Question

1. How do the following topics: profit shifting, offshore tax havens, and money laundering relate, in your opinion, to the development of multinationals?
2. Why haven’t employee wages increased in a manner similar to CEO salaries?
3. If monopoly was considered a market failure, requiring government intervention, is it possible that multinationals are in fact another form of market failure?

Answer 1

Multinational companies are different in nature comparing with international or domestic companies. when we discuss multinational some of the terminologies are associated with it they are:

a) Profit Shifting: it is basically known as base erosion and profit sharing, where corporate tax can be manipulated and modified by using taxation loopholes. planning strategies used by multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions, thus "eroding" the "tax-base" of the higher-tax jurisdictions.

b) Offshore tax haven: it is a beneficial offer from the country with a low effective rate of taxation and offers financial secrecy. In such types of cases, the multinationals enjoy the benefits of higher profit with low tax.

c) Money Laundering: Money laundering is the illegal process to make black money into white. so in this process, foreign banks and other participants play a significant role.

So these three financial terminologies are keenly associated with the development of a multinational as it has a plus point of the combination of different national companies and disadvantages of facing different rules and regulations according to different country applications. so the multinational uses the loopholes of the system and tries to grab a bigger portion of the profit.

2. An office employee wage is stipulated with its risk-taking and involvement in the business. so normal manager level employee are regularly obtaining their salaries where the CEO is the higher administrator or the decision making authority. so their decision has a greater impact on the company's profit or loss. so if a CEO's decision really works for the company, then he deserves a handsome salary compare to the other as he valued a lot for the company.

3. If monopolies are failure then multinationals are also failures. it is true with respect to these reasons.

a)failure in the preservation of intellectual property. chances of getting stolen.

b) failure in local market due to traditional and customs, the product could not fulfill the demand.

c) fail to localize the operation

d) poor execution by senior managers.

e) chaos in market research and implementation.

f) fail to capture the sensitivity of the market.

g) Underestimation of government role.