1. Describe the difference(s) between the following terms/phrases a. TRIMs vs. T
ID: 1213054 • Letter: 1
Question
1. Describe the difference(s) between the following terms/phrases
a. TRIMs vs. TRIPs
b. Tax Holiday incentive vs. Investment tax credit incentive
c. BITs vs. DTTs
d. Home country advantages vs. Economies of scale advantages
e. Transfer pricing vs. Tax evasion
f. Irish Double vs. Dutch Sandwich
g. CSR vs. CSP vs. CFP
2. What makes MNCs from emerging economies different from MNCs (EMNCs) from advanced countries? Can we use the OLI framework to explain the existence of EMCs? Explain why. Give complete comparison in terms of motives, destinations and ownership advantages in recent decades.
3. So far there is no multilateral level investment agreement (MIA), despite attempts from OECD, UN, and other international institutions. What do you think are the key reasons for the failure of MIA? Explain the major reasons
4. The upward trend in the number of Bilateral Investment Treaty (BIT) has accelerated even after members of the World Trade Organization signed Trade Related Investment Measures (TRIMs) and Trade Related Intellectual Property Rights (TRIPs) in 1993. Explain why the number of BITs increased even after signing TRIMs and TRIPs. What are the provisions often included in BITs?
5. There are several venues for Investor-State dispute settlement. List and describe four of such venues. Which of these dispute settlement venues is most popular and often agreed on when signing BITs? Explain why.
6. The theory of Foreign Direct Investment (FDI) through Multinational Corporations (MNCs) indicates that FDI/MNC has significant impacts on a host country through three major channels. a. List and explain each of these three channels.
b. There are several studies that have attempted to empirically investigate how these theoretical channels may affect a host country.
What are the conclusions of these studies? Were there mostly positive impacts or negative impacts on a host country? Explain for each.
7. There are several studies that have attempted to empirically investigate how these theoretical channels may affect a host country. What are the conclusions of these studies? Were there mostly positive impacts or negative impacts on a host country? Explain for each.
8. Determinants of FDI: there are about six key traditional determinants of FDI (firm-level and plant-level scale economies, trade costs, transportation costs, tax differentials, and cost of factors differentials) that are often used in empirical testing of FDI models. List and explain other factors (other than those listed above) that affect the location decisions of FDI/MNCs.
9. Determinants of FDI may also differ, at least slightly, by sector. For instance, factors that significantly affect service sectors may affect infrastructure sector only moderately. Identify key factors that are highly relevant in attracting or impeding the flow of the following three sectors: service, infrastructure, and extractive sectors.
10. Identify and explain at least five tax incentives that a host country provides to attract FDI.
11. Do MNCs influence political activities in a host country? Explain how and why.
12. Kwok and Tadesse (2006) indicate that MNCs act as an agent to change a host country’s institutions and therefore help to lower incidences of corruption. Explain why MNCs often attempt to change host country institutions incidences instead of just paying their way to get things done. Explain the reasons.
13. MNCs and Corporate Social Responsibilities: a. Why do MNCs (any corporation for that matter) engage in socially attractive activities?
b. Is there a business case for CSR? Explain.
c. Some people are against CSR; explain why.
d. Is there enforcement mechanism for CSR? How do we know if a MNC’s CSR has real social, economic, and environmental impacts?
e. Discuss two cases where a MNC adopted a stricter standard after conflict arose over the practice of a MNC that affected workers and/or consumers.
f. An alternative approach to CSR practices is for a government to collect tax from MNCs and undertake activities that correct the negative externalities of MNCs.
Do you support this approach? Explain why.
14. How does an outflow of FDI benefit a home country? Take the case of an outflow of FDI/MNCs from the US and explain at least four benefits that the US expects from its overseas investments/investors.
15. Why do we need to know the nationality of a MNC? How would you go about determining the nationality of a multinational firm? Is the location of a headquarter office an indication of a company’s nationality?
