IPAG 3 ModuleInternational Finance and Taxation 1 International Finance - Introduction Importance of international Finance Major points and Highlights Superiority of the « Global » Financial Globalization.Internationalization >Mondialisation > Globalization Global Finance Diversity of international Portfolio 2 International Monetary System Financial crisis of new markets Regulation of international monetary system 3 International Taxation Global principle Methods of taxation Individuals Vs Enterprises Definition and Rules Tax equalization Transfer pricing Taxes in Europe VAT – General rules VAT update and improvement VAT in France VAT intra-community Import Taxes Export Taxes European countries cases 4 International Taxation Fiscal optimization Holdings and headquarters Cash Pooling Companies Restructuring Payment of Dividends, Capital Gains (Increase in value), Hong Kong Case, as an example territorial tax system 5 International Taxation Tax evasion Tax Hevens (France / International) Rules applicables to Individuals Various Benefits resulting from national fiscal differences From evasion to international Fraud: how authorities are trying to fight against these practices Tax Havens for individuals: from illegal to immunity
IPAG 4 Ipag - Introduction Increase of Internationale Finance: thousands expressions to qualify extraordinary dvpt of International Finance: Global Market, Geo-Finance, Planet, Empire…. To try to understand if those qualifications are relevants > Highlight of key facts from the past: 1.1. Volumes: (McKinsey, 2005): 1980>2003: global value of Financial assets increased > 3 times of increase of real revenue In 2003, Fin.Assets= 118 000 Billion $ Vs 12 000 Million in 1980…level of int’l market only INT’L Credit from Banks (20 times higher ) from 1980> 2004 Directs Investments abroad: from 250 Billion $ avg /year > 1 000 Billion (1999>2002; Change transactions : from 600 Billion $ (1980) to 1 800 Billion (2004) Finally: Shares transactions on daily basis: 230 Billion $ Bonds transactions on daily basis: 820 Billion $ Consequently explosion of International Finance.
IPAG 5 Ipag - Introduction 1.2. New Actors: Today new actors appear in the world of Finance Int’l, despite high visibility of Banks yet, with high interventions and presence…(commercial credits, rates, international investments, etc …) But also: Pension Funds, Investments funds, Private Equity …started in anglo saxon countries Hedges funds… More than basic function of voverage (« couverture »), also function of speculation: all differences return in all markets (exchange rate, raw material, …) =>Represents only 2.5% of the market, but are playing a key role, with capacity of tracking all variances for return optimization (rates) and ability of portfolio booster in short period of time… Company groups Insurance Companies / Groups Portfolio Consulting Markets are enlarged of new actors…
IPAG 6 Ipag - Introduction 1.3. New Technics & Products: For long time International was more for payments of Exportation and Importation transactions, exchange rates, credits (buyers and suppliers), documentary credit « credoc »,… Innovations, news technics, … to follow World evolutions (terrorism, …) More and more complex 1.4. Gap in the Monetary system Economical evolution imposes regulations (ex. FMI)…and quotation agencies (Moodys-risk Management, etc …) 3 questions : 1.Regulations: identification of fundamental and base of the system international in order to work on long term basis. Balance relationship (interest rates, one price or fixing, …) 2.Stability Issue: Risk assessment, risks analysis, risk balanced 3.Adequacy Finance, disconnexion …: search of balance with economic environnement…Find a right balance allowing Finance to be at disposal of economy…link of Finance and economy are some times complex…
IPAG 7 Ipag - Globalization 1.2.1 Mega worlwide Market: Today it is obvious that emergence of Mega Market… Bank are no more split between Internal operations and abroad, but today is more international scale….this being example of England Banks, with operations of treasury and Acquition and Merging companies (FUSAC) Lost of notion of « borders » « Frontieres » Change of Methods: To understand logic of nowadays Finance, it is important to understand that it works at level of world scale, …we can still have some regional trends, but principles trends andheavy change are with World consequences… …;ths change and movement appears with high level of transactions, communication, spaces, which have consequences of inter dependency of today. (…..)
