Analyze the taxation issues and ethical issues with multinational corporations.

Taxation issues: A multinational corporation (MNC) in its true sense operates with different companies located in different countries under same management group. They transfer finished and semi-finished goods, raw materials, spares and services among the group companies. 40% of the international trade consists of transfers between related business companies. For MNCs there are the separate tax and tariffs rates, government regulations but they have to operate under political risk as compared to their domestic counter parts. Transfer pricing helps an MNC in tax planning, avoiding exchange controls and supporting credit status of affiliates. In many cases, there are charges against MNCs on the usage of transfer pricing system for dubious activities. Hence, it becomes a source of conflict between the MNC and the host government. However, the adverse effects of transfer pricing can be checked to a great extent by regulations. As per one school of thought there should not be any regulation for transfer pricing and no MNC will be compelled to adopt transfer pricing technique. The play of market force will decide optimal allocation of resources. However this concept is not quite prevalent and hence, it requires some regulation. Which may be direct or indirect. Direct Regulation includes the measures replacing directly one particulars transfer price by another set of prices fixed by the host government. All the intra firm transactions are required to take place at the fixed place. In many developing countries, the government has fixed ceiling on the royally payment, but that affects adversely to MNCs. In short, it can be said that, direct regulations is possible. Indirect regulation may be applied in different forms, which are as follows: Harmonization of tax and tariff between home and host country. Compensation for the loss of corporate tax revenues on account of transfer pricing Apportionment of the consolidated profit of the MNC among the relevant units on the basis of total assets, sales and labour and capital employed Ethical issues: Scandals and bankruptcies in the United States at companies like Enron and World Com Inc. have focused attention on the abuse of the power entrusted to executives by shareholders, employees and customers and they underscore the need for reforms to bolster business ethics. Corruption is not inherent to any one society. Its reach is global. Fifteen percent of all companies in industrialized nations have to pay bribes to win or retain business. Ethical issues in business have become more complicated because of the global and diversified nature of many large corporations. Managers must balance the ideal against the need to produce a reasonable profit for the company's shareholders with honesty in business practices, safety in the workplace, and larger environmental and social issues.