Notes On Tax Taxation And Taxation

The role of multinational companies (MNEs) in international trade has become very great importance in the last 20 years. This is in large part to the increase in the integration of national economies and technological progress, in particular in the area of communication. The growing importance of MNEs develop complex issue of taxation on both the tax administration as well as MNEs, since the regulations of each country in the taxation of MNEs can be considered in isolation, but should be considered in the wider international importance (Grimwade, 2000).

Business taxes can have a huge impact on the profitability of businesses and the amount of business investment. Taxation is a very important factor in the financial investment decision-making process because a lower tax burden allows the company to lower prices or generate higher revenue, which can then be paid out in wages, salaries and/or dividends. Business taxes include, Federal Income Tax; a tax levied by a national government on annual income, Payroll Tax; a tax an employer withholds and/or pays on behalf of their employees based on the wage or salary of the employee, Unemployment Tax; a federal tax that is allocated to unemployment agencies to fund unemployment assistance for laid-off workers, and Sales Tax; a tax imposed by the government at the point of sale on retail goods and services. Sales tax is based on a percentage of the selling prices of the goods and services. Consumers pay sales taxes, but effectively, business pay them since the tax increases consumer’s costs and causes them to buy less.

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 last major overhaul of the U.S tax code took place over twenty-eight years ago as part of the Tax Reform Act of 1986. President Ronald Regan’s Treasury Department proposed a tax-neutral reform with the definitive duty of simplifying the overall code. However, the absence of any reform since then greatly reflects the United States current condition, in that “The United States provides a good example of an uncompetitive tax code” (Pomerleau & Lundeen, 2014). The following will examine the main components of the tax code that make a nations taxing system competitive. It will then identify two parts of the code, that when combined create a disadvantageous environment for any American business who competes internationally.

One way that companies verify the means of entry into is the legal environment. These legal procedures include limitations on trade through tariffs, documentation and import regulations, various investment, tax, and employment laws; patent and trademark protection. With these methods, companies feel motivated to move their operations abroad, in order to gain the benefits from doing business abroad. For instance, a tax credit can be imposed to companies who can prove that their gross income was incurred 80% or more in a foreign country. Other factors such as North American Free Trade Agreement-NAFTA,

There are tax treaties available to reduce the US taxes of residents of foreign countries; however certain exceptions may not reduce the US taxes of US citizens or residents. Generally treaty provisions are mutual and apply to both treaty countries. Thus, a US citizen or resident may be eligible to certain credits, deductions, exemptions, and reductions in the tax rates of the foreign countries on income received from a treaty country that have taxes imposed by foreign countries.

The United States has income tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States (IRS, 2015). These reduced rates and exemptions vary among countries and specific items of income. The US has bilateral income tax treaties with many global trading partners. Under the terms of those treaties, a company that establishes a taxable presence in a foreign country is understood to have created a permanent establishment. With few exceptions, a treaty must exist between the US and the foreign country for the concept to apply. If you are treated as a resident of a foreign country under a tax treaty, you are treated as a nonresident alien in figuring your U.S. income tax. For purposes other than figuring your tax, you will be treated as a U.S. resident. If you are a resident of both the United States and another country under each country 's tax laws, you are a dual resident taxpayer. If you are a dual resident taxpayer, you can still claim the benefits under an income tax treaty. The income tax treaty between the two countries must contain a provision that provides for resolution of conflicting claims of residence.

The treaty in which 2 or more countries are involved for the interchange of goods and services which is not hindered by high tariffs and taxes.

What those regulations spell out is a generally favorable tax system for expats, but one that requires careful study and a thorough understanding.

A particular area of concern being addressed in the OECD’s BEPS framework centers on cross border transactions involving hybrid financial instruments. The central issue that forms the discussion is the differing treatment of a financial instrument for tax purposes among contracting jurisdictions . A common difficulty in the taxation of hybrid financial instruments stems from the continuous financial engineering of these instruments by

Such gains will be deemed to arise in the other state to the extent necessary to avoid double taxation.

The IRS also allows corporations the ability to avoid double taxation on taxes paid to a foreign government on the income earned in that country. This foreign tax can be claimed as a business deduction or a tax credit. Foreign taxes deemed paid include those paid directly on the foreign income under that country’s income tax laws. Most often the tax credit is taken by corporations. This credit is limited in the amount in order to prevent a corporation for getting a larger credit then they would have been taxed in the U.S. on the same amount of income (12-12).

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).

A tax haven is a country that offers foreign corporations and individuals relatively low corporate and income tax rates, with a politically and economically stable environment. Some tax havens are Switzerland, Hong Kong, Bermuda, Ireland, and the Cayman Islands. Although the businesses have moved across seas, the United States forces them to pay the corporate tax. Fortunately for the businesses, it they keep their income and money across seas they do not have to the pay the American corporate tax, Unfortunately this is ghastly for the United States Government businesses keep their products and profits over seas.

International Trade is the trading of products and administrations between nations. This kind of exchange offers ascend to a world economy, in which costs, or supply and request, influence and are influenced by worldwide occasions. Companies which goes international have to adapt to the host environment as it is significantly different from the home environment. Home environment is simply defined as the company’s local or place of origin, while host environment is defined as the foreign country the firm is entering. In this assignment I will be choosing and evaluating the host environment perspective, Malaysia as the host country and how the host country government policies encourage foreign investments in Malaysia. Foreign Direct Investment is basically defined as a process to acquire ownership of assets or expending a company 's control of assets through cross border expenditure (Froot, 1993). In this assignment further evaluated would be the policies and programmes that Malaysia have put forth to encourage foreign investment. Income Tax Act 1967, Excise Act 1976, Promotion of Investments Act 1986, Sales Tax Act 1972 and Free Zone Act 1990 tax, tax incentives provided by Malaysia, in the areas such as manufacturing, agriculture, tourism and approved service sectors, R&D, training and environmental protection (www.mipca.com.my, n.a). Where total or partial relief of income tax is granted under direct tax incentives, and various exemptions in the area of import duty, sales