MANAGEMENT PLANNING AND CONTROL
FOUR DIMENSIONS IN THE
MODELING BUSINESS
The latest survey found That Management Accountants
spend more time in strategic planning issues than before. Determination of the
business model of the big picture, and consists of the formulation,
implementation and evaluation of long-term business plan of a company. It
includes four games dimensions.
1. Identify the
major factors relevant to the company's progress in the future.
2. Formulate an
adequate technique to predict future developments and analyze the company's
ability to adapt or take advantage of these developments.
3. Develop data
sources for support strategic choices.
4. Certain choices
translate into a series of specific actions.
THE DIFFERENCE BETWEEN
STANDARD COST CONCEPT AND KAIZEN
Determining
the standard cost system tries to minimize the variance Between budgeted costs
with actual costs. Kaizen Costing stressed to do what is Necessary to Achieve
the Desired levels of performance in a competitive market conditions.
The concept of Standard Costs:
- cost
control
- Applied
to existing manufacturing conditions
- Goals:
compliance with performance standards
- Standards are
determined each year
- Analysis
of variance based on actual vs. standard
- Investigate if
the standard is not met
The concept of Kaizen Cost:
- cost
reduction
- Applied
to manufacturing improvements on an ongoing basis
- Objective:
To Achieve cost reduction targets
- Target cost
reduction is determined each month
- Analysis
of variance based on a constant cost reduction
- Investigate if
the target is not Achieved cost
ESTIMETES OF INVESTMENT
RETURNS ABOARD
The
decision to invest abroad is a Very Important element in the global strategy of
a multinational company. Foreign direct investment involves a large Generally
number of capital and uncertain prospects. Investment risk, Followed by the
foreign environment, complex and constantly changing. Formal planning is
Generally a must and is performed in a capital budgeting framework That
Compares the benefits and costs of the proposed investment.
In
the international environment, investment planning is not as simple as that.
Differences in tax law, accounting systems, the rate of inflation, the risk of
nationalization, currency framework, market segmentation, restrictions on the
transfer of retained earnings, and differences in language and culture adds to
the complexity of Elements That are rarely found in domestic environments. The
difficulty for the quantification of the data these make-existing problems
worse.
THE CALCULATION OF
CAPITAL COST OF MULTINATIONAL COMPANIES
If
foreign investment is evaluated by using a discounted cash flow models, the
Appropriate discount rate should be developed. The theory of capital budgeting
in particular using cost of capital as the discount level, Thus Spake a project
must generate returns at least equal to the cost of capital in order to be
acceptable. The level of the benchmark (hurdle rate) is related to the
Proportion of debt and equity in the company's financial structure as follows.
It
is not easy to measure the cost of capital of a multinational company. The cost
of equity capital can be calculated in Several ways. One popular method
combines the expectations of That return on the dividend by the dividend growth
rate expectations. Assuming At = expected dividend per share at the end of the
period. Po = market price of the stock is now at the beginning of the period
and g = expected growth rate in dividends, the cost of equity, to be calculated
as follows to = At / Po + g. Although capital is to measure the price of the
shares present, in most countries where shares of listed multinational
companies, is Often quite difficult, to measure in and g. In the first place
Because of the expectations. Expected dividend depends on the company's
operating cash flow as a whole. Measuring the cash flow is complicated by the
consideration of environmental factors. Moreover measurement of the dividend
growth rate is a function of expectations of future cash flows is complicated
by the exchange control and other government restrictions in cross-border
transfer of funds.
PROBLEMS AND
COMPLEXITY IN DESIGNING THE FINANCIAL CONTROL AND INFORMATION SYSTEMS
MULTINATIONAL COMPANIES
Distance is an obvious hassle. Caused by geographical
conditions, the formal information communication Generally replace the personal
contact Between the local operations manager with office management.
