ASB-4007 Finance For Managers Assignment Sample
Here’s the best sample of ASB-4007 Finance For Managers Assignment Written by industry expert.
Question 1
- a) Development of owned subsidiaries in India rather than continuing purchasing from an independent company can help Tripco Inc to develop high profit from the Indian market. According to the view of D’andria et al, (2018), there are a wide range of business benefits that can be availed by the company Tripco Inc through opening a subsidiary in India. The following are the major reason that justified Tripco Inc might be considered in opening a subsidiary in India rather than continuing to purchase from other companies:
Legal protection: subsidiaries in India get the opportunities of separate legal identity before law and get significant compensation in the tax payment process. This process can help Tripco Inc to practice business directly with Indian customers with Indian identity for maintaining market segmentation, targeting and positioning of the company (Dnb.com, 2020). According to the view of Galang Windi Pratama, (2019), legal protection and proper legal identity in the eyes of law can also help in the process of balancing the legal business framework of India and acquire maximum benefit from competitive advantage.
Manage liability and asset appropriately: One of the most potential reasons that support that Tripco Inc must consider creating a subsidiary in India is more access to manage liability and assets of the company. According to the view of Ham and Ko, (2016), this process can help the organisation to directly connect with shareholders and increase investors as well as annual profit on Indian market. Moreover, opening a subsidiary in India can help to develop a separate management structure aligned with Indian marketing environment for competitive survival and profit maximization (Dnb.com, 2020).
Brand recognition in Indian market: the subsidiary establishment in India can greatly help how to get brand recognition in Indian market along with the major competitors. According to the view of Dezi et al, (2018), it is one of the most potential reasons for considering developing Indian subsidiary rather than pursuing goods and services from other independent companies. It can also help to minimise operating cost of using independent companies for business activities of Tripco Inc. Moreover, this process can also greatly help the company to access more resources and marketing opportunities of Indian market in order to ensure continuous growth and development.
Increase of profit making activities: opening of subsidiary companies in Indian market can ensure higher profit making activities in the Indian marketing area for increasing revenue of parent companies. According to the view of Min, (2019), the minimization of government taxes by separate legal identity creates opportunities for merging with sub divisions in the future and managing various business activities significantly. Business operations and marketing activities can be also controlled properly by Indian location.
- b) Business takeover is associated with a wide range of advantages and disadvantages for Tripco Inc depending on the economic and political circumstances of India. Development of a subsidiary company by opening a new company in India is more appropriate than takeover of Sarkit Ltd.
Advantage of takeover Sarkit Ltd
Opportunities of restructuring Sarkit Ltd: One of the most potential advantages of considering takeover of Sarkit Ltd is getting an opportunity to restructure organisational existing marketing areas and ensure higher profit. According to the view of Siebert, (2017), this process can help to access internal and external stakeholders of Sarkit Ltd and improve their marketing performances for making higher profit by identifying major weaknesses and barriers.
Getting existing customer channels of Sarkit Ltd: another potential advantage that can be availed by Tripco Inc through takeover of Sarkit Ltd is its opportunities to acquire existing customers of the organisation with improved product and services. According to the view of Siebert, (2017), this process can help the organisation to reduce the operating cost of advertising and develop new customer strategies. Moreover, connected with existing customers through franchising strategy can greatly help in improving brand equity and customer segmentation method. According to the view of Wu, (2018), along with existing customers Tripco can also access the existing employees and suppliers networks of Sarkit Ltd. This process can help to reduce the human resource management cost and operating cost of developing a new supply chain management system and employee hiring process. According to the view of Siebert, (2017), providing proper training and guidance to the existing employees can help to maintain brand equity and ensure higher profitability in Indian market.
Easy entry in Indian market: Another significant advantage of takeover of Sarkit Ltd is easy entry in Indian market. Merging with existing companies can help to get easy legal entry without licensing and Trademark policy (Dnb.com, 2020). According to the view of Siebert, (2017), this process has also potentiality in reducing the negative impact of micro environmental factors in organisational growth and development.
