When Tiffany & Co. decided to take its China strategy to the next level by establishing a wholly foreign-owned entity to support its retail operations, much of the heavy lifting for the financial and operational design fell to organizations under the direction of treasurer Michael Connolly. The team's deep knowledge of the company's strategic priorities made the choice easy, but it wasn't the only criteria for involving the executive and his treasury. Besides his skill set in corporate finance and cash and risk management, Connolly also brought a substantial background in integrating tax principles that allowed him to shape a capitalization structure for the new Tiffany-China Co. with just the right mix of equity investment, inter-company loans and bank debt up front, including all tax rate considerations.

The $2.4 billion fine jewelry retailer–with more than 150 retail stores in 21 countries–had operated two boutique locations in Beijing and Shanghai. Under the new structure, Tiffany opened two new stores in China last year. It also has more control, a formalized supply chain process for imports, borrowing and cash management relationships with Chinese offices of two international banks that supply debt and cash services, and a financial platform for the future. "By bring-
ing the two disciplines [of tax and treasury] together, you get to ask all the right questions up front," says Connolly. "Our goal is that all subsequent surprises are operationally driven rather than due to a lack of design."

Connolly began his career at Tiffany as a tax specialist in 1989 when the company's annual revenues were $384 million. In 1997, he was named treasurer, after being involved with the company's push into new markets and operational and vertical expansion changes. Connolly has both tax and treasury answering to him, and he expects each to have an understanding of the other's point of view. "Our conversations are regularly around the potential local country and U.S. tax and cash management impacts of everything that we do," says Connolly, who also has responsibility over risk management at Tiffany. "It allows us to optimize our cash management decisions; for example, even though we may see an attractive investment opportunity in a particular market, we have to anticipate that there might be a tax haircut in computing the expected return.

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