Benefits Of A Company's Expansion

period to complete each in-class quiz. Each quiz will be graded based on 50 points.

When U.S business are thinking about going abroad, they need to be aware of the other country’s laws and regulations. “All businesses must, of course, follow the laws of the countries in which they are physically present and operating. Businesses may also be required, even in their foreign operations, to continue to follow certain laws of their home country. Also, businesses operating across national borders will also be subject to international law (Tony McAdams, 2014)”.

The precise structure of inactive investment in a foreign nation depends largely on the treatment of the structure under the tax laws of the host country and the U.S.

However, the companies only have to pay the U.S. tax for foreign revenues once they bring the profits back to the United States. As a result of these current tax laws, U.S. companies that seek to avoid high corporate tax rates hold their foreign earned profits overseas. “It just makes no sense to pay a substantial tax on it,” said Joseph Kennedy, a senior fellow at the Information Technology and Innovation Foundation (Rubin, R.). It is far too easy for an IT corporation to create a patent in a foreign country and direct revenue to a corporation within that country, thus avoiding the much higher U.S. tax rates. According to Joint Committee on Taxation estimates, the lost revenue is increasing over time as corporations find even more creative ways to make their U.S. profits look like offshore income (Richards, K., & Craig, J.). As result, multinational American corporations have as much as $2 trillion held in overseas subsidiaries and if brought into the United States with the current tax laws, the federal government could benefit by nearly $50 billion per year.

In the years following the Civil War, several developments that came with the second Industrial Revolution fueled the nation’s urge for overseas expansion. Many Americans approved of overseas expansion, believing that the superior and exceptional United States functioned as an “international policeman,” and therefore had an obligation to civilize other countries, including the Philippines, Cuba, and Puerto Rico. Meanwhile, those who criticized overseas expansion believed that it violated the traditional American ideals of democracy and peace, and that the United States should focus more on the problems within the country. While the supporters and opponents of overseas expansion had entirely different views from each other, they were alike in that they both based their beliefs on the role of the country as an emerging power and its national identity.

The main objective of many companies is to minimize their tax obligations. Jeffers (2014) discussed the reason of why companies adopt tax inversion strategies. The researcher indicated that the income maximization is a major reason of companies attempting to reduce their tax liability (pp. 100-101). Tax inversion strategies provide companies an advantage to lower income tax rate. Today, U.S. corporations renounce its U.S. citizenship and move to low-tax countries. Companies that reincorporate oversees are not obligated to pay U.S. taxes on earning income (p. 99). Many countries implement tax competition strategies to attract and retain businesses. Well-known companies, such as Exxon Mobil, Hewlett Packard, Tyco, General Electric, PepsiCo, etc. take benefits of tax shelter opportunities overseas (p. 102). Other benefits of the jurisdiction abroad are flexible banking laws and simplified litigation processes.

“The United States has the highest corporate tax rate of the 34 developed, free-market nations that make up the Organization for Economic Cooperation and Development (OECD). The marginal corporate tax rate in the United States is 35% at the federal level… according to the 2013 OECD Tax Database. The global average is much lower, at 25%” (Fontinelle, 2014). Even though there are ways for businesses to decrease or even avoid these payments, this high figure deters foreign investors from considering the United States for business and sends them looking in more favorable countries like Canada or Ireland. Adding to pushing away potential foreign investors, U.S. firms flee to those tax favorable places to avoid it. “When these companies move their headquarters or create foreign subsidiaries, jobs and profits move overseas” (Fontinelle,

Metlife, Inc. (“Metlife”, ”Company”) is a multinational insurance company which carries operations both in the U.S. and in various other foreign jurisdictions. The taxable income that Metlife generates abroad through its subsidiaries is subject to income tax under the laws of those foreign jurisdictions within which the income is derived from. Under the U.S. worldwide taxation system, that same income is also subject to U.S. tax upon (deemed) repatriation to Metlife. The apparent result of the above is the double taxation of the income earned abroad. In order to alleviate this issue, the U.S. makes available to the taxpayer a Foreign Tax Credit (“FTC”) for foreign income taxes paid, subject to certain limitations. The calculation of the FTC is a complex process which is comprised of many steps, most of which are beyond the scope of this memorandum. The only step that this memorandum is concerned with is the allocation/apportionment of expenses to

International projects present multinational corporations with many complexities in organizing a profitable transaction structure.Foreign exchange risk is an underlying problem. Credit risk presents another challenge. Payment terms and the certainty of realizing them can be difficult points. Negotiations with foreign corporations and governments, and with agents and intermediaries, present additional challenges. An example of the demanding environment for global financial activities is presented in the case of "Avicular Controls and Pakistan Airlines". It is found in Cases in International Finance on page 40.

Intercompany transactions could occur across national borders, it would lead MNC companies to get more exposure to the differences of the tax regulations between countries. This might lead MNC companies to set up their objective to minimize their taxes through the use of discretionary transfer prices. These issues are attracted the attention of the member of the U.S. senate, foreign governments and international organization such as the OECD, G20 and European Union (EU).

There are always business risk when it comes to expanding a company, especially from an international standpoint. There are many strategic risk that needs to be evaluated in order to expand the company successfully. Examining the possible risk of foreign currency exposure, basic functions of international banking/financial market, support of long term financing of operations, and assessment of opportunities that can be implemented within the company. There are risk on three dimensions of international finance, economic trends of the country, impact of globalization and monetary system. All of these situations will be discussed in this paper.

Lately, the international financial integration has increased. Over the years, the world economy has witnessed an increase in the number of individuals and businesses using international banking services. In today’s competitive global economy banks have the option to solely service their home market, to export services to foreign markets, or to establish a presence in that market. Essentially, banks have two options of expanding their operations in foreign markets. They can either service foreign clients through their domestic offices or they can establish a presence in the foreign markets. In general, the reasons for bank internationalization in

There are a myriad of strategies and techniques used by organizations to manage transfer pricing, with many of them designed for tax advantages across varying national and regional boundaries. As institutional factors of a given nation including the economic, political and legal systems all impact the creation, direction and future composition of national accounting systems, an organization's taxation strategies need to take these factors into account (Shenkar, Luo, 2007). Any given national accounting system will have a direct impact on a given firm's investment, asset management and foreign currency management strategies. Transfer pricing is also used for averting taxation between nations as well, as the GlaxoSmithKline PLC case illustrates.

Even though a company must invest a large amount of money to get started in a foreign country, this can have the long-term effect of lowering costs. by take advantage of large tax benefits. The company can also pay less for labour and other goods that may be needed for the production of products. This lowers the overhead for the company and helps it operate more profitably