Multinational Tax Management and Corporate Tax Avoidance

How do companies avoid the corporate tax? A company makes all the major strategic investment decision after considering the best possible thing for the company. This is to increase the profits of the company by reducing the costs. The position of an international company is to place it strategically in the more tax efficient position which will minimize the overall worldwide tax burden. There are three major types of Tax. Income Tax, Withholding Tax, Value Added Tax.

Companies make long term strategic plans in which they also discuss about moving a business in a country where the tax rate is low. This can also help the company to generate more profit because of the currency. For example if a UK based company will try to invest in India they will generate more profit because the value of the pound is more than the value of the Rupee. Recently the power of the pound is increased more it is now £1 is equal to 81.55 Indian rupees. Which has increased recently and it shows that investing in India will help the British company to generate more profit with less investment. The tax rate in India is less than the Tax rate in England which is another reason to spend in India. Another good reason of investment in a country like India is the labour there is cheaper than the England. Whereas if an Indian company will spend in the UK they will have to invest in a lot to settle down in the market. But if they do that they will help England economy to be stable.

According to the India Times,Multinational companies in India have delivered higher returns across sectors such as pharmaceutical, automobile ancillaries and capital goods over the last three years compared with their Indian peers, riding on the back of superior technology, products and brand equity. The Indian units of global consumer goods firms such asHindustan, Nestle and Colgate-Palmolive have posted returns of over 95%, 110% and 150%, respectively, on an average during the last three years, more than double the 35-42% returns reported by Indian companies such as Dabur and Godrej Consumer. This shows the impact of the foreign companies.

According to the BBC News (22^nd February 2013), The UK is looking to become a centre for the Chinese currency, also known as the renminbi. Such agreements allow central banks to swap currencies and can be used by firms to settle trade in local currencies rather than in US dollars, as happens now, since China's currency is not fully convertible to other currencies. This can also help them in the improving the trade between two countries and opening new will also encourage the investors to invest in the countries. This will allow the UK based companies to business in china as has the most improved economy in the recent years according to the surveys.

The system of tax incentives is to encourage companies to pay dividends, rather than to reinvest their profits. This cannot be the best way to encourage long-term investment. Many pension funds is essentially surplus many companies enjoy pension holidays. Companies move the businesses to the countries such as Cayman Island where the Tax rate is 0%. This can avoid the Tax which can lead to improve the capital whereas if the company is moving business in a country where people do not know anything about the company and its products that can take a lot of time for the companies to settle down.

Minimising Costs to Raise Capital

The world is moving fast and technology is growing every day. This is making the companies to act quickly, make the decisions quickly, and introduce new products to the markets quickly. This is all because of the competition level in the market which is making every one to be on their toes. Most of the new companies concentrate on generating profit rather than minimizing costs and controlling costs from the beginning.

The working capital is a measurement of liquid assets to establish business availability. Under normal circumstances, the enterprise will be more successful because they can expand and improve their business if there is a lot of working capital. Companies without working capital may lack the funds necessary for growth.

Small businesses often use to pay short-term debt, such as inventory or advertising, but it can also be used for long-term projects, such as renovation or expansion. These are the elements of the business cycle which can rapidly absorb cash. If the working capital dips too low, the risk of an enterprise's cash. Even if it is a very profitable business encounters trouble, if they lose the ability to meet its short-term debt. Commercial financing or small business loans can be used as a quick cash option, when traffic is not ideal, or ready-to-use buffer period.

In the football business when a club want to generate money either they sell player or release them if there is no one who wants to buy them players. This can help them in buying new players and generating more money to spend. The drawback of this can affect the performance of the team. This can be demotivating for the team.  What about the fans? Are they going to be happy?   Losing a player to generate more capital and minimize cost is not going to make the fans happy but sometimes business are in a kind of situation where they do not have any other options. Business who plans for long term always do good because they know who to get profits because the profits can make the board of directors happy, shareholders and stakeholders happy.

For example Premier League football club Arsenal recorded a £2.5m ($4m) loss in the half year to December 2010, largely on the back of reduced player revenues. There were no major player sales in summer 2010, unlike in previous years when the club made a big-name sale. The loss contrasts with a £29.2m profit in the corresponding period a year earlier.

According to the BBC News the proportion of income that Premier League clubs spend on wages hit a new high in the 2010-11 season, says a Deloitte report into football finance. Clubs in England's top football league paid some 70% of their income on salaries for the first time. Manchester United, who won the league that year, spent 46% of revenue on pay, but Manchester City spent 114%.The Deloitte report says that control of wages "continues to be football's greatest commercial challenge”. Its 21st Annual Review of Football Finance also says that pay discipline is needed "in order to deliver robust and sustainable businesses"

What makes the costs of the football clubs to increase? In my opinion it’s the wages of the footballers which is the main reason of the costs. Business can get rid of this cost by selling the players and generating more money to buy other players on a lower wages but can they get the same replacement? 