Three
global information technology strategy, the which are each associated with a
particular type of multinational organization. The Achieved success depends on
the suitability of the design of systems with corporate strategy:
a) the spread of
low to high centralization. Used by smaller Organizations with limited
international business operations and information system needs to Dominate the
domestic
b) high with a spread of low centralization. Local subsidiaries are given significant control over the development of technology strategy related to information systems and Their Own.
c) high with a spread of high centralization. Here global information technology strategy Executed locally by the global firm with strategic alliances throughout the world. System information is designed to Reflect the needs of companies That are tailored to local circumstances.
b) high with a spread of low centralization. Local subsidiaries are given significant control over the development of technology strategy related to information systems and Their Own.
c) high with a spread of high centralization. Here global information technology strategy Executed locally by the global firm with strategic alliances throughout the world. System information is designed to Reflect the needs of companies That are tailored to local circumstances.
Management
Accountants to prepare some information for the management of companies,
ranging from data collection to reporting of liquidity and operational
forecasts of the Various types of expenditure weights. For each group of the
data submitted by the company management should determine the relevant time
period for the report , the level of accuracy required, the frequency of
reporting and the costs and benefits of depreciation and timely delivery.
Here
also the environmental factors affecting the use of information generated
translation. Reports from overseas operations of multinational companies are Generally
translated into U.S. dollar equivalent value to the managers office in the U.S.
to evaluate Their investment in dollars.
ANALYZE THE EXCHANGE
RATE VARIANCE
Three rates of exchange may be used when Preparing the
draft operating budget at the beginning of the period:
a) The spot
exchange rate prevailing when budgets prepared
b) An exchange rate
is expected to apply at the end of budget period (rate projection)
c) exchange rate at
the end of the period when the budget be adjusted if the exchange rate change
(closing rate)
SPECIAL DIFFICULTIES IN
DESIGNING AND IMPLEMENTING PERFORMENCE EVALUATION SYSTEMS OF MULTINATIONAL
COMPANIES
Performance evaluation on Certain multinational
companies are classified into three levels Basically, namely (1) Levels of
Leadership (Director and above), (2) Supervisors and above, and (3) Employees
of low (blue colors). In the evaluation of the directors to the top, the
assessment is directed towards "Leadership Framework" which includes
13 behaviors are grouped into 4 That groups:
a. Inspiring
people consist of:
1) Lead people. Is
the ability of state employees and the make them confident in doing something
so That They can lead to the appearance That is consistent with the management
and leadership principles with translation as follows: Relating to maintain all
the relevant information and people, improving the effectiveness of work teams
and the lead work team toward success.
2) Develop people. Is
to help employees to identify the needs for the success of the development
requirements, employee Encourage learning by Providing a Suitable support. With
the translation as follows: Provide a detailed command and the make sure the
command is Understood and Cleary visible and creating a positive environment
for the development of long-term.
3) Practice what
you Preach. Is to be consistent with the principles and values
Realizing, Including "the passage of communication" even in
difficult, times.
b. Opening up, consisting of:
1) Know your self. Is
the ability to precisely identify and understand the power of yourself and fix
it as well as applied and Implemented in an orderly, Understood influence on
the effectiveness of a person in the organization. And has an extensive
self-care and deep. Act as a constant (stable) on the influence of Their
power to correct and compensate for weaknesses-weaknesses.
2) Insight. Is
the capacity to identify the relationship Between facts, ideas and Situations
That are not clear and collecting it to solve problems That require priority,
clarify and explain the complex situation That has been given / created an
opportunity.
3) Courage. Associated
with the capacity and confidence of employees in their opinion, and allowed to
make-decisions or choices along with Evaluating the risk and responsibility
concerns in the face of critical Situations and challenges.
4) Curiosity. An
employee openly curiosity to learn more about the environment by asking
questions thinking That Appear or do simple research, widespread and constant.
5) Service
orientation. Is the desire to help or serve the customer by understanding
customer expectations and needs, providing quality services That are durable
and mutually beneficial as well as being a long-term perspective on the
benefits.
c. Dialing With Others, consisting of:
1) Proactive
cooperation. Is working in collaboration with others through a commitment
to Achieve the object group, understand the needs and other targets and
adapting own views and the views, if Appropriate behavior through personal
contribution to effective teamwork.
