1 / 12

CHAPTER 18 H ost-Country Regulation: Corporate Law, Taxation, and Currency Risk

CHAPTER 18 H ost-Country Regulation: Corporate Law, Taxation, and Currency Risk. Host- Country Corporate Law Affecting Foreign Investment. Host country corporate law can impact the “bottom line”:

stacey-riddle
Download Presentation

CHAPTER 18 H ost-Country Regulation: Corporate Law, Taxation, and Currency Risk

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CHAPTER 18 Host-Country Regulation: Corporate Law, Taxation, and Currency Risk

  2. Host- Country Corporate Law Affecting Foreign Investment • Host country corporate law can impact the “bottom line”: • What is the host country does not allow repatriation of money back to foreign investor’s country? • What if employment boards are run by a majority of host-country ‘insiders’? • Most countries now regulate investment to try to balance investment with local growth and control.

  3. Minority Ownership: Passive • Investor limits herself to equity or debt financing. • Equity: • American Depository Receipts certificates held by U.S. trust institution representing stock held by bank in foreign country. • EU Prospectus Directive. • Legal issues: insider trading (different definitions), national legislation.

  4. Minority Ownership: Active • Joint Venture forms: • Foreign corporation. • Foreign partnership. • U.S. corporation with foreign branch. • U.S. partnership with foreign parties. • National restrictions may exist on foreign participation. • Example: U.S. restriction on foreign nationals involved in defense contractors.

  5. Majority Ownership and Subsidiaries • Reason: Foreign company can exercise greater control, but some countries either forbid 100% foreign ownership or impose high taxes. • Option: create a foreign branch subsidiary. 

  6. What Is the Difference Between a Subsidiary and a Branch? • Control. • Tax. • Liability. • When might you consider a branch first?

  7. Tax Issues: Bank of America v. U.S. • Foreign tax credits - in the U.S. you get credit on U.S. income tax on foreign taxes paid. See the Bank of America Nat’l Trust & Savings Assn. v. United States case. Holding: BOA petition dismissed tax credits appeal.

  8. Tax Issues: E-Commerce • Should the internet be a “tax free” zone? • Great variation among regions: • All EU purchases subject to a VAT tax, from 15-25%. • EU treats downloadable music as a “service.” • Transfer pricing - to prevent tax evasion require intercompany transactions at arms length prices.

  9. Tax Issues • Foreign sales corporation - legal mechanism to reduce taxes. See the Compaq Computer case. • U.S. Enforcement of Foreign Tax Laws. • David B. Pasquantino v. United States: Supreme Court held that Department of Justice has the power to prosecute Americans for the evasion of foreign tax laws.

  10. Foreign Control Issues • Virtually every country prohibits foreign entities in sensitive sectors. • US outlaws foreign investment in “national security” fields such as telecommunications, air transportation, and military procurement. • Mexico has now changed its laws to allow up to 100% foreign investment. • Investor reaction to limits has always been negative.

  11. Controlling Currency Risk • Inconvertibility: make agreement with government regarding currency exchange results & import substitution rights. • Minimizing Fluctuation Risks: Currency Swaps. • Arrangements with the Soft-Currency Country. • Payment and Price Adjustment Approaches.

  12. Controlling Currency Risk • Structuring of Hard-Currency Obligations and Revenues. • Countertrade. • Counterpurchase. • Barter. • Offsets. • Buy-Back. • Consortia or parallel exchange.

More Related