Page 32 - Strategic Tax Planning for Global Commerce & Investment

Cross Border Tax Planning Strategies

A similar issue is encountered by multinationals that are based
in countries where the do not have substantial operations, their
presence being limited to holding activities that generate no net
taxable profits in the country where the holding company is
located. For such multinational, borrowing in the home country
to finance equity in foreign subsidiaries will be very
unattractive, pushing the ETR as illustrated in the graph
bellow.

The tax position for the The tax position for the
multinational as a whole is: multinational as a whole is:

Group profit: Group profit:
Subsidiary $100 Subsidiary $ 50

Parent $(50) Parent $ 0
Group profit $ 50 Group profit $ 50
Tax paid $ 30 Tax paid $ 15
ETR 60% ETR 30%

How a Multinational Can Change the Mix of Debt vs. Equity

Let’s assume that a parent company has financed a subsidiary
entirely with equity (or that the subsidiary has paid off the debt

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