International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website

CHAPTER 25

Managing the Multinational Financial System

Through its propensity to nestle everywhere, settle everywhere, and establish connection everywhere, the multinational corporation destroys the possibility of national seclusion and self-sufficiency, and creates a universal interdependence.

Stephen Hymer

As much as 40 percent of all international trade is transacted within the multinational corporation—so-called intra-corporate trade. This allows globally reaching firms to exploit their multinational enterprise system through skillful transfer pricing of cross-border shipment of parts or subassemblies, timely leading and lagging of payments among sister subsidiaries, comprehensive multilateral netting of payments, and consolidation of liquidities to reduce financing costs and take advantage of centralized cash management. This comprehensive optimization exercise in value creation is, however, severely constrained by national regulations, tax laws, and tariff duties.

After reading this chapter you will understand:

• The key principles of international taxation.
• How to exploit the multinational financial system's potential.
• How to organize the international finance function by using reinvoicing centers and international finance subsidiaries.
• How to design a global remittance strategy.
• How to optimize global cash management.

A PRIMER ON INTERNATIONAL TAXATION

By its very nature, a multinational corporation has considerable flexibility in designing and operating its financial ...