International Management - Assignment Example

Corporate Inversions Corporate inversion involves relocation of the company’s headquarter to a lower tax while retaining its operations in its country of origin. This term is frequently used in US in relation to its corporations. Corporate inversion is a particular form of tax avoidance (Mihir A. Desai, 2002). The act is driven by a set of factors, the primary one being tax. An example is a recent case of an acquisition between a US pharmaceutical giant Pfizer and London-based AstraZeneca. The takeover had a lot to do with tax benefits as compared to reduced manufacturing cost an access to the foreign market. Apart from tax benefits Pfizer must consider other factors.
Stakeholders’ consideration
The stakeholders of the company include shareholders, directors, employees, suppliers, customers and the society. In the case of an inversion each stakeholder will be affected significantly. To start with some employees and customers may not be retained. Shareholders rights may be affected significantly. Before inversion shareholders should consider how their rights will affect when they move from being shareholder of a U.S. corporation to shareholders of a foreign corporation. Any significant effect should be analyzed carefully to determine whether reversal increases the risks associated with ownership in the corporation and if so, agree on whether the increased risk is bearable. Shareholders should consider the following among other factors how shareholder’s proposals are brought before the new board, appointment of new board members, and rights of a minority shareholder. They can also consider the presence of special voting rights for any shareholders and distribution of dividends.
Legal Considerations
Directors and shareholders must consider legal in a foreign jurisdiction in order to decide which foreign jurisdiction relocate. Once reincorporation is successful the corporate’s shareholders, and directors become subject to the laws of a foreign country. The law could differ significantly from the US laws. The differences in rules should be discussed in length by directors and shareholders. They should review laws on fiduciary duties, shareholders rights and corporate governance. In addition to legal matters, corporation should also consider, including political criticism and public concern.
Financial considerations
Corporates react to incentives so as to increase profits that can lead to increased personal income like bonuses, high stock prices and other incentives compensation. The primary goal of any business is to maximize on cost and to reduce the cost. Organizations intending to transfer should consider how relocation will help minimize the overall production cost. The corporation can relocate to areas with low taxes, low production cost or access markets as compared to its country of origin. The funds saved as a result of inversions will help corporations maximize shareholder’s value and to retain global competitiveness (Dale L.Davison, 2003).
Ethical considerations
Corporates should consider the moral obligation of improving the economic status of the community surrounding it. Corporates should aim at maximizing benefits and reducing cost of operations. However, they should give part of what they earn to the public that supports them. Inversion does not support the idea of corporate social responsibility. Companies should pay taxes to the government in order to help the government provide better services to its citizen as well as reduce poverty. The act of inversion is fueled by the idea of greed and selfishness. The country cannot prosper without continued increase in investment and lowering of the rate of poverty.
In conclusion, I do not support corporate inversion. Companies should pay taxes to help enhance the people standards of living in the country they operate. Tax avoidance is unethical; it shows company’s greediness and selfishness. If all companies are allowed to evade tax, the economy will deteriorate. Government should develop laws to prevent corporate inversion. However, the government should charge a reasonable amount as tax to companies. It will help attract foreign investors as well as retain local companies.
References
Dale L.Davison, M. H. (2003). Stanley Works and corporate inversion. Thunderbird, The American Graduate School of International Management, Glendale AZ.
Mihir A. Desai, J. R. (2002). Expectations and expatriations tracing the causes and consequences of corporate inversions Cambridge, MA.: National Bureau of Economic Research. Read More