Multinational Financial Management

Managing the Multinational Financial System

An injudicious tax offers a great temptation to smuggling. But the penalties of smuggling must rise in proportion to the temptation. The law, contrary to all the ordinary principles of justice, first creates the temptation, and then punishes those who yield to it.

ADAM SMITH (1776)

The Eiffel Tower is the Empire State Building after taxes.

ANONYMOUS

LEARNING OBJECTIVES

• To identify the principal transfer mechanisms that multinational corporations (MNCs) can use to move money and profits among their various affiliates and to describe their tax, currency control, and cash management implications
• To identify the three principal arbitrage opportunities available to MNCs that stem from their ability to shift profits and funds internally
• To describe the costs and benefits associated with each transfer mechanism, as well as the constraints on their use
• To identify the factors that affect a multinational firm's ability to benefit from its internal financial transfer system
• To describe the information an MNC needs to take full advantage of its internal financial system

From a financial management standpoint, one of the distinguishing characteristics of the multinational corporation, in contrast to a collection of independent national firms dealing at arm's length with one another, is its ability to move money and profits among its affiliated companies ...