Analysis of International Business and Groups- Consolidated vs. Unitary Affiliation

Analysis of International Business and Groups- Consolidated vs. Unitary Affiliation

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Analysis of International Business and Groups- Consolidated vs. Unitary Affiliation

Question 1

A consolidated group is a coalition of several commercial organizations with a similar parent firm. According to America’s business policies, for a company to fit in such an association, the parent firm has to control at least 80 percent of its stock. Moreover, two-thirds of the stakeholders should be members of the main corporation. The rules and regulations that govern these groups are in the Internal Revenue Code (Murphy, Kevin and Higgins, 2011). Some of America’s policies are only applicable to such groups. These laws depend on the state’s legal guidelines in order to create harmony between the region’s tax priorities and the group’s financial capacity.

However, in all regions, the parent company records a single income tax return on behalf of the entire unit. Additionally, the main firm pays the group’s tax although each individual corporation is responsible for the legal duties involved in levy payment. Nonetheless, the principles, which preside over these groups, do not emphasize on the nationality of the stakeholders. Details of the policies that regulate consolidated groups are in chapter 6, Subchapter A of section 1504. This section is in the Internal Revenue Code, which deals with tax-related laws (Murphy, Kevin and Higgins, 2011).

The consolidated groups influence global effective tax rate calculations. These measurements are important since they illustrate the income portion that a company pays as tax. Members of a corporate group pay their income taxes separately despite being in a merger. This means that their income duties sum up to large monetary figures. Consequently, investors from different parts of the globe view such commercial institutions as feasible investment opportunities. For this reason, most foreign investors prefer engaging in such business groups. This shows the relation between effective tax rates and consolidated groups.

Question 2

A unitary business group is a union between two or more business organizations including financial institutions and insurance firms. The association may involve members within the same trade or different fields depending on the interests of the shareholders. However, legalization of this association requires a successful control test and two correlation examinations. In the control test, the involved organizations have to show that one of its stakeholders has power over more than half of its shares and voting influence. On the other hand, the relationship examination requires the union to exhibit value flow amongst its associates (Bloomberg BNA, 2012).

In addition, the benefit between these members must be mutual. The American authorities responsible for taxation affairs treat these kinds of associations uniquely. They consider them as solitary taxpayers. Furthermore, their tax returns depend on the members that constitute it. For example, insurance firms document individual proceeds. The policies governing these groups also free them from computing tax base and allotment features in their business deals. The consolidated and unitary business groups reveal certain differences. To start with, a consolidated group files a single tax return through its parent firm.

On the other hand, members of a unitary business union can document individual levy returns. Furthermore, unlike the unitary business group, companies do not have to undergo relationship and control examinations to enter a consolidated association. The appropriateness of each kind of association depends on the nature of the commercial organizations involved in the merger. For domestic legal purposes, unitary commercial unions are more compliant compared to consolidated groups. This is because of the assessments needed for a business organization to be part of the association. On the other hand, consolidated mergers are more suitable for international tax purposes. This is because the tax authorities treat them as independent entities. This means that each business unit is responsible for levy returns thus summing up to huge financial figures.

Question 3

A branch company can be an integrate part of a consolidated commercial union. This is because it is accountable to its parent company since it lacks independent statutory accounts. The parent organization will therefore oversee the official and tax-related affairs of this branch.  This makes it fit to be part of such commercial associations. America’s tax laws contain guidelines appropriate for branch companies. For example, it employs the concept of dividends in repatriation of the branch’s earnings. This is in an attempt to accommodate foreign business branches in America.

However, such units cannot be part of a unitary group. This is because the policies governing unitary business associations dictate that the organization has to be native. Such policies aim at controlling the operations of the companies while benefiting from the transactions (Bloomberg BNA, 2012). The US government facilitates smooth taxation procedures by making it possible for the corporation to pay levies without physical presence in the nation. This reduces any discrepancies that may occur in the tax treatment.

Furthermore, the foreign corporations reduce their production costs by situating their industries in areas with a low tax jurisdiction. In certain cases, a branch company may experience lawful double taxation. This policy involves taxation of a commercial organization by more than one authority. This may occur because of certain tax-related accords between different nations since the firms are mainly foreign. Moreover, excise on the company’s corporate returns occurs separately from that of shareholders’ bonuses thus the possibility of double taxation in these business institutes.

