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The Measures That Can Be Adopted To Prevent Tax Revenue Losses

1191 words - 5 pages

Topic 9

Question 4:

The measures that can be adopted to prevent tax revenue losses from multinational companies are as follows;

a) Thin Capitalisation Legislation is were a country prevents interest deduction if the ratio of debt to equity is in excess of a permitted amount. Some countries even limit the amount of debt that a subsidiary may borrow in relation to its equity base. When the interest exceeds the specified limits the interest paid from the excess debt is not tax deductible and can even be regarded as a dividend.
b) Controlled foreign company legislation prevents companies based in tax havens which are controlled by a non resident shareholder from retaining profits ...view middle of the document...

Even though bill is only there to see wether there is a market for Maixsoft’s products. At this stage Maxisoft would have tax liabilities with Country B as it has no establishment or residency in that country.

(b) There is a no correct answer for this question but each company must look at its individual needs and expectations and also the financial implications that either decision would make.

For small companies like Maxisoft the first thing that they should do is compare the advantages and disadvantages of the two options branch or subsidiary;

Advantages Disadvantages

Lower tax rates More onerous account keeping
Limited Liability Withholding tax paid on dividends
Limited Disclosure Losses not available for offset
Better local image Change on ownership occurs on transfer of assets
Greater flexibility in timing of profit repatriation
Access to incentives
Easier to reorganise
Easier to justify charges between subsidiary and parent


Simpler to operate less onerous account keeping
No foreign capital or stamp taxes
Easy to transfer assets as no change of ownership
Losses can immediately offset against the head office profits
No withholding tax on profits when remitted back to head office


Often higher tax rates
No Limited Liability
More disclosure to head office
Little flexibility for timing of profit repatriation
Less access for incentives
Not easy to reorganise foreign activities
Lower image and profile than a Subsidiary

Although at first it might seem that opening a subsidiary might be the best course of action for Maxisoft but we first must look at the how Maxisoft are going to operate in Country b and from there we can ascertain the best course of action for them to take.

As Maxisoft are intending to impart their product into Country B and then use an outlet there for them to sell their product. It would be more advantageous for them to open a branch in Country B for the initial stages of operations and when the business is operating at a profit it could be turned into a subsidiary in that way the company could take advantage of both aspects of operating in a foreign country. They could offset the losses from the start up of the foreign enterprise and when the company starts to turn a profit it can convert that operation into a subsidiary to benefit from the numerous advantages that a subsidiary can achieve.

Topic 10

Question 3:

There are numerous methods that the manager director can take to reduce the overall...

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