ch20MANAGING THE MULTINATIONAL FINANCIAL SYSTEM(跨国公司财务管理-Joseph F. Greco)

Multinational Financial ManagementAlan Shapiro 7th Edition J.Wiley & SonsPower Points by Joseph F. Greco, Ph.D. California State University, Fullerton

CHAPTER 20MANAGING THE MULTINATIONAL FINANCIAL SYSTEM2

CHAPTER 0VERVIEWI. THE VALUE OF THE MULTINATIONAL FINANCIAL SYSTEM II. INTERCOMPANY FUND-FLOW MECHANISMS: COSTS AND BENEFITS III.DESIGNING A GLOBAL REMITTANCE POLICY3

I.

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

THE 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

THE 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.6

THE VALUE OF THE MULTINATIONAL FINANCIAL SYSTEMC.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 negotiations7

II. INTERCOMPANY FUND-FLOW MECHANISMS: COSTS AND BENEFITSII. 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 for corporate overhead by affiliate.8

INTERCOMPANY FUND-FLOW MECHANISMS: COSTS AND BENEFITSC.Inter-company Fund Flows 1. Tax Factors: a. Taxes available on 1.) corporate income 2.) personal income (includes dividends) b. U.S. Tax System tax income remitted abroad on corporate income tax.9

INTERCOMPANY FUND-FLOW MECHANISMS: COSTS AND BENEFITSc. Offset: Foreign tax credit given on income already tax. Transfer Pricing a. Definition: pricing internallytraded goods for the purpose of moving profits to a more tax-friendly nation.10

2.

INTERCOMPANY FUND-FLOW MECHANISMS: COSTS AND BENEFITS b. Uses of Transfer Pricing

1.) 2.) 3.)

Reduces taxes paid Reduces ad valorem tax Avoids exchange controls

INTERCOMPANY FUND-FLOW MECHANISMS: COSTS AND BENEFITS3. 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, other than local, available.12

INTERCOMPANY FUND-FLOW MECHANISMS: COSTS AND BENEFITSDisadvantages of Reinvoicing 1.) Increased communications costs 2.) Suspicion of tax evasion by local governments. 4. Fees and Royalties a. Firms have control of payment amounts. b. Host governments less suspicious.13

e.

INTERCOMPANY 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 chanc

e of local government suspicion.14

INTERCOMPANY FUND-FLOW MECHANISMS: COSTS AND BENEFITS 6. Intercompany Loans a. Useful when following present: 1.) 2.) 3.) Credit rationing Currency controls Differential tax rates15

INTERCOMPANY FUND-FLOW MECHANISMS: COSTS AND BENEFITSb. Types of Inter-company Loans 1.) Back-to-back loans a. ) Often called fronting loan b. ) Loan channeled through a bank c. ) Loans collateralized by parent deposit.16

INTERCOMPANY FUND-FLOW MECHANISMS: COSTS AND BENEFITSAdvantages (1.) protects against confiscation (2.) reduces taxes (3.) accesses blocked funds 2.) Parallel loans a.) Consists of 2 related but separate loans with 4 parties in 2 nations.17

c.)

INTERCOMPANY FUND-FLOW MECHANISMS: COSTS AND BENEFITS Purpose of parallel loan (1.) repatriate blocked funds (2.) avoid currency controls (3.) reduce currency exposure 7. Dividends most important method of transferring funds to parents18

b.)

III. DESIGNING A GLOBAL REMITTANCE POLICYIII. DESIGNING A GLOBAL REMITTANCE POLICY A. Factors: 1. Number of financial links 2. Volume of transactions 3. Ownership patterns 4. Product standardization 5. Government regulations19

DESIGNING A GLOBAL REMITTANCE POLICYrmation 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 available20

DESIGNING A GLOBAL REMITTANCE POLICYB. Information Requirements (con’t) 5. Transaction volume

6.7.

Relevant tax factorsGovernment restrictions on transfer of funds.21

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