International Accounting
© 2007 Robert Sweo
Accounting Standards
Important Note – Most countries use different
accounting systems. Therefore – Accounting
numbers are not comparable across
countries without a great deal of correction
© 2007 Robert Sweo
Accounting Systems in a
Multinational
Most companies keep several sets of books
including:
Tax Accounting System – Unique to each
country
Public Accounting System – Unique elements
in each country
Managerial Accounting System – Hopefully
consistent across company

© 2007 Robert Sweo
Accounting Standards
US – FASB and GAAP – “moving towards” IASB
© 2007 Robert Sweo
Accounting Standards
Many others – Variations of IASB
© 2007 Robert Sweo
Accounting Systems Vary
Because of:
© 2007 Robert Sweo
Accounting Systems Vary Because of
Political and economic ties
© with other countries
2007 Robert Sweo
Accounting Systems Vary Because of
Relationships between businesses and
providers of capital
© 2007 Robert Sweo
Accounting Systems Vary Because of
Levels of inflation
© 2007 Robert Sweo
Accounting Systems Vary Because of
National culture – optimism vs conservatism
© 2007 Robert Sweo
Accounting Systems Vary Because of
Level of economic
development
© 2007 Robert Sweo
International Financial
Management
© 2007 Robert Sweo
Financial System Must Consider
Political risks
●Variations in sources of funding
●Foreign exchange rate fluctuations
●Restrictions on capital, exchange and profit
flows
●Differences in tax systems faced
●Variations in economic systems and economic
conditions
●Differences in inflation
●Varying interest and discount rates
●
© 2007 Robert Sweo
How Much Profits Should You
Bring Home?
Remittance Strategy
© 2007 Robert Sweo
How Much Profits Should You Bring Home?
Opportunities for growth outside
country profits earned in
© 2007 Robert Sweo
How Much Profits Should You Bring Home?
Firms objectives
© 2007 Robert Sweo
How Much Profits Should You Bring Home?
Availability of capital from local sources
© 2007 Robert Sweo
How Much Profits Should You Bring Home?
Stability of currency exchange
© 2007 Robert Sweo
How Much Profits Should You Bring Home?
Economic and political conditions at home and abroad
© 2007 Robert Sweo
How Much Profits Should You Bring Home?
Host government restrictions on remittance
© 2007 Robert Sweo
How Much Profits Should You Bring Home?
Tax systems in host and home country
© 2007 Robert Sweo
How Much Profits Should You Bring Home?
Impact on image in
host country
© 2007 Robert Sweo
Remittance Accomplished
Through
© 2007 Robert Sweo
Remittance Accomplished Through
Germany
US
$100 Subcomponent Cost
$20 Labor
$30 Admin cost___________
$150 Sell to US
$50 Value added__________
$12.50 25% Value Added Tax on $50
$150 Cost of goods sold
$50 Marketing and admin cost
$200 total cost
$250 Sale Price____________
$50 profit
$17.50 35% Income Tax
$30 total tax paid on $250 TV sale
© 2007 Robert Sweo
Transfer pricing (1)
Remittance Accomplished Through
Germany
$100 Subcomponent Cost
$20 Labor
$30 Admin cost_______
$100 Sell to Bahamas
$0 Value added_______
$0 Value Added Tax
Bermuda
US
$100 Subcomponent Cost
$5 Labor_________
$105 Total cost
$200 Sell to US_____
$95 Profit
No VAT or Income Tax
$0 Taxs
$200 Cost of goods sold
$50 Marketing and admin cost
$250 total cost
$250 Sale Price____________
$0 profit
$0 Income Tax
$0 total tax paid on $250 TV sale
© 2007 Robert Sweo
Transfer pricing (2)
Remittance Accomplished Through
ACME US
ACME Venezuela
$1m Startup Funding
© 2007 Robert Sweo
$100,000 Profits a year
$50,000 50% Income Tax
Venezuela blocks remittance
Swaps (1)
Remittance Accomplished Through
ACME US
ACME Venezuela
Mega
Bank
International
$1m Deposit earning 9.5%
$95,000 “interest payment”
© 2007 Robert Sweo
$1m loan charging 10%
Keeps .5% profit
Swaps (2)
$1m loan paying 10%
$100,000 interest payment
eliminates profit – no taxes,
no remittance problem
Remittance Accomplished Through
Italian Factory
US Corporate Office
$1m “surprise” profits
Pays 35% VAT
Provides accounting,
Management and
design consulting as
part of corporate
services
Unbundling (1)
© 2007 Robert Sweo
Remittance Accomplished Through
Italian Factory
US Corporate Office
$1m charge for corporate
service
$1m profit on charge to
Italy
No profits – No VAT
No income or VAT Tax
Unbundling (2)
© 2007 Robert Sweo
Assigns corporate
office personnel to
Bahamas division
Types of International Cash
Flows
© 2007 Robert Sweo
Types of International Cash Flows
Intracompany
Netting - Cancelling inflows and outputs to reduce transactions
© 2007 Robert Sweo
Types of International Cash Flows
Intracompany
Pooling - Pooling all funds in subsidiary
© 2007 Robert
Sweo best tax laws or security
with
Types of International Cash Flows
Intercompany
Prevent other companies leading and lagging
© 2007 Robert Sweo
Types of International Cash Flows
Intercompany
Minimize currency exchange
transaction
costs
© 2007 Robert
Sweo