Multinational Companies are enterprises operating in several countries

but managed from one country. Generally, any company or group that
derives a quarter of its revenue from operations outside of its home
country is considered a multinational corporation.

Since World War 2, an increasing number of firms, including many

based in emerging or developing countries have become multinational
companies by developing targeted overseas markets, mainly through
foreign direct investment, that is by establishing subsidiaries or
affiliates and via mergers or acquisition.

Some of the advantages of a Multinational Corporations are the

following:

It has a Cheaper Labor

One of the advantages of multinational corporations is the opportunity
to operate in countries where labor is not as expensive. This is one of
the perks that smaller companies do not enjoy. Multinationals can set
up their offices in several countries where demand for their services
and products are high while cheaper labor is available.

It has a Broader Market Base

By opening establishments or offices in several countries,
multinationals increase their chances of reaching out to customers on
a global scale, a benefit which other companies limited to regional
offices and establishments do not have. The access to more customers
gives them more opportunities to develop and cater their products and
services that will fit the needs of potential customers.

Tax Cuts
Multinationals can enjoy lower taxes in other countries for exports and
imports, an advantage that owners of international corporations can
take at any given day. And although not all countries can have lower
tariffs, there are those that give tax cuts to investors to attract more
international companies to do business in these countries.
 Job Creation
When international companies set up branches in other countries,
employees and members of the team are locals. That said, more
people are given employment opportunities especially in developing
countries.

Multinational Companies face a variety of laws and restrictions when

operating in different nation-states. The legal and economic
complexities existing in this environment are significantly different
from those a domestic firm would face. So we will begin with the key
trading blocs.

A trading bloc is an agreement between states, regions or countries to

reduce barriers to trade between the participating regions.

The first trading bloc was created by the North American Free Trade
Agreement (NAFTA) which is the treaty that established free trade and
open markets between Canada, Mexico and United States.

The European Open Market is the second trading bloc and was created
by a similar agreement among the 12 western European nations of the
European Economic Community and eliminates tariff barriers to create
a single marketplace.

The third bloc is called the Mercosur Group and consists of many of the
countries in South America.

An important component of free trade among countries, including

those not part of one of the three trading blocs is the General
Agreement on Tariffs and Trade (GATT). GATT extends free trade to
broad areas of activity such as agriculture, financial services and
intellectual property to any member country. GATT also established the
Word Trade Organization to police and mediates disputes between
member countries.

So my next discussion is the use of Joint Venture.

 Joint Venture is a partnership under which participants have
contractually agreed to contribute specified amounts of money and
expertise in exchange for stated proportions of ownership and profit.

A common use of Joint Venture is to partner up with a local business to

enter a foreign market. A company that wants to expand its
distribution network to new countries can usefully enter into a Joint
Venture agreement to supply products to a local business, thus
benefiting from an already existing distribution network. Some
countries also have restrictions on foreigners entering their market,
making a Joint Venture with a local entity is almost the only way into
the country.

So next is about the taxes of Multinational Companies.

Multinational companies, unlike domestic firms, have financial

obligations in foreign countries. One of their basic responsibilities is
international taxation, a complex issue because national governments
follow a variety of tax policies.

First, multinational companies need to examine the level of foreign

taxes.

Next is, there is question as to the definition of taxable income. Some

countries tax profits as received on a cash basis, whereas others tax
profits earned on an accrual basis. Differences can also exist in
treatments of noncash charges such as depreciation, amortization and
depletion.

Finally, the existence of tax agreements between the domestic country

and other governments can influence not only the total tax bill of the
parent multinational company but also its international operations and
financial activities.

Different home countries apply varying tax rates and rules to the
global earnings of their own multinationals.
 As a general practice, the domestic government claims jurisdictions
over all the income of a Multinational Company wherever earned.
However, it may be possible for a Multinational Company to take
foreign income taxes as a direct credit against its domestic tax
liabilities.

For example:

(POWERPOINT)

My last topic is about the financial statements of Multinational

Corporations
Unlike domestic items in financial statements, international items
require translation back into a domestic currency.
Under FASB No. 52, the current-rate method is implemented in a two-
step process.
That is, each subsidiary translates foreign-currency elements into the
functional currency.
Functional currency is the currency that the company uses in the
majority of its business transactions.
This is done using the all-current rate method, which requires the
translation of all balance sheet items at the closing rate and all income
statement items at average rates.
Each of these steps can result in certain gains or losses. Whether
realized or not, these gains or losses are charged directly to current
income.
The completion of second step can result in translation adjustments,
which are excluded from current income. Instead, the MNC discloses
and charges these amounts to a separate component of stockholders
equity.
By using the temporal method, any income-generating assets like
inventory, property, plant and equipment are regularly updated to
reflect their market values. The gains and losses that result from
translation are placed directly into the current consolidated income.
This causes the consolidate earning to be rather volatile.