2) Impact and
Convince Others. Is convincing, directly or indirectly in order to gain
commitment to the ideas, projects or actions That Organizations are of interest
through the use of as many arguments are convincing, awakening an interest in
others by using the influence of a unified strategy.
d. Adding value, comprising:
1) Results focus. Ambition
is to fulfill the object of performance / quality standards and work
continuously to Obtain a Suitable process improvement methods, a high
motivation to Achieve targets for improving the work and maximize the work in
the long term.
2) Initiative. Make
employees is to act in a proactive manner (act and think in simple terms) so
That the initiative does not just React to Situations, but also anticipating
for a long time and hold it well.
3) Innovation /
Renovation. Display behavior to accept the challenge 'status quo' in the
repair of control and come up with new ideas so That there is a change and run
efficiently.
HOW TO OVERCOME THE
EFFECTS OF INFLATION AND EXCHANGE RATE FLUCTUATIONS AGAINST THE MEASUREMENT
PERFORMENCE OF MULTINATIONAL CORPORATIONS
For
multinational companies, fluctuations in foreign currency exchange rate
uncertainty resulting from the company's operations in the international arena. Currency
risk management refers to the company's risk management transactions, economic,
and translation. Transaction risk refers to the possibility That cash
transactions in the future will be influenced by changes in exchange rates. Economic
risk refers to the possibility That the present value of cash flow company in
the future will be influenced by exchange rate fluctuations.
One
way to Overcome problems of economic risk and the risk of the transaction is to
hedge (hedging). Contract requires the buyer before a Certain currency
swaps with a Certain exchange rate (forward rate) at a predetermined date in
the future. In the face translational risk, management can Provide a
report in the dollar-denominated and local denominations That multinational
management can know the true state of the local divisions and the impact of
foreign currency translation.
Multinational
companies use a system of decentralization Because It Gives the advantage for
the division of the country of origin and foreign divisions. These
advantages include:
1. Local
managers are Able to Produce better decisions through the use of local
information.
2. Local
managers can Provide more timely responses to changing circumstances.
3. Center
manager is impossible to understand all of products and markets.
4.Train and
MOTIVATE local managers to the make decisions daily operations so top
management can focus That more on long-term problems.
Performance
measurement in multinational companies have to separate the evaluation of a
division manager with evaluation of the division. Managers should be
evaluated based on revenue and costs Incurred. Once the manager is
evaluated, a subsidiary of the financial statements can be adjusted by the
parent company's currency and the costs can be allocated beyond the control of
managers. Such environmental factors as social, economic, political,
legal, and different cultures in one country from another country is out of
control but the manager will affect company profits and ROI.
FINANCIAL RISK MANAGEMENT
MAIN COMPONENTS OF CURRENCY RISK
To minimize exposure faced by the volatility of
foreign exchange rates, commodity prices, interest rates and securities prices,
the financial services industry offers a lot of financial hedging products,
such as swaps, interest rate, and also an option. Most financial instruments
are treated as items outside the balance sheet by a number of companies that
conduct international financial reporting. As a result, the risks associated
with using this instrument is often covered up, and until now the world's
accounting standard makers to be in discussions on the principles of
measurement and reporting are appropriate for these financial products. The
material of this discussion is to discuss one of the internal reporting and
control issues associated with a very important. There
are several key components in the foreign currency risk, namely:
a. Accounting risk
(the risk of accounting): The risk that the preferred accounting treatment of a
transaction are not available.
b. Balance sheet
hedge (balance sheet hedging): Reducing foreign exchange exposure faced by
differentiating the various assets and liabilities of a company abroad.
c. Counterparty
(the opponent): Individuals / organizations who are affected by a transaction.
d. Credit risk
(credit risk): The risk that the opponent had failed to pay its obligations.
e. Derivatives: the
contractual agreement creating rights or obligations specific to the value
derived from other financial instrument or commodity.
f. Economic
exposure (economic exposure): Effect of changes in foreign exchange rates
against the cost and revenue in the future.
g. Exposure
management (exposure management): Preparation of companies to minimize impacts
kurs changes in earnings.
h. Foreign currency
commitment (commitment to a foreign currency): Commitment to the sale /
purchase of the company denominated in foreign currencies.
