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international_business_practice.pptxInternational Business Practices
Robert Shulzinsky
Southern New Hampshire University
13 August 2017
Implications of variance in international tax laws
The portions of assets and liabilities in different currencies are exposed to threats due to variations in foreign currency exchange rates (Park & Shaw, 2013).
Variations in the foreign currency exchange rates result in lower revenue or superior cost in yen.
Lower revenues influence financial results of the company.
There can be direct benefits for the companies pursuing enlargement strategies.
The portions of assets and liabilities in different currencies are exposed to threats due to variations in foreign currency exchange rates. Besides, these variations in the foreign currency exchange rates result in lower revenue or superior cost in yen. As a result, the financial results are influenced and direct benefits be help in pursuing enlargement strategies.
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Impact of foreign currency on financial statements
Variations in exchange rates considerably affect financial statement trends.
Considering in yen, it appears earnings are decreasing, but in USD, earnings appear to be increasing (Cavusgil, et al., 2014).
Variations in currency affect conversion of all financial statements from one currency to another.
Changes in foreign currency exchange rates result in masking both concerning and encouraging trends in foreign subsidiaries (Dunning, 2014).
Foreign exchange gains or losses have subjective valuation treatment in financial statements.
Variations in exchange rates considerably affect financial statement trends as well as conversion of all financial statements from one currency to another. Considering in yen, it appears earnings are decreasing, but in USD, earnings appear to be increasing. Changes in foreign currency exchange rates result in masking both concerning and encouraging trends in foreign subsidiaries. Foreign exchange gains or losses have subjective valuation treatment in financial statements.
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Impact of foreign currency exchange rates on financial risks
Business operating internationally in Japan must have an oversea exchange risk supervision approach.
The monetary policy in Japan is very simulative while in In Europe, it is emerging out of recession.
The variance in the currency has negative effect on the sales and cash flows of the company (Dunning, 2014).
Development of risk supervision approach helps in the determination of instability in exchange rates.
Business operating internationally in Japan must have an oversea exchange risk supervision approach which as in the determination of stability in the currency exchange rates. The monetary policy in Japan is very simulative while in In Europe, it is emerging out of recession. The variance in the currency has negative effect on the sales and cash flows of the company. Development of risk supervision approach helps in the determination of instability in exchange rates.
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Impact of foreign currency exchange rates on financial statements
The financial effects transform is comparatively self-contained and integrated inside a foreign country connect to the net savings in that process (Park & Shaw, 2013).
Accounting guidelines require firms with foreign operations to transform results of foreign entities from local currencies to single common currency (Deresky, 2017) .
Shifts in currency exchange rates has dramatic effect on the revenues and profits of the company.
Companies that have operations in many countries, variations in exchange rates affect financial statement trends.
The financial effects transform is comparatively self-contained and integrated inside a foreign country connect to the net savings in that process. financial statements are prepared according to accounting guidelines. Accounting guidelines require firms with foreign operations to transform results of foreign entities from local currencies to single common currency. Shifts in currency exchange rates has dramatic effect on the revenues and profits of the company. Finally, companies that have operations in many countries, variations in exchange rates affect financial statement trends.
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Strategies used in mitigating risks
The risks of operation or economic issues can be alleviated through either;
Operational strategies
Currency risk mitigation strategies
Operational risks
Diversification of production facilities and markets for products.
Having alternative sources of inputting key strategies.
Diversification of financing and flexibility. In order to raise capita in the market with less expensive cost of fund (Park & Shaw, 2013).
The risks of operation or economic issues can be alleviated through either; Operational strategies and Currency risk mitigation strategies
Operational strategies include;
Diversification of production facilities and markets for products that assist in mitigation of the risk inherent in the production sales or facilities in markets. Having alternative sources of inputting key strategies. Diversification of financing and flexibility. In order to raise capital in the market with less expensive cost of fund.
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Currency risk mitigation strategies
The most common strategies are four.
Matching currency flows that is matching foreign currency inflows and outflows (Cavusgil, et al., 2014).
Currency risk sharing agreements.
