Implementation Of Tax Planning In Financing Strategy Of Multinational Enterprise Group

Capital weakness is one of the most controversial issues in international tax law.

When multinational corporations consider pnational investment, the combination of debt and equity in capital structure becomes a basic tax planning problem.

In most countries, the tax law stipulates that dividends should be paid out of the cost of nonfeasance, which can only be distributed in the post tax profits, while interest payments can be included as expenses and allowed to be deducted from taxable income.

The dividend payable to equity capital is generally subject to two taxes. One is to collect corporate income tax as a profit or taxable income before distribution, and the other is to distribute the withholding income tax when the dividend income is distributed as a shareholder, and the tax rate for the dividend is generally higher than the interest rate.

The phenomenon of double taxation can not be eliminated in countries where there is no centralized control.

Therefore, in order to obtain more benefits, multinational enterprises artificially choose the proportion of equity capital and debt capital, so that residents in high tax countries have less equity capital, expand the ratio of debt to property rights, and increase the deduction of taxable income, so as to lighten the tax burden.

When the debt capital of a company exceeds that of equity capital, capital weakness will be formed.

Capital weakness, as an effective means to minimize taxation, has the following advantages to the parent company: (1) avoid income tax paid from operating profits from foreign subsidiaries.

(2) avoid withholding taxes paid by foreign subsidiaries to the parent company's dividends.

(3) avoid double taxation of foreign companies' profits (such as income tax on company profits and withholding tax on dividends paid to parent companies).

The subsidiary company can get the loss of multinational enterprise groups in other countries.

(5) pfer tax liability among different tax jurisdictions, so as to reduce the amount of tax payable globally, such as maximizing dividend dividends and maximizing foreign tax credits.

(6) non tax considerations, such as the repatriation of profits under the control of foreign exchange control.

The advantages of foreign subsidiaries are: (1) the interest paid for borrowing can be deducted from tax and the taxable income of the company will be reduced.

(2) the taxation of foreign country's income from the country of income is different according to the type of income earned by the foreign company.

Generally speaking, the interest earned by a foreign company is lower than the dividend paid by the company.

Of course, the degree of tax reduction ultimately achieved through capital weakness also depends on the tax system of the countries where foreign companies are located.

Capitalization is easier than repaying tax-free equity.

International financial leasing refers to the purchase of a machine from a bank by a related company in a country, and then leasing it to a related company in another country.

Combined with the tax law of relevant countries, pnational enterprise groups can reduce the tax burden by adopting international leasing.

Because, in many countries, there are provisions in the tax law that encourage enterprises to buy equipment for investment, such as accelerated depreciation system, investment credit system, etc. the companies enjoying these two preferential systems must possess the legal title of this equipment.

If the government of the lessor country has obvious advantages in tax preferences for investment in machinery and equipment, the lessor should pfer the machine equipment in the form of international financial leasing.

In this way, the lessor can enjoy the preferential tax related to this equipment, and the lessee can quickly acquire the assets needed to save the company's ability to borrow money, and the interest paid on the rent can also be deducted before the income tax according to the regulations, further reducing the tax base.

The corresponding companies in pnational conglomerates usually use the pfer pricing method to adjust the interest rate of the internal loan, reduce the interest withholding tax by this way, or redistribute the profits, and the profits of the super high tax countries are pferred to the tax haven in the form of interest payment.

In the latter case, the increase in the debt volume of the borrower and the increase in the total interest on the loan increase the deduction of taxable income, thereby reducing the company's

Under progressive tax rate, interest expense can be deducted before tax, and tax rate can also be reduced.

The location of financial base company should generally consider the following conditions: having a wide network of tax treaties, not taxing interest on non resident companies or imposing low taxes on the remittance of interest according to the provisions of international tax treaties; all the profits paid by base company to non resident companies can be regarded as deductions, and the profits of base company itself are therefore reduced.

The profits of the International Finance Corporation are not repatriated to the parent company, thus obtaining the advantage of deferred tax payment.

Financial base company can also be used to raise capital more easily.

The main tasks of financial base company are: (1) minimizing interest withholding tax in obtaining and issuing loans.

To this end, financial base company should be located in countries with tax treaty networks.

2. Accumulate profits from foreign companies in the form of interest under the condition of minimum income tax.

To this end, financial base company should be located in countries and regions with the lowest income tax.

(3) it is particularly important to use the free resources in the internal corporate structure of multinational enterprises, especially in the countries where the parent companies and subsidiaries are in the process of implementing strict foreign exchange and investment control policies.

4. Achieve double payment of interest and other financial charges.

5. In the tax environment conducive to the activities of financial base company, play the role of the Treasury of multinational enterprises.

Of course, it is not willing to bear the interest withholding tax.

When negotiating loans, the group will ask for higher loan interest rates or other rates, which is actually shifting the burden of withholding tax to multinational conglomerates that need to borrow eight capital.

To solve this problem, multinational corporations need to establish financial base company.

Financial base company is similar to internal bank, and is the management center of international financial business of multinational enterprise group.

Transnational conglomerates can establish international financial companies in tax shelters or countries with extensive tax treaties as intermediaries between borrowers and borrowers, so that interest income is not taxable or less taxable, or the high tax state permits tax deduction for interest payments by corporate groups or, according to favorable tax agreements, levying or withholding tax on interest payment countries.