Foreign-controlled Companies Research Articles

Disguised Foreign Controlled Companies and the Facilitation of Transnational Criminal Activities in Thailand

The primary objectives of the study are to examine the role of a business using Thai nationals as nominee shareholders in foreign-controlled companies in the facilitation of the transnational criminal groups’ activities in the tourist destinations, and their social and economic impacts on the country. Nominee shareholder appointment in a legal entity has commonly been recognized as one of the techniques employed by criminal groups to launder and obscure the ownership of their illegal assets. However, this study points out that this type of company also performs other functions in providing resources and a platform for criminal groups to further their goals. The study used mixed methods by gathering qualitative data through conducting in-depth interviews and focus groups with 55 participants from relevant government agencies and private sectors, and by gathering quantitative data through conducting public surveys consisting of 1,160 participants from six provinces across five different regions in Thailand. The study concluded that there is a strong need for the country to improve monitoring mechanisms through legal changes, and collaborations among public, private and civil society as the practice of nominee shareholder appointment, although perceived as a normal practice in the global field of business, such a practice can invite unintended consequences, which can be a serious cause of concern due to the links with illegal activities operated under the umbrella of transnational organized crime.

National and Foreign-controlled Companies Operating in Development Activities in Czechia and Aspects of their Capital Structure Management

Research background: Entities operating in the field of development activities show significant specifics, including a high level of indebtedness. Given the nature of development projects, which are long-term, and their financial complexity, companies take, at the same time, high risks. Therefore, there is need of a high standard of financial management and risk management in this type of companies. Purpose of the article: The aim of the paper was to provide information regarding return on equity and point out the risk factors of financial management. A partial aim of the conducted preliminary research was to identify and evaluate selected differences in financial management of national companies and foreign-controlled companies. Methods: The research was conducted as mixed research. It started with the undertaking of qualitative research focused on textual analysis of the text and collection of selected relevant quantitative data. For evaluation, we used INFA methodology, which links financial controlling and risk controlling indicators. The data under investigation were those related to the evaluation of return on equity in relation to risks taken. The indicators of the assets, self-financing ratio and debt ratio were assessed, including the assessment of the impact of these factors on return on equity and taken risks. Findings & Value added: The research provides new knowledge regarding the extent to which equity capital is used in the financial management of companies operating in the Czech Republic in development activities. The results indiciate that companies under foreign control and domestic companies show differences in financial structure and financial stability indicators, as well as in the effectiveness of using their capital.

Do taxes affect number of foreign enterprises controlled abroad by Slovak companies in the age of globalization?

Research background: Globalization has so far brought the possibility of international trade as well as the possibility of establishing companies abroad. Countries see a number of benefits in attracting foreign enterprises. However, the question arises about how countries may affect the number of enterprises established by domestic companies abroad? Purpose of the article: The aim of this article is to find out whether corporate income tax rates have an impact on establishment of foreign controlled companies by Slovak companies abroad. Secondly, the aim of the work is to uncover whether trading across borders (which represents globalization), may influence the decision-making of such companies. To verify this, two groups of countries were created: one with a lower and the other with a higher average corporate income tax rates compared to the average rates in the Slovakia. The hypothesis is that paying taxes plays negative role in the number of foreign controlled enterprises by Slovak companies. Methods: To estimate the hypothesis, the panel regression analysis is applied. Findings & Value added: The results of the work may help in policy making decisions aimed at monitoring of foreign controlled companies from the Slovak republic. The findings reveal that taxes might not be the best, and at the same time the results reveal different area that may affect the establishment of such companies – namely trading across borders.

EU carbon emissions by multinational enterprises under control-based accounting

The territory-based conception of environmental commitments disregards the crucial role of multinational enterprises (MNEs) in the global generation of greenhouse gases. Such a misconception discourages MNEs from pledging own emissions reduction goals as global agents and exempts their origin country of any responsibility for the emissions they generate abroad. We propose a new allocation criterion based on who has the ability to take MNEs’ decisions called the control-based accounting. We apply it for the first time to the MNEs’ foreign affiliates operating in the EU and estimate the CO2 emissions responsibility of EU countries under the control-based criterion, that is, assigning emissions generated by foreign-controlled companies to the origin country of the firms (controlling country) instead of the host country (as in the territory-based approach). We found that Germany and France are the EU countries with the highest control-based responsibilities; whereas Poland, the Czech Republic and Hungary bear significantly less responsibility under this approach compared to other allocation methods. The United States is the non-EU country with the greatest responsibility for emissions physically generated within the EU's territory through foreign affiliates. Targeting climate policies towards inducing parent companies and controlling countries to calculate and reduce the carbon footprint of their affiliates would place MNEs at the forefront of the fight against climate change.

