FIX ASSIGNMENT (3)
Beast8484
milestone_4.pptxInternational Business Practices
Geoff Brown
Professor Duhn
ACC 680
March 12, 2017
Chosen country for your company’s potential expansion is Canada.
Generally, we will at the potential expansion into the global market.
Introduction
This presentation will specifically focus on your potential expansion in Canada but the general focus will be the global market.
In this presentation, I will explain the implication of variances in international laws of taxation on organizational strategy. Equally, I will provide and explanation on ways foreign currency transactions impact the creation of financial statements according to GAAP.
As part of this presentation, I will recommend tools or strategies your company can implement to mitigate the associated financial risks of these expansion efforts.
I will provide an explanation of the benefits of international tax treaties or law if your company actually expanded to Canada.
I will also provide example of probable tax incentives that countries would offer to potential investors not only to attract investment projects but also to promote exports
Last but not the least, I will provide an explanation of tax disadvantages that you should consider when expanding your business operations to the global market.
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Basically, volatility in currency exchange rates will put the company’s operations in the global market, at risk.
How foreign currency exchange rates will impact income potential
It should be understood upfront that volatility in currency exchange rates will not only affect the dollar value of a company’s assets and liabilities which are denominated in foreign currency, but also the operating profit. I want to believe that most of you understand the first implication. So, allow me to explain the implication on operating profits.
Apparently, in a global market, various countries would follow divergent monetary policies. Since the US shares the global market more equally with Europe, meaning that the US no longer has more control of the global market, these aspects of business makes the currency exchange rates to effect the operating profits of those countries transacting business in a global competitive market.
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It means that the company’s income will be exposed to both contractual and accounting or operating risks.
What this means for the income and risk of the company
1. Apparently, incomes will be impacted in two ways:
Impact on profits arising from translation of contractual items outstanding at the end of the accounting period.
Impact on transactions conducted and completed during the year
2.
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Generally, foreign currency exchange rates barely have any impact on the accounting exposure.
How foreign currency exchange rates impact financial statements
1. You see, the financial statements of a company have all the information that is required to define the accounting or the contractual exposure. For instance, FASB 51 was adopted in 1981, requires physical assets to be included in the calculation of gains or losses from foreign currency translations.
2. So, in general, these translation gains or losses have little or not impact on the accounting exposure and in extension, the financial statements. However, whenever the US dollar is strong, multinational companies would report low foreign sales as these sales figures are translated into fewer dollars.
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Currency hedging.
Forward contract would hedge contractual exposure.
Recommendations for tools or strategies to mitigate this risk
Apparently, currency risk exposures in a traditional analysis of a balance sheet would focus on foreign currency denominated contractual items whose dollar value would be affected by changes in nominal exchange rates. Such contractual items in the balance sheet would include receivables, payables, and debt. So, in light of operating exposure to risk, the company can implement a business strategy whereby it could “enter into forward contract arrangements that would help it hedge against contractual exposure” (Verbeke, 2013).
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Relief from double taxation
The benefits of international tax laws/treaties
1. It should be noted that double taxation can be either economic double taxation and juridical double taxation. However, in this case, international laws will relief a company of juridical double taxation. Juridical double taxation occurs when state governments levy taxes on both domestic assets and transaction and capital situated and transactions made in foreign countries.
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Tax exemptions
Tax deductions
Tax credits
Allocating expenses
Tax sparing
Possible tax incentives offered by countries to attract investment
Tax exemptions are incentives offered from domestic taxes on foreign sources of income of a company.
Tax deductions are incentives offered by a country of residence that allows a taxpayer to claim deduction of taxes already been paid in the foreign country with regards to foreign sources of income.
Tax credits are offers given by a resident country as a way of eliminating international double taxation.
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Tax avoidance
Tax rate
Tax disadvantages when expanding globally
As a multinational company, you would want to use strategies that would enable you to minimize your tax bill. However, you would want to consider if you are willing to use considerable legal and financial clout in minimizing your tax bills.
Obviously, huge companies enjoy lower tax rates than small companies. In light of the size of your company, you would want to consider the size of the expansion if you are to enjoy of suffer particular tax rate.
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Madura, J., & Madura, J. (2008). International corporate finance. Australia: Thoms
Verbeke, A. (2013). International business strategy: Rethinking the foundations of global corporate success.
References