i. Inflation
differential (difference of inflation): The difference in the rate of inflation
between two countries or more.
j. Liquidity risk
(liquidity risk): The inability to trade a financial instrument in a timely
manner.
k. Market
discontinuities (discontinuities market): Changes in market value suddenly and
significantly.
l. Market risk
(market risk): risk of losses due to unexpected changes in foreign exchange
rates, commodity loans, and equity.
m. Net exposed
asset position (the net asset position of the potential risk): Excess assets
position of the position of liabilities (also referred to as a positive
position).
n. Exposed net
liability position (potential risk of the net liability position): Excess
liability position to the position of the asset (also referred to as a negative
position).
o. Net investment
(net investment): An asset or net liability position that happens to a company.
p. National amount
(national number): Total principal amount stated in the contract to determine
the settlement.
q. Operational
hedge (hedging operations): Protection valutaasing risk that focuses on
variables that affect a company's expenses pendapatandan in foreign currency.
r. Option (option):
The right (not obligation) to buy or sell a financial contract at a specified
price before or during a specific date in the future.
s. Regulatory risk
(regulatory risk): The risk that a law limiting the public will mean the use of
a financial product.
t. Risk mapping
(risk mapping): Observing the temporal relationship with the market risks of
financial reporting variables that affect the value of the company and analyze
the possibility of occurrence.
u. Structural
hedges (hedge structural): Selection or relocation of operations to reduce the
overall foreign exchange exposure of a company.
v. Tax risk (the
risk of tax): The risk that the absence of the desired tax treatment.
w. Translation exposure (translation exposure): Measuring the effect in the currency of the parent company of the change in foreign exchange for the assets, liabilities, revenues, and expenses in foreign currencies.
x. Transaction risk
potential (the potential risks of the transaction): Advantages ataukerugian
foreign exchange arising from the settlement or konversitransaksi in foreign
currencies.
y. Value at risk
(the value of the risk): Risk of loss on trading portfolio of a company which
is caused by changes in market conditions.
z. Value drivers
(trigger value): The accounts of the balance sheet and income statement value
of the company.
MANAGING TASKS IN FOREIGN CURRENCY
Risk management can
enhance shareholder value by identifying, controlling / managing the financial
risks faced by actively. If the value of the company to match the present value
of future cash flows, active management of potential risks can be justified by
the following reasons:
a. Exposure
management helped in stabilizing the company's cash flow expectations.
Flow is more stable
cash flows that can minimize the earnings surprise, thereby increasing the
present value of expected cash flows. Stable earnings also reduces the
likelihood of default and bankruptcy risk, or risk that profits may not be able
to cover contractual debt service payments.
b. Active exposure
management allows companies to concentrate on the major business risks.
For example in a
manufacturing company, he can hedge interest rate risk and currency, so it can
concentrate on the production and marketing.
c. Lenders,
employees, and customers also benefit from exposure management.
Lenders generally
have a lower risk tolerance than the shareholders, thereby limiting the
exposure of companies to balance the interests of shareholders and bondholders.
Derivative products also allow pension funds managed by the employer obtain a
higher return by giving the opportunity to invest in certain instruments
without having to buy or sell the related real instrument. Due to losses caused
by price and interest rate risk of certain transferred to the customer in the
form of higher prices, limiting exposure management of risks faced by
consumers.
DEFINING AND
CALCULATING RISKS OF TRANSACTIONS AND TRANSLATION
Companies with significant overseas operations prepare consolidated financial statements that allow the readers of financial statements to gain a holistic understanding of the company's operations both domestically and abroad. The financial statements of foreign subsidiaries are denominated in foreign currencies are presented again in the currency of the parent company. The process of re-presentation of financial information from one currency to another currency is called translation. Translation is not equal to the conversion. Conversion is the exchange of one currency to another currency physically. Translation is just a change of monetary units, such as only a balance sheet re-expressed in GBP are presented in U.S. dollar equivalent value.
