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.