Short-Term Effects of the Comprehensive Economic and Trade Agreement on Municipal Procurement in Canada

The Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union, which entered into force in 2017, is the first international trade agreement that grants access to government procurement markets in Canadian municipalities. In the short term, will the agreement lead to major changes in the policies and procedures of Canadian local government procurement authorities or to changes in the proportion of foreign-controlled companies that win contracts? The magnitude of the impact depends on how the current practices of municipalities differ from those that are required under CETA. We focus on large Canadian municipalities and build our arguments on the basis of key informant interviews, analysis of legal and policy documents, and the econometric analysis of contract-level municipal data. Our conclusion is that CETA will not greatly affect process or outcomes, at least not in the short term.

Determining and Changing Tax Residence – the Effects on Individuals

The subject of this article is the analysis of reasons and results of determining as well as changing tax residence in the light of Polish personal income tax. This topic underlies a broad concept of migration, especially that of profit-driven character. The author presents this research issue on the basis of the current legislation, doctrine as well as practice of applying the law by the judiciary and the tax autho-rities. The analysis of the valid regulations of tax law leads to the conclusion that the fiscal situation of migrants is so diversified as well as complicated from the legal point of view that it raises justified practical doubts. It is assumed that tax residence is dynamic and thus may change as a result of both intended and unin-tended taxpayers’ actions which may have specific tax law effects. They are reflected not only in tax preferences but also in obligations concerning tax settlements. Apart from ordinary tax consequences of determining or changing tax residence, the author relates also to particular legal solutions such as: exit tax, taxation of foreign controlled companies or appliance of the provisions of Multilateral Convention (MLI). The described issues are significant for both theory and practice of tax law application.

Nieustające reformy opodatkowania dochodów osób prawnych – perspektywa istotnych zmian ustawy o podatku dochodowym od osób prawnych w latach 2012–2017

Celem artykułu jest opisanie i ocena jakościowa najistotniejszych zmian w ustawie o podatku dochodowym od osób prawnych w latach 2012–2017. Dotyczy to zmian, które mają na celu przeciwdziałanie unikaniu opodatkowania. Stąd w tekście znalazły się zmiany odnośnie: (a) objęcia ustawą CIT spółek komandytowo-akcyjnych, (b) opodatkowania dochodów z zagranicznych spółek kontrolowanych, (c) opodatkowania dochodu przerzucanego na podmiot powiązany i obowiązku sporządzania dokumentacji cen transakcyjnych, (d) ograniczania potrącalności w ramach kosztów uzyskania przychodów odsetek (interest limitation rule, poprzednio thin capitalisation), (e) „przychodowego” podatku od nieruchomości komercyjnych, (f) ograniczeń w zaliczaniu do kosztów uzyskania przychodów określonych usług niematerialnych i praw majątkowych, (g) zmiany przepisów o podatkowej grupie kapitałowej, (h) regulacje dotyczące kosztów uzyskania przychodów wierzytelności nieściągalnych.

Права наследников бенефициаров офшорных компаний и трастов

The author researches the issues of rights of inheritance of heirs of beneficiaries of offshore companies and trusts in respect of property (assets) of the latter. These issues are of current interest in the light of using the services of nominee’s shareholders and directors of offshore companies which is widespread among Russian businessmen. Particular attention is paid to recognition of legal consequences of offshore testamentary trusts in civil law countries. These issues are also actual ones in the light of Russian laws on foreign controlled companies (CFC), which do not qualify irrevocable and discretionary trusts as CFC, and consequently such trusts are quite popular in Russia.
 One of the disadvantages of using the services of nominal shareholders by the beneficiary of offshore company is the unresolved rights of inheritance’s issues in case of beneficiary’s death. Consequently the Russian individuals who use the services of nominee shareholders in the offshore companies should protect their inheritance rights in case of unforeseen circumstances (e.g. death). Similarly in case of death of the trust beneficiary the fate of property transferred to the trust depends on the content of trust agreement, as well as of the trustee’s authorities. Therefore the fate of a trust and its assets in the event of beneficiary’s death should be determined in a trust agreement. The potential beneficiaries (in particular, the desirable heirs) should be familiar with the relevant trust documents.
 The author illustrates his reasoning by reference to legislation and case law of Russia and foreign countries. The author inter alia analyzes the issues of recognition of trusts created abroad, including under the Hague Convention on the Law Applicable to Trusts and on their Recognition of 1985.