Companies with significant overseas operations prepare consolidated financial statements that allow the readers of financial statements to gain a holistic understanding of the company's operations both domestically and abroad. The financial statements of foreign subsidiaries are denominated in foreign currencies are presented again in the currency of the parent company. The process of re-presentation of financial information from one currency to another currency is called translation. Translation is not equal to the conversion. Conversion is the exchange of one currency to another currency physically. Translation is just a change of monetary units, such as only a balance sheet re-expressed in GBP are presented in U.S. dollar equivalent value.
In addition to the potential risks of translational
traditional accounting measurement of the potential foreign exchange risk is
also centered on the potential risks of the transaction. Potential risks
associated with the transaction gains and losses in foreign exchange rates
arising from the settlement of transactions denominated in foreign currencies.
Transaction gains and losses have a direct impact on cash flow. Potential risks
of the transaction report contains items that generally do not appear in conventional
financial statements, but it raises transaction gains and losses as foreign
currency forward contracts, purchase commitments and future sales and long-term
lease.
Understanding Risk
Management
Risk management or self-employed person who works in
strategic areas, each day dealing with the bad road conditions. Someone could
have been sure to arrive at the office on time. However, of the conditions on
the street no one knows, for example, a tree felled by the previous rain, or
the road is closed, or other factors which may cause obstruction of the trip.
The person's ability to manage uncertainty in the streets is one form of risk management.
Similarly, the financial world. Risk is the uncertainty that would occur from each situation and the decisions we take. It's just that the consequences of that risk management is reduced or loss of our funds.
The person's ability to manage uncertainty in the streets is one form of risk management.
Similarly, the financial world. Risk is the uncertainty that would occur from each situation and the decisions we take. It's just that the consequences of that risk management is reduced or loss of our funds.
RISK OF ACCOUNTING DIFFERENCES WITH ECONOMIC RISK
Management accounting plays an important role in the process of risk management. They assist in the identification of market exposure, quantify the balance associated with alternative risk response strategy, the company faced a potential measure of risk, noting certain hedging products and evaluate the hedging program. The basic framework is useful for identifying different types of market risk can potentially be referred to as risk mapping. This framework begins with the observation of the relationship of the various market risks triggering a company's value and its competitors. The trigger value refers to the financial condition and operating performance items that affect the main financial value of a company. Market risks include the risk of foreign exchange rates and interest rates, and commodity and equity price risk. State the source of the purchase currency depreciates in value relative to domestic currency country, then these changes can lead to domestic competitors able to sell at lower prices, is referred to as the risk of facing currency competitive. Management accountants have to enter a function such that the probability associated with a series of output values of each trigger.
Another role played by accountants in the process of risk management involves balancing the quantification process relating to the alternative risk response strategies. Foreign exchange risk is one of the most common form of risk and will be faced by multinational companies. In the world of floating exchange rates, risk management include:
a. anticipated
exchange rate movements,
b. measurement of
exchange rate risk faced by the company,
c. design of
appropriate protection strategies,
d. manufacture of
internal risk management control.
Financial managers must have information about the
possible direction, timing, and magnitude of changes in exchange rates and to
develop adequate defensive measures more efficiently and effectively.
EXCHANGE RATE PROTECTION STRATEGY AND ACCOUNTING
TREATMENT NEEDED
After identifying potential risks, the next is
designing hedging strategies to minimize or even eliminate the potential risk.
This can be done with balance sheet hedging, operational, and contractual.
a. Balance Sheet Hedging
a. Balance Sheet Hedging
Protection strategy
by adjusting the level and value of monetary assets and liabilities denominated
exposed companies, which will reduce the potential risks facing the company.
Example of a hedging method subsidiaries located in countries that are
vulnerable to devaluation is:
·
Maintain cash
balances in local currency at the minimum level needed to support current
operations.
·
Restore the
earnings above the required amount of capital to the parent company.
·
Speeding
(ensure-leading) the receipt of outstanding receivables in local
currency.
·
Delay
(slow-lagging) the payment of debt in local currency.
·
Accelerate the
payment of debts in foreign currencies.
·
Invest surplus cash
into the stock of debt other in local currency which was less affected by
devaluation losses.
