Segmented Financial Instrument for Offshore Earnings Repatriation

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Solution Overview

Problem

Current financial instruments fail to effectively repatriate dividends or earnings from offshore subsidiaries to parent companies while considering tax implications and maintaining creditworthiness, especially for newly formed subsidiaries.

Innovation Solution

A financial instrument comprising a forward contract, a preferred security, and a debt instrument with distinct maturity dates, where the parent company issues the forward contract and the subsidiary issues the preferred and debt instruments, with the parent providing guarantees and the instruments being used to repatriate dividends, and incorporating features like withholding a percentage of stock price upside and satisfying financing ability tests independent of the parent.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Productivity

If a subsidiary issues debt instruments to repatriate earnings, then dividend repatriation efficiency is improved, but the parent company's credit rating may be compromised

Engineering Contradiction:

Improvedividend repatriation efficiencyVSAvoidparent company credit rating

Core Design Contradiction:

ProductivityVSReliability

Solution Approach 1:

The financial instrument is segmented into multiple components: a forward contract issued by the parent company, preferred securities issued by the subsidiary, and debt instruments issued by the subsidiary. This segmentation allows the parent company to benefit from tax deductions while the subsidiary maintains its credit profile, thus resolving the contradiction between repatriation efficiency and credit rating protection.

Inventive Principle:

Principle #1Segmentation

2Adaptability or versatility

If a newly formed offshore subsidiary issues financial instruments, then financing ability is improved, but the subsidiary may fail to satisfy independent financing ability tests

Engineering Contradiction:

Improvefinancing abilityVSAvoidindependent financing ability test satisfaction

Core Design Contradiction:

Adaptability or versatilityVSReliability

Solution Approach 1:

The parent company acts as an intermediary by providing a guarantee on the debt instruments issued by the newly formed subsidiary. This guarantee enables the subsidiary to satisfy independent financing ability tests while still accessing the necessary financing, as the parent's creditworthiness supports the subsidiary's instruments without creating actual dependency.

Inventive Principle:

Principle #24Intermediary (Mediator)

3Reliability

If the parent company provides guarantees on subsidiary debt, then investor confidence is improved, but the parent's financial flexibility is reduced

Engineering Contradiction:

Improveinvestor confidenceVSAvoidparent company financial flexibility

Core Design Contradiction:

ReliabilityVSAdaptability or versatility

Solution Approach 1:

The guarantee is provided locally and specifically for the debt instruments issued by the subsidiary, rather than a blanket guarantee on all subsidiary obligations. This targeted approach builds investor confidence in the specific financial instrument while preserving the parent company's financial flexibility for other operations and investments.

Inventive Principle:

Principle #3Local quality

Data Source

PatentUS7895114B2Method and system for repatriating earnings

Publication Date: 2011.02.22 JPMORGAN CHASE BANK NA

AI summary

A financial instrument comprises a forward contract with a first maturity date, a preferred security with the first maturity date, and a debt instrument with a second maturity date that is after the first maturity date. The forward contract is issued by a parent company, the preferred security is issued by a subsidiary of the parent company, and the debt instrument is issued by the subsidiary of the parent company.