Question 4

A Flow-Through Entity refers to an institution that dispenses a fraction of its earnings to the company’s financiers. Based on its composition, the body experiences no taxation although its stakeholders’ returns are subject to excise. Some models of this entity include S corporations, limited liability companies, and partnerships. On the other hand, a Foreign Disregarded Entity is a unit created outside the geographical boundaries of US (Bureau international de documentation fiscale, 2006). For domestic tax purposes, the tax authorities view the entity as attached to its proprietor. The law requires that the owners of such bodies fill certain legal forms for the sake of levy returns.

The taxation of a Foreign-Through Entity depends on the form of the corporation. For example, in S corporations, all dividends are subject to monies. Where the authorities of another state separately tax the stakeholder, double taxation principles apply. On the other hand, the legal responsibility in a Foreign Disregarded Entity lies on the owner. He or she pays taxes and other subsidiaries on behalf of the company. For this reason, the levy-related penalties affect the constitutional rights and obligations of the stakeholders. This occurs upon filling several forms that ease the implementation of these tax policies.

Question 5

A Controlled Foreign Company is a registered unit whose operations are in a country far from its influential stakeholders. Such organizations cannot be an integral branch of the unitary business groups. This is because unitary commercial unions require its members to be citizens, partners, or corporations of the United States. On the other hand, policies of a Controlled Foreign Company demand 50 percent control by a foreign investor. The difference between the two laws makes it impossible for such a firm to be part of a unitary commercial association. However, it can be a component of a consolidated merger (Bureau international de documentation fiscale, 2006). This is because, the laws guiding consolidated commercial groups do not emphasize on the nationality of its members. Its main concern is the percentage of shares that the parent company owns.

The American tax laws provide guidelines that approve a Controlled Foreign Company as a subsidiary of a US parent firm. For example, American stakeholders must own more than half of the organization’s shares or voting power. Moreover, the firm should conduct business transactions with American citizens other than its investors. Controlled Foreign Companies are crucial in international tax planning. This is because they benefit America through double taxation agreements with other countries.   They also help in decreasing global excise responsibilities from a legal perspective. In addition, it develops the operational resources and   economic effectiveness. Consequently, US greatly benefits from these foreign commercial institutions.

Question 6

Subpart F Income is a law enacted by the congress in an effort to regulate the operations of the Controlled Foreign companies. This law restricts the deferment of US taxes on returns obtained overseas. This makes it difficult for the Controlled Foreign Corporations to use tactics that result into irregularities such as non-taxed profits. The law also demands taxation of money paid by stakeholders of these firms to foreign officers in form of bribes (CCH, 2010). As a way of taxing the Subpart F income, the levy authorities categorize the profits in different sections. This includes insurance and foreign-base company proceeds. Profits from nations that are subject to global sanctions are in a different classification thus having a different tax treatment from those with diplomatic relations. There are certain earnings included or excluded from Subpart F income.

For example, this set of returns excludes finances integrated in the Controlled Foreign Corporation’s gross revenue. In contrast, the Subpart F income is inclusive of all profits both from domestic and foreign base companies as described in the Internal Revenue Code. A Controlled Foreign Corporation can transform into a hybrid company by meeting certain requirements. These conditions include having substantial investments in the form of dividends. In addition, the commercial organization can formulate policies that help the major investors to enjoy ultimate control over the returns. In such a case, subordinate shareholders access the profits for a specified period (CCH, 2010).

Question 7

I would employ tax treaties in achieving the benefits of Foreign Disregarded Entities as a branch. This is through identifying a levy-agreement authority that does not tax any type of America source profits. This will enable me carry various industrial transactions free of excise. At the same time, I will be able to be legally accountable for my company’s earnings. Consequently, the untaxed returns will facilitate the expansion of my business institution locally and in foreign nations. It is also possible to reschedule duty payment by use of various strategies.

For example, application of Foreign Disregarded Entities enables deferring of the levies. This strategy enables business owners in foreign countries to reschedule taxes within America’s legal framework. It is therefore important to understand the legal requirements related to tax payment. This will reduce the amount of money paid in form of excise while at the same time advancing the company’s operations both financially and physically. This knowledge is not only useful to domestic business people but also to foreign investors.

References

Bloomberg BNA. (2012). Federal tax essentials: Partnerships. Arlington, VA: Tax Management Inc.

Bureau international de documentation fiscale. (2006). Bulletin for international taxation. (IBFD tax research platform.) Amsterdam: IBFD.

CCH. (2010). Hardman’s Tax Rates and Tables 2010-2011. Kingston upon Thames: Croner. CCH Group.

Murphy, Kevin E., & Higgins, Mark. (2011). Concepts in Federal Taxation 2012: With H&r Block at Home? Tax Preparation Software Cd-rom and Ria Checkpoint 6-month Printed Access Card. South-Western Pub.