000 0.6555 $655,500
9M AUD 3,000,000 0.6555 $1,966,500
12M AUD 6,000,000 0.6554 $3,932,400
TOTALS AUD 20,000,000 0.6556 $13,111,600

12. Case Study 2: OpCo cash flow risk – Short MXN vs. USD
Company: U.S. HQ company with manufacturing facilities in Mexico. Payroll and other
operating expenses are denominated in MXN. Noncyclical business.
Market Situation: USD/MXN has spiked but has come off extreme highs. Remains highly volatile.
Opportunity: Lock into forward contracts to fix improved margins.
The USD equivalent of the company’s MXN expenses is now locked in. The company can deliver MXN
to their Mexican entity account any time during the month, in whole or in pieces.
May 20, 2020
Window Forwards
Spot Rate: 23.6100
MXN Amount USD Amount
Value Date Client Buys All-in Rate Client Sells
1M MXN 15,000,000 23.6900 $633,179
2M MXN 15,000,000 23.7700 $631,048
3M MXN 15,000,000 23.8500 $628,931
4M MXN 15,000,000 23.9300 $626,828
5M MXN 15,000,000 24.0100 $624,740
6M MXN 15,000,000 24.0800 $622,924
7M MXN 15,000,000 24.1500 $621,118
8M MXN 15,000,000 24.2300 $619,067
9M MXN 15,000,000 24.2900 $617,538
10M MXN 15,000,000 24.3400 $616,270
11M MXN 15,000,000 24.3900 $615,006
12M MXN 15,000,000 24.4300 $613,999
MXN 180,000,000 24.0943 $7,470,647

13. Case Study 3: Acquiring Canadian Asset for 75M CAD
An appreciating CAD will increase USD requirements at close (60 days) – Deal uncertainty is high
Current CAD Spot 60 Day Historical VOL
Resulting Value at Risk on 75M
CAD =
1.3875 13.24% US $7,156,756.76
FX Hedging Strategy FX Option Cost FX Option Considerations
Purchase CAD call / USD put option
Strike: 1.3600
60 Day Expiration
Cost: C$75,000,000 / 1.36 x
0.3825% = US $210,928
Out of pocket premium
No obligation
Protects against USD deterioration
Key Considerations:
• Investment of 0.3825% of USD protects against 13.24% of volatility
• 1.3875 to 1.3600 possible deterioration of USD accepted as a worst case (plus option cost)
• If USDCAD spot rate is higher than strike at expiry, client may buy 75M CAD at the better rate;
if USDCAD spot rate is lower than strike at expiry, client buys 75M CAD at strike
• If the acquisition falls through, the client can sell the option at market value at any time
May 20, 2020

