Taxation influences multinational companies structure and investment decisions

Corporate taxation is an important source of government revenue around the world and a major consideration in planning business activities yet companies such as Google, Starbucks, Amazon and many others have been criticised for their tax minimisation strategies. These companies are all multi-national companies meaning they operate on a global scale having active business operations in more than one country. They take advantage of foreign tax policies, treaties and tax havens to reduce their total global tax liability. The problem we face is that countries do not look at MNC’s as a whole for tax purposes but only the part operating in its jurisdiction, this is to avoid double taxation of MNC’s profits, in the world today there are over 2,500 worldwide tax agreements to eliminate double taxation (It is levying of tax by two or more jurisdictions on the same declared income). However, these agreements have now allowed under-taxation or no taxation at all by the use of smart tax planning.

MNC’s do this is a number of ways which I will explain in detail further using examples. I will discuss how tax influences an MNC in both its structure and investment decisions and follow with two real world examples using Google and ….

Investment:

When we look into how tax influences a MNC’s investment decision 3 main topics kept appearing in my study of literature these were the use of debt financing rather than equity financing, the amount of foreign direct investment and it specific jurisdictions and finally shareholders preference to capital gain over dividends.

Debt financing:

All business activities require finance to establish itself physically in a location and to fund daily activities of the business. This money can be acquired in two ...

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...ential to stimulate investment by reducing required rates of return. These tax considerations are captured by “effective tax rates” on business investment, which can be usefully compared over time and between countries. “The available evidence indicates that rates of business investment are inversely related to effective tax rates. Corporate taxation also affects business organization by discouraging the incorporation of profitable businesses that can be organized in non-corporate form. “[2]

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/