Multinational companies operate in different countries around the world. That is why they have the option to choose from which country to make and monitor their investments. Their investments in foreign subsidiaries may be made either by the parent company of the group or through a holding company.
What country the holding company will be chosen to be based in depends on various parameters such as: the legal framework, the ability to find financing, the tax regime, etc.
by Thanos S. Chonthrogiannis
©The law of intellectual property is prohibited in any way unlawful use/appropriation of this article, with heavy civil and criminal penalties for the infringer.
The main source of revenue of the parent companies is the dividends they receive from their subsidiaries and the capital gains they may make in the event of self-investment.
But the main factor in choosing the country where the holding company of a multinational company will be established and not only is it if there is a provision in the country’s tax regime entitled “exercise” in the country’s tax regime.
The exemption provision stipulates the exemption from tax on dividends and capital gains irrespective of the country of establishment of the subsidiary.
In fact, however, it is not a tax exemption but a tax policy to avoid double taxation of income which has in fact been produced and taxed at the level of the subsidiary.
An economy to grow, the government of the country under consideration must attract, among other things, multinational companies from all over the world. In other words, it should be a ‘criminal act’ for an economy not to include in its tax regime the provision of exercise.
In addition to the provision on the exemption of dividends, a government should therefore include in the tax regime a provision for the exemption in capital gains. Only then is the tax framework complete to attract multinational companies into the country.
The economic nature of capital gains income is in practice a discount to future dividends. The most developed economies in Europe such as the UK, EU, Switzerland provide exemptions to income from subsidiaries, either in the form of dividends or capital gains from around the world.
A country that expects to attract holding companies or the establishment of holding companies of foreign multinational groups is therefore required to include all subsidiaries, regardless of their country of establishment.
At the same time, the government of the country is obliged to establish a framework of minimum conditions, such as the possibility of exchanging information with the country of establishment of the subsidiary, accompanied by provisions to avoid tax to effectively deal with any attempt to circumvent it.
It is obvious that an economy will benefit many from attracting and installing holding companies together with the strengthening of existing parent companies on the territory of the country.
In this way, these companies will be the decision-making centres, in turn requiring the establishment in the country of competent and qualified executives who will manage the international activities as well as the funds associated with them and which will be immediately repatriated.