Discrimination of high degrees: race and graduate hiring in Malaysia

This paper investigates racial discrimination in hiring fresh degree graduates in Malaysia through a field experiment. We send fictitious Malay and Chinese résumés to job advertisements, then analyse differentials in callback for interview attributable to racial identity, while controlling for applicant characteristics, employer profile and job requirements. We find that race matters much more than résumé quality, with Malays – Malaysia's majority group – significantly less likely to be called for interview. Other factors, particularly language proficiency of employees, language requirements of jobs and profile of employers, influence employer biases. Applicants fluent in Chinese fare better, and Chinese-controlled and foreign-controlled companies are more likely to favour Chinese résumés, indicating that cultural compatibility explains part of the discrimination. Malay résumés tend to be perceived and prejudged adversely, and employers' attitudes towards public policy outcomes, particularly pertaining to education quality and employment opportunity in the public sector, also account for the observed racial disparities.

Investing in growing markets: opportunities and challenges for multinationals in Argentina, 1900–1960

This article analyzes the global and local factors that shaped foreign direct investment (FDI) in Argentina and the strategies of foreign multinationals to adapt to challenging circumstances and to exogenous shocks from the early twentieth century to the emergence of a new global economy in the 1950s. The central argument is that Argentina was a host economy attractive to foreign investments, not only in the first globalization period but also after the crisis of 1930 when the global economy started to crumble. Foreign firms viewed Argentina as a growing economy offering diverse business opportunities in different periods, with the exception of the interregnum of World War II and the Peronist administration (1946–1955), when financial and political risks appeared. The article draws on a different approach to the more traditional stock-flow FDI analyses, relying on a new database of foreign-controlled companies that operated in Argentina in the twentieth century (Foreign Companies in Argentina Database).

Tax Design Issues in Respect to Foreign Branches and Controlled Companies and the Feasibility of a Consolidation Area in the EU

The Common Consolidated Corporate Tax Base (CCCTB) architecture seems to address the major tax design issues relating to foreign business profits in the EU which result from the intrinsic limitations of domestic tax consolidation systems but would intervene in a scenario in which Member States retain prerogatives in developing their own policies in respect to cross-border profits and losses of affiliated companies. The purpose of this article is to shed light on those policies and on the major tax design issues relating to foreign business profits in the EU in light of the case law of the European Court of Justice (ECJ) and of the potential adoption of the CCCTB Directive. The paper first addresses the tax treatment of foreign branches both in the case in which foreign profits are taxable and in the case in which are exempt in the residence-country (section 2) and then discusses the issues related to the tax consolidation of foreign controlled companies (section 3), with additional remarks about the tax design issues faced by host countries whose tax base can be eroded through certain tax planning strategies by resident companies that are controlled by foreign entities (section 4). The paper concludes by describing the common core of rules already existing at EU level and how this rules are conveyed in the CCCTB model which might be approved through enhanced cooperation (section 5) and finally draws a few conclusions of the feasibility of a residence-based consolidation area in the EU (section 6).

Investment Treaties as Corporate Law: Shareholder Claims and Issues of Consistency. A Preliminary Framework for Policy Analysis

Claims by company shareholders seeking damages from governments for so-called "reflective loss" now make up a substantial part of the investor-state dispute settlement (ISDS) caseload. (Shareholders’ reflective loss is incurred as a result of injury to “their” company, typically a loss in value of the shares; it is generally contrasted with direct injury to shareholder rights, such as interference with shareholder voting rights.) This paper considers the consistency issues raised by shareholder claims for reflective loss in ISDS. The paper first compares the approach to shareholder claims in ISDS with advanced systems of national corporate law (and other international law). ISDS arbitrators have consistently found that shareholders can claim individually for reflective loss in ISDS under typical BITs. This can be seen as a success story from the point of view of consistency of legal interpretation and improves investor protection for potential claimant shareholders in many cases. In contrast, however, advanced national systems and international law generally apply what has been called a "no reflective loss" principle to shareholder claims. Second, the paper analyses the policy issues relating to consistency that are raised by shareholder claims for reflective loss in ISDS. National and international law barring shareholder claims for reflective loss is often explicitly driven by policy considerations relating to consistency, predictability, avoidance of double recovery and judicial economy. Limiting recovery to the company is seen as both more efficient and fairer to all interested parties. In contrast, ISDS tribunals and commentators have generally given limited consideration to the policy consequences of allowing shareholder claims for reflective loss. The third part of the paper addresses the issue of company recovery (including two different existing systems which expand the ability of foreign-controlled companies to recover in ISDS) and its relevance to shareholder claims for reflective loss. The paper also contains a series of questions for discussion and has been discussed by governments participating in an OECD-hosted investment roundtable.

