FIN 621 Chapter Notes - Chapter 20: Earnings Before Interest And Taxes, Indirect Tax, Foreign Tax Credit
6 Dec 2014
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Issue whether tax distort investment decision: good tax policy does not penalize investment. International dimension does not interfere with international investment decisions either inbound or outbound: world of mobile international capital, tax distortions counterpart of trade distortion tariffs. Variety of ways personal income tax, sales taxes, corporate income tax and value added tax. International business primarily concerned with corporate income tax: distort investment decisions. Tax authorities recognize cross border investment decisions are sensitive to taxation. Nation set only its own tax rules, rates, regulations: deal with joint tax concerns through bilateral tax treaties. Establish that mncs comply first with taxation in the host country: host always has priority to tax companies within jurisdiction, an international understanding referred to a national tax sovereignty. Nation agrees to tax foreign owned business in exactly that same way rules, rates, regulations. Combined with national tax sovereignty creates a situation matters of corporate taxation: host country sees no difference between foreign owned and domestic corporations.