IPAG 8 Ipag - Globalization 1.2.2 Globalisation as link of Financial Integration: In France, the word of Globalization met some difficulties to be a lead world as it is today. In the 90’s, many authors were refusing using it, due to anglo-Saxon worlds, with « Z » Reminder: >Internationalisation: Period of opening (exchanges of products, services, goods, and Capital, etc …), in the 1950’s,: wide movement of liberation of flows >>GATT, OECE, then OCDE….freedom circulation of flows… »laisser faire, laisser passer » …. -1951 : currencies convertibility, 1957 : Deal in Rome « Traite de Rome », 1971: Kennedy Round With American impluse we go from closed Market to opeen Market > »Mondialisation » or beginning of Globalization Late 1970’s, new step, with multinational companies….news way of thinking, …innovations<, etc …all this will drive and world economy, …
IPAG 9 Ipag - Globalization 1.2.2 Globalisation as link of Financial Integration (…): > Globalization Condition is that Market has to be Total, …;Marketing Specialists Studies, in the late 1980’s…companies are now considering projects globally….because of new Market with lack of borders, more and more integrated: Example: Coca Cola yesterday…today / IPod / Iphone Charateristics: 1.Uniqueness of the Model: Further to integration, this Model is based on ideas, psychology concept, being part of unique Model of resources allocations, and economy behaviour (…with Fall of the Berlin wall or U.R.S.S. regime end …there is Globalization because the reference of Market economy became unique); ….Other example being the new accounting reference in 2005/2006 with I.F.R.S. In all example it is market economy driven, emphasized by economy ideology 2.Group behaviour, Society of information, unification of technics… ( example above of Ipod….)….compared to previous periods, All classed are impacted (Medias, traveling, …thanks to Internet, Skype…)
IPAG 10 Ipag - Globalization 1.2.3 Portfolio Diversity « Il ne faut pas mettre tous les œufs dans le même panier… », theory of Portfolio accounts many economist or Prix Nobel (ex.James Tobin). Concept which all investors are looking for portfolio optimization, to allocate risks within total assets… 1.Various RISKS: (Shares, Bonds, pensions funds, etc …) 2.Optimization of places: majority of one or other shares/Bonds, … 1.Optimization and international diversification: 2.(cf tableau page 96,97)
IPAG 12 ModuleInternational Finance and Taxation 1 International Finance - Introduction Importance of international Finance Major points and Highlights Superiority of the « Global » Financial Globalization.Internationalization >Mondialisation > Globalization Global Finance Diversity of international Portfolio 2 International Monetary System Financial crisis of new markets Regulation of international monetary system
IPAG 13 Ipag – 2-Monetary System Despite powerful of worldwide exchange, with globalization, we can still observe specified national (or region). Then, after having focused on All (Global market), we have to re-introduce, entities (nation). To do so, even in globalization context, we must highlight interface between nation-worldwide, with 1) Balance of payments and 2)Adjustements Methodology of elaboration of Balance of payments are subject of harmonization by International Monetary funds. Publication of Manuel of Balance of payments (Since1997, reco of 5th edition of Manuel of IMF of 1993) 2.1. Balance of payments : accounting documents where are recorded all transactions between residents and non residents, for a period of time - By Residents:national and foreign agents (persons or sub’s, HQ, Ambassadors), with permanent residence in a country of reference -By non Resident: foreigners and national with permanent residence abroad.
