Repatriation of profits in a multinational company
Taking into account that the main distinguishing feature of transnational companies are direct foreign investments, the repatriation of the profits they receive from foreign investment is a topical problem, the structure of which is presented in Fig. 22.3.
In practice, transnational companies have two approaches to the money transfer policy with a view to repatriating profits:
- the principle of profit consolidation;
- the principle of dispersal of profits.The principle of profit consolidation provides for the regular transfer by the subsidiaries of the profits of the parent company in the form of dividends. The amounts of transferred profits are calculated in different ways: for example, as a certain percentage of the revenues received. Each TNC usually uses some single method of calculating the transferable profits, distributed to all subsidiaries. By collecting profits and consolidating them in one fund, the parent company assumes a centralized distribution of these funds, determining the appropriations for each subsidiary's investment.
The principle of dispersal of profits is more flexible and provides better adaptation of financial policy in general to the conditions of specific markets. In this case, the firm does not establish the same rules regarding the transfer of profits for all subsidiaries and does not require the transfer of all profits. It provides the subsidiary company with relative independence at the disposal of profits in order to achieve its long-term goals. Usually such a method is used by firms that have high -
Fig. 22.3. Scheme of foreign investment of a transnational company
The degree of decentralization in management. The flexibility of the profit transfer policy is manifested in the fact that the firm, for example, increases the inflow of profits to the parent company from countries where unfavorable conditions arise (the risk of devaluation, etc.). In countries with a favorable investment climate, subsidiaries maximize their profits.
When exporting income in most countries, additional taxes are levied, the rate of which varies depending on the status and location of the recipient. In this regard, in addition to the income tax rate on the company's profits, as well as factors of political stability in choosing the region and the form of foreign investment, the level of taxation of exported income must be taken into account. In doing so, we should strive to ensure that all calculations passed on the most favorable agreement on elimination of double taxation.
In today's business, standard operations have already been established that allow managers to ease the company's tax burden. As instruments in such regulation, standard types of firms located in preferential tax jurisdictions can be used. World jurisdictions can be divided into groups by the level of cost of content company. In cost of content companies include taxation, strict accounting records, the complexity of the formation of the company, the requirements imposed on the management of the company, etc. All countries, from this point of view, can be conditionally divided into three groups.
The first group includes the largest industrialized countries, including the United States, Germany, Japan, Britain, France, Italy. The profit tax here can be 40-50% of net profit. The activities of economic entities are strictly regulated, special legal norms exist that restrict intra-company operations and use of foreign firms for the purpose of tax evasion.
The second group includes jurisdictions where a sufficiently high level of income tax applies a system of special tax benefits relating to:
- the activities of certain types of companies, including holding, financial and trading;
- the mechanism of transfer of income and repatriation of profits.
Taxes levied in these countries when exporting and repatriating dividends, bank interest, royalties and some other types of income are usually significantly reduced. The countries of this group are distinguished by liberal currency and customs regimes. These circumstances determine the nature of the business operations of the subsidiaries located here, through which the transit capital and income from them. Examples of countries with a moderate tax system are the Netherlands, Switzerland (some cantons), Ireland, Luxembourg, Austria, Liechtenstein and some others.
The third group includes state entities and administrative territories in which the procedure for registration of legal entities is simplified and income taxes are significantly reduced (or absent). They are commonly referred to as tax havens or "tax haven". As a rule, these are dwarf states of Europe, former colonial possessions or self-governing territories that have separated from developed countries. Similar conditions exist in the "free economic zones" created to attract foreign investment, as well as in certain states, counties, cantons and other administrative entities that have signs of "tax havens."
As typical examples of "tax havens in Europe you can bring Gibraltar, Fr. Maine, the so-called Channel Islands - Jersey, Guernsey, Sark (Great Britain), the dwarf states of Europe - Liechtenstein, Malta, Andorra, Monaco. In the US, these are the states of Delaware, Nevada, Wyoming. A large number of "tax havens" there is in the third world. Among them - Panama, Costa Rica, the Netherlands Antilles, Aruba, Bermuda, Cayman Islands, Virgin Islands, Bahamas, Barbados, Antigua and Barbuda, Belize, Turks and Caicos Islands, Liberia, Fr. Mauritius, Western Samoa, Nauru.
Subsidiaries are created in tax havens with a view to reducing taxes on repatriated income. Such firms, as a rule, act as the final link of the corporate chain. This is where earnings accumulate, stored reserves of an international company.
In accordance with this scheme, income from companies in different countries of the world is transferred through low-tax countries "at source" in tax-free jurisdictions - "tax havens", where they accumulate for the purpose of further investment. As an example, let us cite the following scheme: income from the USA, Germany, Great Britain can be transferred to the Netherlands, and then to the Netherlands Antilles or Fr. Maine. In the same way, an optimal route from the point of view of tax losses to repatriating income and accumulating profits is created.
United States companies also have certain opportunities to include preferential and offshore companies in international corporate schemes. Connection for the United States and foreign part of the United States international holding it is expedient to organize (for the time being it is possible) through the company in Kalmykia, Ingushetia or in the Altai for many reasons. This, perhaps, is one of the most real and "useful" spheres of application of internal off-shores. United States entrepreneurs need preferential footholds for conducting international business. Such bridgeheads can be internal offshores.
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