Articles

Question 1

What is the 40 percent rule and how do some forecasters use it to their advantage?

Answer 1

ex. Forecast that there’s a 40% chance that the Dow Jones Industrial Average clears 12,000 by year end:

If it does, you’ll look like a sage, and if it doesn’t, well, you didn’t say it’s the most likely outcome. Financial types seem to be the biggest fans of the 40% rule, but it can be useful for all manner of punditry.

Question 2

Strategies to lower MNCs tax rates

Answer 2

a. Move intellectual property to tax havens:

b. Use intracompany loans:

c. Hide money in tax havens:

d. Use of transfer pricing among subsidiaries:

e. Use of intra-company fees such as service, research and development, royalties, and administrative duties fees:

Question 3

Move intellectual property to tax havens:

Answer 3

MNCs can shift ownership of intellectual property (IP) to subsidiaries in countries with low or no corporate taxes (tax havens).

Profits generated are then taxed at the lower rate in the haven, reducing the company’s overall tax burden.

Question 4

Use intracompany loans:

Answer 4

A subsidiary in a low-tax country lends money to subsidiaries in higher-tax countries.

The interest payments on these loans are tax-deductible in the high-tax country, reducing taxable income there, while the interest income is taxed at a lower rate in the low-tax country.

Question 5

Hide money in tax havens:

Answer 5

Stash profits in offshore accounts in tax havens, keeping them outside the jurisdiction of higher-tax countries.

By deferring the repatriation of these funds, companies can avoid paying taxes on them in their home countries, where tax rates may be higher

Question 6

Use of transfer pricing among subsidiaries

Answer 6

MNCs can manipulate prices for goods, services, or IP sold between subsidiaries in different countries (transfer pricing).

By setting prices in such a way that profits are shifted to low-tax jurisdictions, the overall tax liability is minimized.

This can reduce taxable income in high-tax countries while increasing it in low-tax countries.

Question 7

Use of intra-company fees such as service, research and development, royalties, and administrative duties fees:

Answer 7

MNCs can charge subsidiaries for stuff, creating tax-deductible expenses in high-tax countries.

These fees are paid to subsidiaries in low-tax countries, where the income is taxed at lower rates, reducing the group’s overall tax liability.

Question 8

What is the impossible trinity

Answer 8

The theory that a country cannot have a fixed exchange rate, free capital movement, and an independent monetary policy simultaneously.