IPAG 14 Ipag – 2-Monetary System -Accounting Same principle with double entries (Debit / Credit ), with on the left: Receivable and on a right Debitors. Then entries should be balanced, with exception of mistakes « erreur et omissions »=> adjusted accounts. This adjusted account is in all Balance of Payments (in 2005, 41,6 Billion Eur.in France) > Operations non or mis accounted (mistake in evaluation,timing) > Operations non postponed >Over/under invoicing
IPAG 15 Ipag – 2-Monetary System -Different accounts: 1)« Comptes transactions courantes » : also called Top line =operations on products and services (import / Export of goods), and Incomes (Salaries and Benefits and income from Investments) 2)« Compte de Capital » related to transfers of Capital, and intangible assets operations (Licenses, Trademarks,..) 3)« Compte Financier », related to all capital movements between Resident and Non Resident. Directs investments: from investors, for acquisition, increase or liquidation of Capital Portfolio Investments, related to operations on shares executed from Resident with Non Resident Financial Derivative products, related to Bonus on options, Other Investments: Non commercial credit (credits on financing exportation/importations ) Other: -Significant Balance: 1)Commercial Balance 2)Goods and Services Balance 3)Current transactions Balance 4)Current transactions balance and Capital account 5)Financial balance 6)Global Balance:
IPAG 16 Ipag – 2-Monetary System -Accounting – EXAMPLES Example A « une entreprise française vend pour 1000 euros de m/ses, à un résident américain. Le contrat est en dollars. 60% réglés au comptant (les dollars reçus par l’entreprise sont déposés sur un compte bancaire), 40% à crédit (le crédit est accordé par l’entreprise française), il s’agit d’une exportation de marchandises Example B « Un travailleur immigré envoie 100 euros à sa famille à l’étranger. (Cpt Transfert, Avoir et engagements) Example C « Une Société française achète 20% du Capital d’une société étrangère pour 100 000 euros » (Cpt FDI)
IPAG 17 Ipag – 2-Monetary System EXAMPLES – QUIZ & EXERCICE Tell where below accounts are recorded, which account (current transactions, Capital…) 1. France is paying is contribution to European Budget 2.French nation is buying Trademark to a German company. 3.A French bank is allowing a Commercial credit to an Amercian company. 4.« Un investisseur institutionnel britannique achète des bonds du Trésor américain. 5.Les interventions de la banque centrale Chinoise sur le marché des changes se traduisent par une augmentation des réserves de changes de la Chine » (capital)
IPAG 18 Ipag – 2-Monetary System B.Adjustments: 3 main adjustments usually described: > Exchange rate, > Absorption, combination of price and Income effects > Monetary approach,
IPAG 19 Ipag – 2-Monetary System Exercice : « Tableau ci-dessous reprend les principales rubriquess de la balance des paiements des Etats-Unis, 2005 en milliars) On sait, que le PIB, des Etats-Unis, était de 12 456 milliards de dollars en 2005., 1)Calculez et interprétez les soldes suivants: -Solde Commercial -Solde des échanges de services -Solde des échanges de biens et Services -Soldes des transactions courantes 2)Déterminez le montant des « erreurs et omissions » nettes 3) Quels indicateurs du Commerce extérieur peut-on construire à partir des données précédentes? Calculez et commentez ces indicateurs Exportations de M/ses895 Importations de Marchandises1677 Exportations de Services381 Importations de Services315 Solde Des Revenus12 Solde des transferts courants-86 Solde du compte de Capital-4 Solde du compte financier785
IPAG 20 Ipag – 2-Monetary System 2.2.Adjustments: 3 main adjustments usually described: > Exchange rate, > Absorption, combination of price and Income effects > Monetary approach, 2.2. International Monetary System - IMS (or SMI) Could be described as regulations of commercial transactions, operations on Capital and international Credit. It shows legal and rules of above transactions. Without making history, institutions created in 1944, Boston (Bretton Wods) are still valid. This IMS, has been created originally to give a structure 2.3. Financial crisis Difficulty of payments is permanent and usual, as such in the past as example >Creation of Club of Paris in 1956 de Paris, to help facing mis payments, for Argentine >Creation of Club of London, banking debts >1982 common intervention of IMS and U.S. to rescue Mexico and Brazil from bankrupt
IPAG 21 Ipag – 2-Monetary System > Major perturbation of Financial systems on 1994 and 2001, affected strongly « emerging » countries, such as Asia, Mexico, Russian, Brazil, Turkey and Argentina…. Due to some high impacts,, were successively appear Models, split in several generations : Debat: - How could we compare past years crisis and current crisis ? - In your opinion, how/when could be exit from this new generation crisis?