Challenging the reliability of comparables under profit-based transfer pricing methods

Under profit-based transfer pricing methods, the selection of comparable companies is essential if detection of transfer price manipulation is to be reliable. Comparative advantage as embedded in internalisation theory argues that foreign-controlled companies (FCCs) should, in the long run, display greater profitability than domestic-controlled companies. In high-tax host countries, transfer pricing manipulation theory predicts an opposite effect on profitability. Applying a refined set of tests to a large sample of firms operating in a high-tax country such as Italy offers strong support for the internalisation prediction. Furthermore, the analysis of the interquartile range of our measure of profitability indicates that only a low percentage of FCCs would be subject to fiscal enquires, as implied by the Organisation for Economic Co-operation and Development guidelines, under the suspicious of transfer pricing manipulation. These results suggest that current comparability tests are likely to fail the identification of transfer pricing practices in countries where the comparative advantage of FCCs is particularly pronounced and question the reliability of these tests.

Tax Design Issues in the EU in Respect to Foreign Branches and Controlled Companies

The CCCTB architecture seems to address the major tax design issues relating to foreign business profits in the UE which result from the intrinsic limitations of domestic tax consolidation systems but would intervene in a scenario in which Member States retain prerogatives in developing their own policies in respect to cross-border profits and losses of affiliated companies. The purpose of this article is to shed light on those policies and on the major tax design issues relating to foreign business profits in the UE in light of the case law of the ECJ and of the potential adoption of the CCCTB Directive. The paper first addresses the tax treatment of foreign branches both in the case in which foreign profits are taxable and in the case in which are exempt in the residence-country (section 2) and then discusses the issues related to the tax consolidation of foreign controlled companies (section 3), with additional remarks about the tax design issues faced by host countries whose tax base can be eroded through certain tax planning strategies by resident companies that are controlled by foreign entities (section 4). The paper concludes by describing the common core of rules already existing at EU level and how this rules are conveyed in the CCCTB model which might be approved through enhanced cooperation (section 5).

Inter-country Equity and Intra-group Transactions at EU Level: An Analysis of the CCCTB Proposal and ECJ Tax Cases

The article looks at the erosion of national corporate tax bases achieved through intra-group transactions involving affiliated companies located in different Member States. This issue has been addressed by the ECJ in a set of cases which constitute an evolution of the traditional jurisprudence on direct taxes that has mainly dealt with the issues of discrimination and restriction on freedom of establishment and on the free movement of workers, capitals, services. The article first addresses the group cases in which the Court initially considered from an host country perspective the intra-group transactions between affiliated companies in connection to payments of intra-group interest in the context of the so-called thin-capitalization cases. The article then discusses the group cases in which the Court extended the host country analysis to intra-group profit transfers that can be made under group contribution regimes, or that are carried out through intra-group allocations of financial costs. The article then addresses the group cases decided by the Court from a home country perspective that involved recognition by the parent company of tax situations of foreign-controlled companies. Finally the article verifies how the recent CCCTB Proposal impacts on the rules relating to intra-group transactions that derive from the case law of the ECJ as discussed in the article.

The impact of internal integration and relationship commitment on external integration

Supply chain integration (SCI) among internal functions within a company, and external trading partners within a supply chain, has received increasing attention from academicians and practitioners in recent years. SCI consists of internal integration of different functions within a company and external integration with trading partners. While both supply chain internal and external integration have been studied extensively, our understanding of what influences SCI and the relationship between internal and external integration is still very limited. This paper argues that external integration with customers and suppliers is simultaneously influenced by internal integration and relationship commitment to customers and suppliers. Internal integration enables external integration because organizations must first develop internal integration capabilities through system-, data-, and process-integration, before they can engage in meaningful external integration. At the same time, before external integration can be successfully implemented, organizations must have a willingness to integrate with external supply chain partners, which is demonstrated by their relationship commitment. We propose and test a model that specifies the relationship between internal integration, relationship commitment, and external integration, using data collected from manufacturing firms in China. The results show that internal integration and relationship commitment improve external integration independently, and their interactive effect on external integration is not significant. However, internal integration has a much greater impact on external integration than relationship commitment. We also examine the model for companies with different ownerships, and the results indicate that for Chinese controlled companies where there is a strong collectivism culture and more reliance on “ Guanxi” (relationship), relationship commitment has a significant impact on external integration with suppliers and customers. This is in stark contrast to foreign controlled companies, characterized by a more individualistic culture and more reliance on technological capabilities, where no significant relationship between relationship commitment and external integration could be found. The model is also tested across different industries and different regions in China, providing useful insights for Chinese companies in particular. This study makes significant contributions to the SCI literature by simultaneously studying the effects of internal integration and relationship commitment on external integration, and providing several future research directions.