·
Invest in assets
outside the country with a strong currency
b. Operational Hedging
Focusing on operational hedging variables affecting
revenues and expenses in foreign currencies. More stringent cost control allows
a greater margin of safety against potential currency losses. Structural
hedging include relocation of manufacturing to reduce the potential risks
facing the company or changing the state is the source of raw materials and
component manufacturing.
c. Contractual Hedging
c. Contractual Hedging
One form of hedging with financial instruments, both
the derivative instrument and the basic instrument. This instrument products
include forward contracts, futures, options, and the mix of all three are
developed. To provide greater flexibility for managers to manage the potential
risks faced by foreign exchange.
ACCOUNTING AND CONTROL PROBLEMS ASSOCIATED WITH RISK
MANAGEMENT CURRENCY EXCHANGE RATE
Examples of accounting and control issues associated
with the risk management of foreign exchange can be seen in the following
cases:
These companies continuously create and implement new
strategies to improve their cash flow in order to increase shareholder wealth.
It does require some expansion strategy in the local market. Other strategies
require penetration into foreign markets. Foreign markets can be very different
from the local market. Foreign markets creates opportunities increased
incidence of corporate cash flow. The number of barriers to entry into
foreign markets that have been revoked or reduced, encouraging companies to
expand international trade. Consequently, many national companies become
multinational companies (multinational corporation) that are defined as
companies engaged in some form of international business. Control of the
company's treasury includes the entire performance measurement exchange risk
management, hedging is used to identify, and reporting the results of the
hedge. The evaluation system also includes documentation on how and to what
extent the company help other business units within the organization.
In many organizations, foreign exchange risk management is centralized at corporate headquarters. This allows the managers of subsidiaries to concentrate on its core business. However, when comparing the actual and expected results, the evaluation system must have a reference that is used success of the company's risk protection.
In many organizations, foreign exchange risk management is centralized at corporate headquarters. This allows the managers of subsidiaries to concentrate on its core business. However, when comparing the actual and expected results, the evaluation system must have a reference that is used success of the company's risk protection.
TRANSFER PRICING AND TAXATION
INTERNATIONAL
BASIC CONCEPTS OF INTERNATIONAL TAX BACKGROUND
Indonesia is also part of the international world is
definitely in the running wheels of government to international relations.
International relations can be cooperation in defense security, cooperation in
the social, economic, cultural and other, but the discussion is limited to the
export and import (International Trade Transactions) related to international
tax.
Any cooperation by all countries must be agreed in advance by the parties to reach a mutual commitment contained in a treaty, not the exception agreement in the field of taxation.
For that we need the international tax policy in terms of set the tax applicable in a country, assuming that each country could certainly have been set up in the tax provisions into its sovereign territory. But every country is free to regulate the taxation of the entity or a foreign national, international taxation is a form of international law, in which each state must submit to the international agreement known as the Vienna Convention.
Any cooperation by all countries must be agreed in advance by the parties to reach a mutual commitment contained in a treaty, not the exception agreement in the field of taxation.
For that we need the international tax policy in terms of set the tax applicable in a country, assuming that each country could certainly have been set up in the tax provisions into its sovereign territory. But every country is free to regulate the taxation of the entity or a foreign national, international taxation is a form of international law, in which each state must submit to the international agreement known as the Vienna Convention.
The
Principles That must be Understood in international taxation
Doernberg (1989) mention three elements must be met netralism That in international taxation policy:
Doernberg (1989) mention three elements must be met netralism That in international taxation policy:
1. Capital Export
Neutrality (Domestic Market Neutrality): Wherever we invest, the burden of
taxes paid should be the same. So it makes no difference if we invest in
domestic or foreign. So do not get when investing abroad, a Greater tax burden
Because of the two countries bear the tax. This will underpin Income Tax Act
Art 24 governing foreign tax credits.
2. Capital Import
Neutrality (International Market Neutrality): Wherever derived from the
investment, subject to the same tax. So That investors from both domestic or
overseas will be subject to the same tax rate when investing in a country. It
is the right of taxation of the same underlying with Taxpayer of the Interior
(WPDN) of the permanent establishment (PE) or Fixed Uasah Agency (BUT), the
which can be a branch of the company or service activities through the
time-test of the regulations.