Back to back loans
Currency swaps
Matching currency flows. The foreign currency inflows and outflows to be matched when considering borrowing in yens. Currency risk sharing agreements that involves in price adjustment clause to mitigate fluctuation rates. In the collateral foreign currency, a back to back loan is seen as assets and liability as well in the balance sheets. In the currency swap, two firms can borrow in the markets where each is able to get the best rates.
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Benefits of International tax laws
Reduction of corporate tax rate and increase of VAT tax rate.
Introduction of transfer pricing rules and documentation requirements.
Increasing of international tax examiners in most countries worldwide.
Allows taxpayers to freely chose whether a business entity should be treated as a corporation.
Encourages companies in Japan to pay for the R&D activities and acquires intangibles so as to be competitive technologically (Deresky, 2017).
Assists in the reduction of corporate tax rate and increase of VAT tax rate by introduction of transfer pricing rules and documentation requirements. Also, it Increases international tax examiners in most countries worldwide. And it allows taxpayers to freely choose whether a business entity should be treated as a corporation or non-taxable pass-through entity. Eventually, it encourages companies in Japan to pay for the R&D activities and acquires intangibles so as to be competitive technologically.
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Benefits of International tax laws cont...
Tax laws take into account the taxation of international activities.
There is legal enforcement of contractual agreements
There are hybrid instruments are used to create deductible expenses in a country that result in tax free profits in another country (Ball, et al., 2012) .
Audit and publication requirements.
There is integration of total costs of ownership when tax changes are planned.
Degree of centralization and service of tax authorities.
Tax laws take into account the taxation of international activities. There is legal enforcement of contractual agreements that involve in the asset protection and marketing aspects. There are hybrid instruments are used to create deductible expenses in a country that result in tax free profits in another country. Audit and publication requirements by tax authorities and the possibilities of the ruling according to the tax laws. Besides, there is integration of total costs of ownership when tax changes are planned. Lastly, degree of centralization and service of tax authorities.
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Examples of possible tax incentives
Under the 2017 Tax Reform Act, investors are allowed to deduct a tax for the investment loss at up to 50%.
Investment tax incentives introduced to allow investors the capability of the loss from capital investment.
Employer is allowed to claim a tax credit.
The Incentive for New Investment into Production Facilities
The maximum tax credit is limited to 20% of the taxpayers’ corporate tax liability (Ball, et al., 2012).
Under the 2017 Tax Reform Act, investors are allowed to deduct a tax for the investment loss at up to 50%. The percentage was lowered from 80% to 50% of the value of investment. In fact, the incentive is effective for qualified partnerships designated on or before 31st march 2018. Investment tax incentives introduced to allow investors the capability of the loss from capital investment. Moreover, employer is allowed to claim a tax credit when comes to increase in salary payments. The Incentive for New Investment into Production Facilities since the maximum tax credit is limited to 20% of the taxpayers’ corporate tax liability.
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Tax disadvantages
Japan in dilemma between the huge national debt and the sluggish economy (Cavusgil, et al., 2014).
Negative growth and rapid dwindling working age tax base.
Sluggish domestic consumer market.
High consumption tax resulting in massive money drop.
Raising inflation in Japan.
Currently, Japan is in a serious dilemma between the huge national debt and the sluggish economy. The national debt is about 175% of the GDP and the country is taking steps in reducing that GDP. There is negative growth and rapid dwindling working age tax base as one of the problems in Japan. Sluggish domestic consumer market because of the increased exports as yen has been weakening due to credit crunch. Besides, there is increased consumption tax resulting in massive money drop thus hurting consumption which affect the economy negatively.
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References
Ball, D., Geringer, M., Minor, M., & McNett, J. (2012). International business. McGraw-Hill Higher Education.
Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. Pearson Australia.
Deresky, H. (2017). International management: Managing across borders and cultures. Pearson Education India.
Dunning, J. H. (2014). The Globalization of Business (Routledge Revivals): The Challenge of the 1990s. Routledge.
Park, T. Y., & Shaw, J. D. (2013). Turnover rates and organizational performance: a meta-analysis.