14. We saved this client $375k annually in FX conversion costs
FX Trade Date FX Amount USD Amount Bank FX Rate Hi Mid Lo Loss From Mid % of Contract
CAD 20-Oct-2016 1,064,322.83 $800,000.00 1.3304 1.3233 1.3172 1.3112 ($8,019.16) -1.00%
CAD 14-Nov-2016 1,505,768.70 $1,100,000.00 1.3689 1.3589 1.3542 1.3495 ($11,924.91) -1.08%
CAD 18-Nov-2016 545,856.57 $400,000.00 1.3646 1.3565 1.3529 1.3493 ($3,471.48) -0.87%
CAD 28-Nov-2016 1,497,547.61 $1,100,000.00 1.3614 1.3537 1.3467 1.3397 ($12,012.79) -1.09%
CAD 15-Dec-2016 1,749,378.52 $1,300,000.00 1.3457 1.3417 1.3343 1.3270 ($11,083.36) -0.85%
CAD 19-Dec-2016 1,483,504.12 $1,100,000.00 1.3486 1.3423 1.3370 1.3318 ($9,576.76) -0.87%
CAD 30-Dec-2016 1,627,983.88 $1,200,000.00 1.3567 1.3508 1.3454 1.3401 ($10,037.08) -0.84%
CAD 06-Jan-2017 3,338,963.80 $2,500,000.00 1.3356 1.3268 1.3223 1.3178 ($25,118.20) -1.00%
CAD 16-Jan-2017 1,328,841.50 $1,000,000.00 1.3288 1.3188 1.3146 1.3104 ($10,833.33) -1.08%
CAD 09-Feb-2017 2,263,018.01 $1,700,000.00 1.3312 1.3168 1.3131 1.3095 ($23,416.35) -1.38%
CAD 17-Feb-2017 3,299,966.13 $2,500,000.00 1.3200 1.3126 1.3093 1.3060 ($20,404.90) -0.82%
CAD 09-Mar-2017 956,212.05 $700,000.00 1.3660 1.3535 1.3509 1.3483 ($7,833.33) -1.12%
CAD 17-Mar-2017 1,887,483.63 $1,400,000.00 1.3482 1.3377 1.3340 1.3304 ($14,905.28) -1.06%
CAD 24-Mar-2017 1,348,709.99 $1,000,000.00 1.3487 1.3386 1.3366 1.3347 ($9,060.30) -0.91%
CAD 03-Apr-2017 9,465,824.54 $7,000,000.00 1.3523 1.3400 1.3350 1.3300 ($90,505.27) -1.29%
CAD 13-Apr-2017 2,014,913.81 $1,500,000.00 1.3433 1.3338 1.3281 1.3224 ($17,140.14) -1.14%
CAD 27-Apr-2017 1,516,212.88 $1,100,000.00 1.3784 1.3671 1.3600 1.3530 ($14,862.42) -1.35%
CAD 02-May-2017 1,660,972.50 $1,200,000.00 1.3841 1.3758 1.3704 1.3650 ($12,034.81) -1.00%
CAD 19-May-2017 1,909,612.86 $1,400,000.00 1.3640 1.3611 1.3560 1.3509 ($8,269.07) -0.59%
CAD 26-May-2017 2,448,556.46 $1,800,000.00 1.3603 1.3497 1.3465 1.3433 ($18,460.06) -1.03%
CAD 08-Jun-2017 1,775,021.44 $1,300,000.00 1.3654 1.3522 1.3503 1.3485 ($14,538.58) -1.12%
CAD 23-Jun-2017 2,413,082.19 $1,800,000.00 1.3406 1.3308 1.3259 1.3211 ($19,957.92) -1.11%
CAD 03-Jul-2017 1,970,644.70 $1,500,000.00 1.3138 1.3012 1.2988 1.2965 ($17,281.11) -1.15%
CAD 14-Jul-2017 3,826,888.52 $3,000,000.00 1.2756 1.2747 1.2695 1.2644 ($14,484.85) -0.48%
CAD 14-Aug-2017 1,929,504.94 $1,500,000.00 1.2863 1.2731 1.2699 1.2667 ($19,414.87) -1.29%
CAD 25-Aug-2017 2,524,203.03 $2,000,000.00 1.2621 1.2540 1.2503 1.2466 ($18,877.90) -0.94%
CAD 18-Sep-2017 1,242,964.44 $1,000,000.00 1.2430 1.2338 1.2255 1.2172 ($14,250.88) -1.43%
CAD 28-Sep-2017 1,886,863.20 $1,500,000.00 1.2579 1.2519 1.2468 1.2417 ($13,364.78) -0.89%
CAD 09-Oct-2017 1,905,393.18 $1,500,000.00 1.2703 1.2559 1.2542 1.2526 ($19,210.00) -1.28%
CAD 20-Oct-2017 1,646,937.91 $1,300,000.00 1.2669 1.2630 1.2553 1.2477 ($11,987.50) -0.92%
64,035,153.94 $48,200,000.00 Total: ($502,337.38) -1.04%
Sample FX Assessment (Day to Day FX - $50MM Annually)
May 20, 2020

15. • Bannockburn is a capital markets trading firm specializing
in currency advisory and execution services
• Provide transactional, hedging, and analytical FX
products to corporate and institutional clients both
private and public
• As of September 2019, a division of First Financial Bank
(NASDAQ: FFBC)
Company Overview Key Company Facts
Typical Client Characteristics Include Exceptional Growth from Focus on Customers
• Closely held
• Domestically headquartered
• Importing / Exporting
• Global subsidiaries, plants, manufacturing, sales
• Revenue between $3 MM and $1 BLN (middle market)
• Gap exists in pricing and / or service
Headquarters Cincinnati, Ohio
Founded 2009
Partners 27 (10 US office locations)
Quick Stats • 1,600+ clients
• 150,000+ secure transactions
• $30+ BLN USD volume
CUSTOMER
VALUE FOCUS
DRIVES
GROWTH
EBITDA:
101% CAGR
Active Clients:
78% CAGR
New Clients
Per Year:
112% CAGR
Revenue:
79% CAGR
Trade Count:
109% CAGR
Transacted
Volume:
126% CAGR
Bannockburn’s customer-focused approach and expertise are key drivers of growth.
May 20, 2020

16. Representative Fund Clients
May 20, 2020

17. CONTACT US
Kimberlee S. Phelan
Partner, CPA, MBA, Practice
Leader, International Services
Office:
609-520-1188
kphelan@withum.com
Marina Gentile
iMBA, Lead, Global Transfer
Pricing Strategies
Office:
212-829-3244
mgentile@withum.com

18. CONTACT US
BannockburnGlobal.com
Joe Areddy
Senior Managing Director
Office:
513-212-6793
Mobile:
513-258-8370
joe.areddy@bbgfx.com
Marc Chandler
Chief Market Strategist
Office:
646-200-5762
Mobile:
917-860-2128
marc.chandler@bbgfx.com

19. FOLLOW US FOR BREAKING NEWS ON THE FX MARKETS
@BannockburnFX
@MarcMakingSense
Bannockburn Global Forex
Marc Chandler
MarctoMarket.com