Global Links: Multinationals in Canada: An Overview of Research at Statistics Canada

The paper's main objective is to provide a concise synthesis of a wide array of data and research on multinationals originating in Statistics Canada, focusing on both historical and current studies. Chapter 2 discusses the macroeconomic contribution of foreign multinationals, focusing on two leading indicators of foreign multinational activity, foreign control and foreign direct investment. This chapter also describes studies that evaluate the contribution that foreign-controlled companies make to aggregate trade flows, linking changes in multinational trade intensity to the strategic reorganization of their production activities. Chapter 3 concentrates on the strategies and activities of foreign multinationals that are relevant to ongoing debates over whether the presence of foreign multinationals promotes, or hampers, Canada's industrial competitiveness. This chapter first examines evidence that domestic and foreign firms respond differently to domestic market conditions. Second, it asks whether foreign firms compete in different ways than domestic firms do. Third, it examines the relative emphasis that foreign multinationals place on innovation and technology practices, and reports on the relationship between these activities and observable market outcomes. Fourth, it reports on the contribution that foreign-controlled firms make to productivity growth. Fifth, it discusses new research that focuses on the relationship between foreign ownership and head-office employment. Studies in these areas speak directly to the issue of whether foreign multinationals truncate or develop their corporate activities in host markets. Chapter 4 focuses on studies that examine the foreign activities of Canadian-owned multinationals and how their domestic plants compare to foreign-controlled plants operating in Canada. Chapter 5 offers an appraisal of Statistics Canada's research on multinationals.

Debt Financing in India in Public, Private and Foreign Companies

The objective of this paper is to study and compare the debt financing decisions and practices of the public sector, private sector and foreign controlled companies in India. It also finds out the impact of the liberalized environment, in terms of the significant changes, if any, in the phase-2 (1998-2003) of the liberalized business scenario vis-à-vis phase-1 (1992–1997). The declining trend in the debt ratios suggests that majority of the corporate firms are reducing the preference for debt. The study indicates that the profile of debt financing has significantly changed during the period covered by the study. A notable finding of the study is that there is a shift towards preference for short-term debt as against long-term debt. The economic and financial reforms have caused a significant decrease in the use of debt, particularly long-term, in financing the assets of the sample corporate enterprises in India. Throughout the period of study, ownership control was a significant factor in determining the extent of debt financing. With strong waves of globalization and liberalization sweeping across the world, those firms in India that have lagged behind are required to take a bold initiative to make qualitative changes in their debt financing decisions, if they are to remain competitive in domestic as well as international markets

Perspektivy české ekonomiky po vstupu do Evropské unie

Gradual narrowing of the gap between consumer and investment demand was one of major achievements of 2003, supporting the long-term sustainability of Czech economic growth. In the first half of 2004, industry and construction witnessed strong growth, retail trade showing a considerable slowdown. Growth in industry has continued to be more rapid in the sector of foreign controlled companies. After a slight weakening of deflation tendencies in the third quarter of 2003, last quarter of 2003 and first half of 2004 confirmed a resurgence of inflation. Growth of industrial prices was more rapid than the growth of consumer ones, predominantly due to increasing world prices of oil and metals. The labour market and public finance continue to be the main macroeconomic problems of the Czech Republic. The improvement may come only after adoption of fundamental reforms in both these areas.

Does Acquisition by Non-U.S. Shareholders Cause U.S. Firms to Pay Less Tax?

The U.S. corporate tax revenue implications for foreign-domiciled firms acquiring U.S. companies is an important and longstanding tax policy issue. This study attempts to provide some empirical underpinning for this controversial debate. We compare actual corporate taxable income before and after their 1996 acquisitions for 31 matched pairs of firms, half acquired by foreign-controlled companies and half acquired by American-controlled firms. Contrary to claims that foreign-controlled firms pay less tax, we find no evidence that taxable income declines more after a non-U.S. shareholder acquires a U.S.-domiciled firm than after a U.S. shareholder acquires a U.S.-domiciled firm.