3. National
Neutrality: Every country has the same tax on income. So if any foreign taxes
can not be deducted That as an expense deduction credited earnings.
TAXATION OF INCOME FOREIGN SOURCES AND DOUBLE TAXATION
Connection with
the tax concept of income from abroad
Each country claims
to impose taxes on income generated within its borders. However, the national
philosophy on the taxation of resources from abroad is different and this is
Important from the perspective of a tax planner.
Foreign
tax credit
Based
on the principle of worldwide taxation, foreign earned income of a domestic
company is taxable in full the fine imposed in the host country or countries of
origin. For reluctance Among avoid businesses to expand abroad and to maintain
the concept of neutralization abroad, the domicile of the parent company
(country seat) may elect to treat paid foreign tax credit against tax liability
as a domestic parent company or deduction as a deduction on taxable income.
Creditors
of foreign tax can be calculated as a direct credit on income tax paid on
earnings branch or subsidiary and any tax withheld at source, Such as
dividends, interest, and royalties are sent back to domestic investors. The tax
credit can also be estimated if the amount of foreign income tax paid is not
too obvious (when the foreign subsidiary sent most profits come from overseas
to domestic holding company).
Dividends
are reported in the parent company's tax return should be calculated gross
(gross - up) to cover the amount of tax levy plus all applicable taxes
overseas. This means That the domestic parent companies receiving dividends the
which includes taxes owed to foreign Governments and then pay the tax. Indirect
Tax Credit That allowed foreign (foreign income taxes deemed paid) is determined
as follows: Payment of dividends (including the entire tax levy) /
Profit after income tax of foreign X foreign tax can be credited.
TAX PLANNING IN MULTINATIONAL COMPANIES
In the tax planning
of multinational companies have certain advantages over a purely domestic firm
because it has greater flexibility in determining the geographic location of
production and distribution systems. This flexibility provides the opportunity
to utilize their own national tax ataryuridis differences so as to lower the
overall corporate tax burden.
The observation of these tax planning issues at the start with two basic things:
a. Tax considerations should never control business strategy
The observation of these tax planning issues at the start with two basic things:
a. Tax considerations should never control business strategy
b. Changes in tax
laws are constantly limit the benefits of tax planning in the long term.
VARIABLES IN TRANSFER PRICING
Transfer prices set
a monetary value on the exchange between firms that take place between the
operating unit and is a substitute for market prices. In general, the transfer
price is recorded as revenue by one unit and the unit cost by others.
Cross-border transactions of multinational corporations are also open to a
number of environmental influences that created the same time destroying the
opportunity to increase profits through transfer pricing. A number of variables liketax rate competition inflationi
rates, currency values, limitations on the transfer of funds, political risk
and the interests of joint venture partners are very complicated transfer
pricing decisions.
FUNDAMENTAL PROBLEMS IN THE TRANSFER PRICING METHOD
Tax factor
Reasonable
transaction price is the price to be received by parties not related to special
items the same or similar in the exact same or similar situation. Reasonable
method of determining the transaction price is acceptable That is:
(1) the method of
determining the comparable uncontrolled price.
(2) method of
determining the resale price.
(3) plus the cost
price determination methods and
(4) other methods
of assessment rates
Factor Tariff
Tariffs
for imported goods also affect transfer pricing policies of multinational
corporations. In Addition to the balance identification, multinational
companies should Consider the costs and benefits, both internal an external.
High tax rates paid by the importer will generate the income tax base is lower.
Competitiveness
Factors
Similarly,
a lower transfer price can be used to protect the ongoing operation of the
influence of foreign competition is increasingly tied to the local market or
other markets. Such considerations must be balanced competitiveness against the
many losses That the opposite effect. Transfer rates for competitive Reasons
may invite anti-trust action by the government.
Performance
Evaluation Factors
Transfer
pricing policy is also influenced by Their influence on behavior management and
is Often the main determinant of company performance.
0 comments:
Post a Comment