Disadvantage of takeover Sarkit Ltd
Valuation problem: The risks of valuation problems and financial drawbacks are the most potential disadvantages of takeovers. According to the view of Klossek, (2018), the cost of organisational assets and restructuring cost of higher hierarchical level and business activities has high potentiality of creating valuation problems in the organisation management.
Challenges in maintaining integration: maintenance of integration and transparency after takeover is a major issue and disadvantage due to difficulties in controlling existing internal and external stakeholders. According to the view of Klossek, (2018), a wide range of cross cultural issues and organisational management gap can be observed in the business environment due to changes of Business and administrative perspective from Sarkit Ltd to Tripco Inc. In addition, change management and control resistance of employees is a difficult task of organisational takeover.
Involvement of higher: Takeover of Sarkit Ltd is associated with higher risk financial loss due to involvement of higher cost in purchasing organisational financial and non-financial assets. Tripco Inc has to pay for organisational dept and loans along with assets and liabilities. According to the view of Klossek, (2018), this process has higher possibilities of generating financial management issues and losses in the first few years in order to balance with organisational financial status. On the other hand, takeover has possibilities of generating higher cost maintenance of existing employees and suppliers for the need of restructuring the whole organisational working environment.
- c) Licensing and setting up a joint venture both are potential business collaboration strategies that can be utilised for developing a relationship with Tripco Inc. According to the view of Wu, (2018), the most potential similarities between licensing and joint venture are focus on availing maximum opportunities of competitive advantage in order to increase organisational value and annual benefits. On the contrary, the major differences between these two are joint ventures depend on entrepreneur skills of associated local partners and technological gradation of the foreign partner and licensing associated with getting legal entry by collaborating with an organisation of local units.
Licensing
Licensing activities are associated with development of potential business management where a company authorised another company for utilising their resources and marketing areas for generating higher profit. According to the view of Wu, (2018), through licensing the most potential way of connecting with Tripco Inc are getting manufacturing process, copyright and patent, Trademark and brand name and advanced technology.
Setting up a joint venture
Joint venture is considered as a business entity for making business arrangements in order to pull out organisational resources in specific strategic direction by characterizing shared ownership, returns and shared government. According to the view of Wu, (2018), setting up of joint venture can develop a way to connect with Tripco Inc by incorporating with organisational resources, investment, and organisation management process and profit distribution. In addition, through this way Tripco Inc can get easy recognition and opportunities to performances business activates in Indian markets. Joints Ventures can help to exchanges ideas and innovations amongst companies in order to improved business activates in near futures.
Question 2
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Recommendation for transfer price
The total cost of drills in Germany = 200*€14 = €2800
Tripco (India) incurs the cost of INR 90,000 that is €1313.87
Tax payable rate in Germany is 30% whereas it is 35% for Indian subsidiary
Hence, the tax payable amount in Germany is €840 whereas it is €459.85 in India.
Transfer pricing mainly controls the extra profit earned in high tax rate countries to lower tax rate countries. As mentioned by Juranek et al. (2018), it is favourable for all MNCs to set the transfer price at the minimum level or at an equal level to the marginal cost. In this case, it is recommended to set the transfer price at the low level that is at INR 100,000 per container of electrical components and thus it would get more benefit in the tax payable rate. This minimal level of transfer pricing would help the organisation to save property tax amount and thus would help to protect from an external tax-related burden.
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Arm’s length rule in the transfer price
Arm’s length principle mainly deals with the same pricing rate throughout the globe irrespective of controlled transactions or even uncontrolled transactions. As mentioned by Franklin and Myers (2016), sometimes it can be observed that there are vast changes in the terms and conditions for control as well as uncontrolled transactions. Mostly the multi-organisation companies used to face trouble regarding these unbiased regulations and for this reason, transfer pricing ensures the same principle for every transaction. According to Barker et al. (2017), this arm’s length rule states that the entity belonging to management must abide by the same terms and conditions just like it has been set for the uncontrolled transaction policy. The major goal of this principle is to prevent any kind of extra profit shifting from high tax paid countries to low tax paid countries.
