Dealing with Corporate Risk and Multinational Tax

Global economy prospects have driven so many companies to penetrate international market, grabbing their tastes and sway them to lay eggs inside their businesses. As the result people can see organizations such as Coca Cola, Mercedes Benz, Shell, Visa, Haagen Dasz and Ernst&Young are everywhere became highly multinational as instead of managing single local market, they strategically taking advantages from the broader target market to satisfy their shareholders.

 

 

In this doings- transactions between more than one country are going on, furthermore I am really sure that foreign transactions these days are as well increasing due to the exports and imports where it creates interdependence between countries. However, with regard to it, given that each country has such standard which is their currency, input and output have to be generalized with exchange rates accordingly. This has been agreed by whole multinational companies even that sometimes they suffer huge amount of foreign exchange losses (rather than gains) owing to its sensitivity to fluctuate.

 

 

Take example of Mercedes Benz (Daimler Company). Mercedes Benz is a European Car Company which Euro(€) currency is its basis to finance their main operations (e.g. Euros for manufacturing expenditures), yet have to deal with heaps of US Dollar(US$) including instance when they export their vehicles to China from European region. In addition, they said that UK pound sterling(£) also take considerable role against the Euro currency. Through this case I can perceive that it is very hard for Daimler to determine the real effective methods to battle this jeopardy, nevertheless you can realise here, that one of the ways treated by Mercedes Benz up until this time is by using external hedging to swap the currency to US dollar and also third currency which is pounds to actually neutralise the risk for the exchange rates.

Some others could be about forward foreign exchange contracts, currency options and natural internal hedging such as pushing their management to increase cash outflows with match the currencies as well as their group’s Foreign Exchange Committee (FXCo) that assists to reduce future impact of risk mentioned. Those are truly great! but………………......it is necessary for them to asses each strategy, valuing them and be careful because exchange rates of the chosen currencies may become bad source of input. See current information about UK pounds. It presently lost in value against Euro. For example if they receive payments in pounds, it’s worst! They are experiencing an increase in costs of generating revenue as they will see inadequacy to cover costs which use Euros when pounds are converted.

Moving to multinational tax. Should you consider that multinational companies extended their operations in others’ territories; but then again authorities acquired by multinational companies to dominate some portions of its countries’ market, anyway, goes to responsibilities. In addition to risks appeared from foreign exchange, whole companies who transact otherwise receive benefits from countries other than where they belong to; have to take consideration towards tax risks.

Tax refers to the monetary collection imposed by government on which has to be paid on individuals or corporations’ earnings, goods and such activities. Saying this, quite often people sense the complexities of how it would be dealt over time as in some points, greater effort means greater tax. Normally this is unfair, right? During my previous study, I also noticed that people won’t be able to control external business environments such as government and the taxes itself. Well, but is it impossible to get rid of it? From this time I know it’s not, especially to multinational corporations, it is always possible.  The reasons are just because they are operating in more than one country, also, thinking through the acknowledgement of double taxation treaties, in fact companies only required to pay for tax in one country. As the result companies can get rid of the income taxes that they have to pay in as I believe they can choose their best.

 

 

There is term called tax avoidance (not evasion or fraud), done through methods like transfer pricing and channelling which are totally great for SWM. Legal and many large businesses such as Starbucks, Amazon, Google, Apple, Cadbury, Ebay, Topman&Topshop performed them recently referring to these facts:

-“Starbucks’ head of finance, Troy Alstead, was forced to portray his company as a perennial commercial flop, in order to account for its peculiar failure to record a taxable profit in the UK for 14 out of the last 15 years.”-£8.6m paid

-“He was followed by Amazon's Andrew Cecil, who was reduced to stuttering when he was accused of being "pathetic" for his inability to disclose something as basic as how much of his firm's European sales came from the UK last year.”

-“ Yes, of course Google minimises its tax bill, by operating in Bermuda and Ireland.”

-“Apple paid less than 2% corporation tax on its profits outside the US, paying $713m (£445m) on foreign pre-tax profits of $36.8bn"

-“Milky Chocolate, Cadbury avoided £60m tax bill by moving HQ to Switzerland”

-“Ebay avoided £50m in tax by channelling funds via Luxembourg”

-“Billionaire boss avoided a £300m tax bill”-(Topshop,Topman)

Indeed, they looks embarrassing but actually I’m quite agree to their actions to deal with taxes since in nature multinational tax management can be reflected as a business expense that we can reduce with correct planning. Moreover some countries have taxes that are too high, therefore in order to balance shareholders’ value and tax responsibilities, it is necessary to manage both. Bill Dodwell (head of tax policy from Deloitte) additionally mentioned that there are more opportunities for multinationals to make locational decisions. Hence, I will put much in believe that if I have business later, I’ll treat them as ‘a-pretty-charity’. Pay fair amount of tax and still pay deep attention to my shareholders. Cut taxes prudently because surely, I may build alternative responsibilities such as by having CSR and non-job cutting as it helps countries’ development too.

It’s better than pay too low or too high right? Don’t be greedy but be collectively responsible ;)