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8 Cards in this Set
- Front
- Back
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What are the main financing options for international investment? |
1. Use the investment's own free cashflows. 2. Use finance raised in the parent entity's home country. 3. Use finance raised in the subsidiary's country. 4. Use finance raised in a completely separate country. |
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What additional factors regarding dividend policy, must a multinational company consider? |
1. Many types of multinational company shareholders rely on dividends to meet expenses 2. Will have more than one dividend policy to consider: a. dividends to external shareholders b. dividends between group companies |
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What is 'blocked remittance'? |
Blocked remittance refers to when a foreign investment has been made and the local government imposes a restriction on how much profit can be returned to the the parent company. - often done through strict exchange controls - limits the amount of funds available to pay dividends to parent company (restricting dividend capacity). |
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How can a parent company avoid any block on remittances? |
1. Increasing transfer prices paid to the parent company. 2. Lending the equivalent of the dividend to the parent company. 3. Making payments to the parent company in the form of royalties, payments for patents,and/or management fees and charges. 4. Charging the subsidiary company additional head office overheads. 5. Parallel loans (currency swaps), whereby the foreign subsidiary lends cash to the subsidiary of another company requiring funds in the foreign country. In return the parent company would receive the loan of an equivalent amount of cash in the home country from the other subsidiary’s parent company.
The government of the foreign country might try to prevent many of these measures being used. |
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What is multinational transfer pricing? |
Multinational transfer pricing is the process of deciding on appropriate prices for the goods and services sold intra-group across national borders. |
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What are the benefits of a good transfer pricing system? |
A good 'domestic' transfer pricing system: - maintains divisional autonomy - maintains motivation for managers - assesses divisional performance objectively - ensures goal congruance |
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What are the main objectives of international transfer pricing? |
1. Paying lower taxes, duties and tariffs. 2. Repatriate funds from foreign subsidiaries to the parent company. 3. Be less exposed to foreign exchange risks. 4. Build and maintain a better international competitive position. 5. enable foreign subsidiaries to match or undercut local competitors. 6. maintain good relationships with local governments. |
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What ethical issues should be considered when formulating a transfer pricing strategy? |
1. Social responsibility through reducing amount paid in tax and duties. 2. Bypassing a country's financial regulation via remittance of dividends. 3. Not operating as a 'responsible citizen' 4. Reputational loss 5. Bad publicity 6. Tax evasion |
