INTERCOMPANY FUND-FLOW MECHANISMS: COSTS AND BENEFITS III.DESIGNING A GLOBAL REMITTANCE POLICY... INTERCOMPANY FUND-FLOWMECHANISMS: COSTS AND BENEFITS II.INTERCOMPANY FUND-FLOW MECHANISM
Trang 2CHAPTER 20
MANAGING THE
MULTINATIONAL
Trang 3CHAPTER 0VERVIEW
I THE VALUE OF THE
MULTINATIONAL FINANCIAL SYSTEM
II INTERCOMPANY FUND-FLOW
MECHANISMS: COSTS AND BENEFITS
III.DESIGNING A GLOBAL
REMITTANCE POLICY
Trang 4I THE VALUE OF THE
MULTINATIONAL FINANCIAL SYSTEM
I THE MNC’s DISTINCT VALUE
A Allows MNC to arbitrage
1 Tax systems
2 Financial markets
3 Regulatory systems
Trang 5THE VALUE OF THE MULTINATIONAL FINANCIAL SYSTEM
A Tax Arbitrage
1 Wide variations exist in global
tax systems
2 Firms reduce taxes paid
-move funds to low-tax
jurisdiction
Trang 6THE VALUE OF THE MULTINATIONAL
FINANCIAL SYSTEM
B Financial Market Arbitrage
1 Assume imperfect markets
because
a Formal barriers to trade exist
b Informal also exist
c Imperfections in domestic
capital markets exist.
Trang 7THE VALUE OF THE MULTINATIONAL
FINANCIAL SYSTEM
C Regulatory Arbitrage
1 Arises when subsidiary profits
vary due to local regulations.
2 Example:
a Government price controls
b Union wage pressures, etc.
3 Firms may disguise true profits
in order to gain better
negotiations
Trang 8II INTERCOMPANY FUND-FLOW
MECHANISMS: COSTS AND BENEFITS
II.INTERCOMPANY FUND-FLOW
MECHANISMS
A MNC Policy: Unbundling
breaks up a total international
transfer of funds between pairs of affiliates into separate components.
B Example:
Headquarters breaks down charges
Trang 9INTERCOMPANY FUND-FLOW
MECHANISMS: COSTS AND BENEFITS
C Inter-company Fund Flows
b U.S Tax System
tax income remitted abroad
on corporate income tax.
Trang 10INTERCOMPANY FUND-FLOW
MECHANISMS: COSTS AND BENEFITS
c Offset:
Foreign tax credit given on
income already tax.
2 Transfer Pricing
a Definition: pricing
internally-traded goods for the purpose of
moving profits to a more tax-friendly nation.
Trang 11INTERCOMPANY FUND-FLOW
MECHANISMS: COSTS AND BENEFITS
b Uses of Transfer Pricing
1.) Reduces taxes paid2.) Reduces ad valorem tax
3.) Avoids exchange controls
Trang 12INTERCOMPANY FUND-FLOW
MECHANISMS: COSTS AND BENEFITS
3 Reinvoicing Centers
a Set up in low-tax nations.
b Center takes title to all gods.
c Center pays seller/paid by buyer all within the MNC.
d Advantages:
1.) Easier currency changing
2.) Other invoice currency,
Trang 134 Fees and Royalties
a Firms have control of payment
amounts.
b Host governments less suspicious.
Trang 14INTERCOMPANY FUND-FLOW
MECHANISMS: COSTS AND BENEFITS
5 Leading and Lagging
a Highly favored by MNCs
b Value depends on opportunity cost
c No need for formal debt
d Less chance of local government
suspicion.
Trang 16INTERCOMPANY FUND-FLOW
MECHANISMS: COSTS AND BENEFITS
b Types of Inter-company Loans
1.) Back-to-back loans
a bank
Trang 17(3.) accesses blocked funds 2.) Parallel loans
a.) Consists of 2 related but
separate loans with 4 parties in
2 nations.
Trang 18INTERCOMPANY FUND-FLOW
MECHANISMS: COSTS AND BENEFITS
b.)Purpose of parallel loan
7 Dividends
most important method of
Trang 19III DESIGNING A GLOBAL
Trang 20DESIGNING A GLOBAL REMITTANCE
POLICY
B Information Requirements of a Global
Remittance Policy
-firm needs following details
1 Subsidiary financing requirements
2 Sources/costs of external capital
3 Local investment yields
4 Financial channels available
Trang 21DESIGNING A GLOBAL REMITTANCE POLICY