International Business: The New Realities, 5th Edition

Managing International Finance to Minimize Tax Burden

Taxation affects managerial decisions about the type of entry modes, the legal form of foreign operations, transfer pricing, methods for obtaining capital, and even the choice of target markets. Companies seek to minimize their tax obligations legally. In Japan, the government imposes a high tax on malt, a key beer ingredient. Partly to avoid the tax, firms that brew beer in Japan employ a distillation technology that eliminates the need for malt. The product tastes like beer but is actually a type of liquor.

Every country has its own tax laws and loopholes that MNEs exploit in order to minimize their tax obligations. Global firms reduce taxes through various methods.37

• Deferral of foreign ...