For this reason, it is important for all multinational organisations to incorporate these principles in their actions and to control the transaction rate in different market places throughout the world. As argued by Juranek et al. (2018), this principle assures that there is no relationship between the buyers and the sellers and thus it has no impact over the transaction prices in any business-related matter. OECD has proposed these principles in article 9 of the OECD model convention which has been observed to be adopted by most of the bilateral taxpayers (Dnb.com, 2020). In the given case study of Tripco Inc, the company is opening a new subsidiary in India that would supply the products to subsidiary organisations in Germany (Dnb.com, 2020). The tax rate on corporate profit is higher in the case of India than Germany and for this reason, this principle would help the organisation to maintain equal transfer pricing policy.
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Transfer pricing
The term transfer pricing mainly defines as the rules and regulations for pricing transactions within the enterprises or between the enterprise with the same ownership. As mentioned by Clausing (2020), this is an important aspect of taxation and accounting and controls the extra amount of profit from higher taxpayer countries to lower taxpayers. As argued by Abdallah (2016), this pricing policy helps to minimise the duty costs and also ensures to shift the goods with minimum transfer price from high tariff countries. The major objectives of this transfer pricing are to control circumventing exchange, reducing exchange exposure and also to restrict the amount of profit repatriation. In this case study, the incorporation of this transfer pricing would help Tripco Inc. to balance the shifting price of goods between Germany and India (Dnb.com, 2020). In this given case study, as Tripco Inc. is going to open a new subsidiary in India and is connecting with its German subsidiary, therefore, this method of pricing would ensure the company to maintain similar kinds of regulations.
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Methods of taxing multinational
Multinational organisations used to operate the business in their home country and also have several branches throughout the world. Therefore there are broadly two approaches that control the taxation process for these MNCs.
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Worldwide approach
The worldwide approach of taxation mainly deals on the global basis that is under this approach the MNC is required to pay the worldwide tax. As per the view of Bustos et al. (2019), this approach does not pay attention to where the income has been earned and thus all these MNCs are required to pay the tax on an international basis. In this process, both domestically earned and foreign sources earned have to be paid by the company. However, as argued by Clifford (2019), in this respect, domestic countries might allow a deduction for the foreign source income in order to minimise the amount of double pay. Thus, it allows neutrality in the capital export and for this purpose; the citizens of the home country face the same tax burden.
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Territorial approach
This territorial approach mainly deals within the boundary of the country and any kind of income away from the home country’s territory is not taxed by the domestic government. As mentioned by McGaughey and Raimondos (2019), under this approach, the foreign incomes are not included and it might be subjected under the taxation process by foreign countries. As argued by Polezharova and Krasnobaeva (2020), this approach maintains the capital import neutrality and all the taxes earned within this home country are taxed at the same rate.
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Tax incentives offered by Government
The term tax incentive is mainly referred to as the tax code design that encourages a particular economic activity within a country. This also allows a reduction in the tax payment within the selected countries and thus promotes economic activity. There are several tax incentives offered by the government for the multinational organisations for ensuring the prosperity of business accurately. Forgone revenue is one kind of such incentive that is collected in case of any loss in the tax revenue. As per the view of Franklin and Myers (2016), this is either directly collected from the activity that has been undertaken or even in the case of activity where the investors have not received any kind of tax incentives.
The second one is the Resource allocation, which is originated if there is any kind of distortions in tax incentive for any particular activity rather than rectifying the market failure. As mentioned by Barker et al. (2017), this kind of tax incentive offered by the government mainly assures neutrality in action. The third tax incentive is the Enforcement as well as compliance cost, which mainly arises if there is any complication in the tax system and also within the fiscal incentives process. As argued by Juranek et al. (2018), if there is any kind of lack of fairness in the incentives process that might reduce the compliance cost, this incentive would be applicable in such circumstances.
