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Taxation influences multinational companies structure and investment Decisions

Satisfactory Essays
The structure of MNC’s are greatly influenced by taxation, there are many strategies which MNC’s use to reduce tax which need intelligent structuring of a company is certain jurisdictions around the world in order to be successful. The main strategies I will be discussing are the:
1. Choice of where MNC’s set up their permanent establishment (PE)/headquarters,
2. Where their subsidiaries will be located,
3. Will they use tax havens?
4. Transfer pricing
5. Royalty payments.

In my example later I will also discuss specific strategies used by Google such as the double Irish, Dutch sandwich.

1.) The decision of where a company locates its head office is quite an important one if trying to avoid tax. The importance of the decision is determined by the fact that a company usually has to pay tax in the country in which it is incorporated. So, the choice to locate a company in a high tax territory such as the US which has one of the highest corporate tax rates in the world (up to 35%) can be expensive.

Companies usually need to be incorporated in a major financial centre such as London, New York or Frankfurt resulting in that tax cannot be minimised, so intermediate holding companies are set up, which are owned by the parent company and in turn own the operating subsidiary companies.

Nothing really happens in these intermediate locations, they exist normally just to collect dividend income from the subsidiary companies they own and then usually loan, but not pay as dividends, the resulting cash that they hold to the parent company in London, New York, or other areas. These intermediate companies are placed in locations which are chosen due to their low tax rates on dividend income received, numerous double tax treaties with ot...

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...ax scam on earth” [4]. Abuse of transfer prices is a key tool MNC’s use to fool jurisdictions into thinking that they have virtually no profit and thus shouldn’t pay much or any taxes. Many corporations which engage in transfer pricing would like the public to believe they are “model corporate citizens” [4]. Yet the truth is that they rob us blind with estimated tax avoidance of tens of billions every year, which ends up raising taxes for the public as corporations make sure they don’t pay.

Works Cited

[1] http://www.taxresearch.org.uk/Blog/2012/01/06/how-companies-avoid-tax-a-quick-summary-in-8000-words/

[2] http://www.bus.umich.edu/otpr/wp2001-6paper.pdf

[3] http://www.irishexaminer.com/analysis/taxing-times-for-big-business-in-fight-to-avoid-tax-237736.html

[4] http://www.counterpunch.org/2006/11/21/how-multinational-corporations-avoid-paying-their-taxes/
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