Stock Market Efficiency

The stock exchange is that government and industry can raise long-term funds, investors can buy and sell securities market. Demand for capital for investment funds and the growth of enterprises in overseas trade. Stock markets have prospered and expanded globally. New markets in developing countries join, comparable to the traditional stock market. Increase because it is very fast, it raises a few questions, such as what is the reason for the rapid growth of the stock market, what is the importance of this point? May be because more than 140 countries and regions in the stock market, they are due to the fact that most businesses can enter the stock of capital efficiency will generate a higher rate of return on shareholders is important.

Privilege to pay hundreds of companies listed on the stock exchange trading of the shares, rather than in other countries, as well as their local exchange. Most companies essentially floating its shares in the stock markets of other countries, to broaden the shareholder base, and invited a large number of investors subscribe for the shares; it may sell these shares at a higher price, so as to raise funds, the cheaper the price.

Another reason may be the domestic stock exchange is too small or company to limit its domestic securities market, they have no choice, only to obtain equity financing from abroad, therefore, to a large extent with a number of companies . For example, when the Ashanti Gold Mine, a gold mining company in Ghana, was privatized in the value of about $ 1.7 billion, which is more than ten times the capital Accra stock.

To raise awareness of the company is another strategy to increase the investment in the company. For example Standard Chartered listed on Bombay Stock Exchange as well as London Stock Exchange and Hong Kong to strength its brand.  Some companies also use this as a strategy to motivate the employees and to reward the employees with their shares so they can work hard to maximise the profits because if these shares are locally listed the share –ownership plans can be better managed and are more appealing to employees.

Social well-being of the modern financial knowledge of the stock market made a significant contribution. Them a wide range of individuals and institutions have great value. For depositors, they provide the environment; you can save the investment, protection and social returns generated in real productive assets. 's Own ability to absorb new financial bonds issued, allowing corporate expansion, innovation and value stocks to create wealth market. In my opinion there are many benefits to running a good Stock Exchange, for example, companies can find the funds and growth, the interests of the shareholders of the availability of rapid, inexpensive secondary market, if they want to sell shares of a company's public image to strengthen in the transaction quoted, because banks and other financial institutions have more confidence in listed companies, making it easier to finance at a lower cost.

Shareholders Affects the Business

How Shareholders Affect a Business When They Want to Expand

Shareholders are the owners of a limited company or a corporation. If a company issues its shares at $10 each, and later on you buy 1 share on the open market at $12 you will be paying a share premium of $2. Shareholders have wide powers to affect the growth of a publicly traded corporation through mergers and acquisitions of other companies. Corporate officers must address shareholders concerns and questions throughout the expansion process to assure these investors of the strength of the company's business direction. Shareholders believing expansion efforts to be an unwise decision can exercise voting rights or even file suit against the corporation to slow or halt the board's efforts.
Shareholders have voting power when it comes to making big decisions for the corporation, including expansion via company buyout. This is a merger that occurs when a larger company buys a competitor and absorbs it into the greater organization. Shareholders have the power to vote to approve or deny such a merger. If the shareholders vote down the acquisition, the corporation cannot legally continue steps to fulfill the merger. To sway shareholders, corporate officers often disseminate information relating to the proposed merger, including how the acquisition will strengthen the corporation and provide a greater share of the profits for investors.

One the biggest mergers in recent years are the mergers of British Airlines and Iberia Airlines (December 2010). The company will have its headquarters in London, with BA shareholders retaining 55% ownership of the company. The merger is seen as a chance for the two airlines to cut costs following two very tough years for the airline industry. Both BA and Iberia are expected to report heavy losses this year, with BA predicted to announce its biggest annual loss since privatisation.

The problem can arise when one company have more than 51% of the shares because they might want to appoint their people on the top jobs. This actually happened in the case of British Airways and Iberia Airlines. Because according to the Spanish they want to cancel this merger. Strike action is being threatened by workers at Iberia in protest against restructuring which will lead to 4,500 job losses. “It’s not fair and it’s not the way things were supposed to be. The merger was supposed to bring growth for both companies and benefits for workers of both airlines,” Sepla head Justo Peral told the Daily Telegraph.

The Spanish carrier’s chief executive Rafael Sánchez-Lozano said: “Iberia is in a fight for survival. It is unprofitable in all markets. Unless we take radical action to introduce permanent structural change, the future for the airline is bleak.”

                                                                                                      
Shareholders are the risk takers and there are lots of the business risks in expanding the business such as:

Market Risks: Risks arising from sudden or unexpected changes in the company’s market.  E.g. increase competition, price wars, and new products.

Economic Risks: this is the risk caused by the economic situation of the country. Which might result in changes anticipated levels of inflation.

The primary objectives of all the companies are to maximise the Revenue and sales this can increase the profit margin. The main objective for the firm which is owned by the shareholders is market share dominance. They want the profit maximization this leads to the increase in the share price. This can increase the company’s reputation and make it big.