The major advantages of such kind of tax incentives are like reduction in the tax liabilities; a comparatively low compliance cost and also ensures the simple administrative cost in action. However as argued by Abdallah (2016), this kind of incentives used to discriminate between old and new incentive processes and also discriminates against other business regulations as well. For example, tax incentives on holidays deny certain kinds of tax deductions over holidays which can be regarded as a disadvantage in the process. On the other hand, reduction on CIT rate results in tax haven status due to zero or negligible tax rate.
Reference List
Abdallah, W.M., 2016. Documentation of transfer pricing: A new global approach. International Journal of Accounting and Taxation, 4(2), pp.37-55.
Barker, J., Asare, K. and Brickman, S., 2017. Transfer pricing as a vehicle in corporate tax avoidance. Journal of Applied Business Research (JABR), 33(1), pp.9-16.
Bustos, S., Pomeranz, D., Vila-Belda, J. and Zucman, G., 2019, May. Challenges of Monitoring Tax Compliance by Multinational Firms: Evidence from Chile. In AEA Papers and Proceedings (Vol. 109, pp. 500-505).
Clausing, K., 2020. Taxing Multinational Companies in the 21st Century. Tackling the Tax Code: Efficient and Equitable Ways to Raise Revenue, pp.237-283.
Clifford, S., 2019. Taxing multinationals beyond borders: financial and locational responses to CFC rules. Journal of Public Economics, 173, pp.44-71.
D’andria, A., Gabarret, I. and Vedel, B., 2018. Resilience and effectuation for a successful business takeover. International Journal of Entrepreneurial Behavior & Research.
Dezi, L., Cillo, V., Usai, A. and Pisano, P., 2018. Equity crowdfunding in technology transfer strategies and licensing. International Journal of Technology Management, 78(1-2), pp.28-51.
Dnb.com, 2020, About us. Available at: https://www.dnb.com/business-directory/company-profiles.tripco_inc.6ab793c6dfbd367b6a76d760b0df3ba8.html, [Accessed on: 4th November, 2020].
Franklin, M. and Myers, J.K., 2016. An analysis of transfer pricing policy and notable transfer pricing court rulings. Journal of Business and Accounting, 9(1), p.73.
Galang Windi Pratama, T., 2019. Urgency of Licensing Restriction in Joint Venture Companies Related to TKDN. J. Priv. & Com. L., 3, p.1.
Ham, H.U. and Ko, C.R., 2016. The Technology Licensing Office as Factor of Success for Spin-off: Case Study of a Research Lab Startup of Korea. Asian Journal of Innovation & Policy, 5(2).
Juranek, S., Schindler, D. and Schjelderup, G., 2018. Transfer pricing regulation and taxation of royalty payments. Journal of Public Economic Theory, 20(1), pp.67-84.
Klossek, A., (2018). Market Entry and Expansion through International Joint Ventures.
McGaughey, S.L. and Raimondos, P., 2019. Shifting MNE taxation from national to global profits: A radical reform long overdue. Journal of International Business Studies, 50(9), pp.1668-1683.
Min, B., 2019. The effect of international licensing-in experience on latecomer’s international licensing-out. 한국경영학회 통합학술발표논문집, pp.379-408.
Polezharova, L.V. and Krasnobaeva, A.M., 2020. E-Commerce Taxation in Russia: Problems and Approaches. Journal of Tax Reform, 6(2), pp.104-123.
Siebert, R.B., 2017. A structural model on the impact of prediscovery licensing and research joint ventures on innovation and product market efficiency. International Journal of Industrial Organization, 54, pp.89-124.
Wu, C.H., 2018. Price competition and technology licensing in a dynamic duopoly. European Journal of Operational Research, 267(2), pp.570-584.
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