The international business with wholly owned subsidiaries faces challenges in moving money across borders and bringing home the profits from those operations. These challenges are magnified when overseas subsidiaries are not wholly owned. The business partners have their own concerns and interests, and the differences must be worked out for the subsidiary to succeed.

The international business manager should understand how money is moved across borders and the needs of the business partners and co-owners.

Pursuing the objectives of utilizing the firm's cash reserves more efficiently and minimizing the firm's global tax liability requires the firm to be able to transfer funds from one location to another around the globe. International businesses use a number of techniques to transfer liquid funds across borders. A firm's ability to select a particular policy is severely limited when a foreign subsidiary is part-owned either by a local joint-venture partner or by local stockholders.

Read each statement. Then select the most appropriate category and determine if each item is an advantage for the parent company or a concern for the local firm. Each statement will have two answers.

1. Common method of transfer to parentIndividual subsidiaries policies vary, but this is the most common method by which subsidiaries transfer funds to parent companies.

(Click to select)Advantages for parent/subsidiaryLocal subsidiary/owner concernDividend remittancesRoyalty payments and feesTransfer pricing

2. Benefit could be lostTax benefits could be lost if the subsidiarys combined tax rate is higher than the parents.

(Click to select)Advantages for parent/subsidiaryLocal subsidiary/owner concernDividend remittancesRoyalty payments and feesTransfer pricing

3. DistortionCan create artificially high costs for local unit, which may not be recouped by local owners as they do not share the parent companys tax liability.

(Click to select)Advantages for parent/subsidiaryLocal subsidiary/owner concernDividend remittancesRoyalty payments and feesTransfer pricing

4. Not an arms-length transactionFirms can use to circumvent tax regulations by increasing pre-tax costs.

(Click to select)Advantages for parent/subsidiaryLocal subsidiary/owner concernDividend remittancesRoyalty payments and feesTransfer pricing

5. Recognize demands for local ownersLocal equity participation must be recognized. Needs of both unit and local owners.

(Click to select)Advantages for parent/subsidiaryLocal subsidiary/owner concernDividend remittancesRoyalty payments and feesTransfer pricing

6. Often tax deductible locallyPayments may be tax-deductible locally, which will reduce the subsidiary tax burden.

(Click to select)Advantages for parent/subsidiaryLocal subsidiary/owner concernDividend remittancesRoyalty payments and feesTransfer pricing

7. Common method of transfer to parentIndividual subsidiaries policies vary, but this is the most common method by which subsidiaries transfer funds to parent companies.

(Click to select)Advantages for parent/subsidiaryLocal subsidiary/owner concernDividend remittancesRoyalty payments and feesTransfer pricing

8. Benefit could be lostTax benefits could be lost if the subsidiarys combined tax rate is higher than the parents.

(Click to select)Advantages for parent/subsidiaryLocal subsidiary/owner concernDividend remittancesRoyalty payments and feesTransfer pricing

9. DistortionCan create artificially high costs for local unit, which may not be recouped by local owners as they do not share the parent companys tax liability.

(Click to select)Advantages for parent/subsidiaryLocal subsidiary/owner concernDividend remittancesRoyalty payments and feesTransfer pricing

10. Not an arms-length transactionFirms can use to circumvent tax regulations by increasing pre-tax costs.

(Click to select)Advantages for parent/subsidiaryLocal subsidiary/owner concernDividend remittancesRoyalty payments and feesTransfer pricing

11. Recognize demands for local ownersLocal equity participation must be recognized. Needs of both unit and local owners.

(Click to select)Advantages for parent/subsidiaryLocal subsidiary/owner concernDividend remittancesRoyalty payments and feesTransfer pricing

12. Often tax deductible locallyPayments may be tax-deductible locally, which will reduce the subsidiary tax burden.

(Click to select)Advantages for parent/subsidiaryLocal subsidiary/owner concernDividend remittancesRoyalty payments and feesTransfer pricing