16. Transfer pricing is one of the methods that MNCs use to move money around the world. This practice is still legal, but has been creating major problem in the world. Explain the problem and discuss how you would go about solving this problem.
17. What is corporate inversion? How does this affect the tax revenue of a home country and a host country? Discuss any recent policy that affect corporation to address this issue.
18. Reasons in favor and against expansions of Foreign Direct Investment (FDI) by Multinational Corporations (MNCs).
a. List and explain the four major reasons that proponents often use to justify the expansion of FDI/MNCs into host countries around the world.
b. List and explain the four major reasons that opponents often use to limit expansion of FDI/MNCs into host countries around the world.
c. Comparing FDI/MNCs home and host countries, which of these countries benefit the most from outflow of FDI from a home country to a host country? Explain why.
19. One of the major problems associated with MNCs is a decline in corporate tax revenue of advanced countries since the 1990s. What should host and home countries do to solve this problem?
20. State owned, at least partly, MNCs are becoming common specially those from BRICS countries. What do you think is the future of these types of MNCs? Do they will over the traditional (privately held) MNCs? Explain.
Explanation / Answer
a. TRIMs: This Agreement, negotiated during the Uruguay Round, applies only to measures that affect trade in goods. Recognizing that certain investment measures can have trade-restrictive and distorting effects, it states that no Member shall apply a measure that is prohibited by the provisions of GATT Article III (national treatment) or Article XI (quantitative restrictions).
TRIPs: This agreement came into effect on 1 Jan,1995 and it is the most comprehensive multilateral agreement on intellectual property right.
b. Tax Holiday incentive: It is a government incentive program that offers a tax reduction or elimination to businesses. Generally, it is used in the developing economies to stimulate foreign investment and promote growth. In addition, it can be used by the local government to reduce sales tax.
Investment tax credit incentive: To promote business growth, the government allows a certain amount that taxpayers can deduct from their taxes and reinvest in their business.
c. BITs vs. DTTs
d. Home country advantages: It can be defined as the country is labor intensive or capital intensive. If it has capital endowment then home country advantages are capital intensive goods.
Economies of scale advantages: There is an inverse relationship between quantity produced and per unit fixed cost because these costs are spread out over a larger number of goods. Therefore, economies of scale are the cost advantages that enterprises obtain due to size, output, or scale of operation.
e. Transfer pricing: It is the price at which divisions of a company transact with each other. e.g. if a subsidiary company sells goods & services to a company then the price paid by the parent company is the transfer price. Transactions may include the trade of supplies or labor between departments. Transfer prices are used when individual entities of a larger multi-entity firm are treated and measured as separately run entities.
Tax evasion: It is an illegal act where a person, corporation and others intentionally avoid to pay his/their tax liability,
f. Irish Double: The double Irish arrangement was a tax strategy that some multinational corporations used to lower their corporate tax liability. The strategy has ceased to be available since 1 January 2015, though those already engaging in the arrangement have until 2020 to find another arrangement.
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The double Irish exploits the different definitions of corporate residency in Ireland and the US. Dublin taxes companies if they are controlled and managed in Ireland, while the US’ definition of tax residency is based on where a corporation is registered. Companies exploiting the double Irish put their intellectual property into an Irish-registered company that is controlled from a tax haven such as Bermuda. Ireland considers the company to be tax-resident in Bermuda, while the US considers it to be tax-resident in Ireland. The result is that when royalty payments are sent to the company, they go untaxed - unless or until the money is eventually sent home to the US parent company.
Dutch Sandwich: The double Irish with a Dutch sandwich is a tax avoidance technique employed by certain large corporations, involving the use of a combination of Irish and Dutch subsidiary companies to shift profits to low or no tax jurisdictions. The double Irish with a Dutch sandwich technique involves sending profits first through one Irish company, then to a Dutch company and finally to a second Irish company headquartered in a tax haven. This technique has allowed certain corporations to dramatically reduce their overall corporate tax rates.
g. CSR vs. CSP vs. CFP
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