G39 - Corporate Finance and Governance: OtherReturn

It is a well-known fact that the main objective of every corporation is to generate profits and enhance its shareholders' wealth. Corporate growth may be achieved either internally (through organic growth) or externally (through mergers and acquisitions). In parallel with global trends, corporate growth is achieved by cross-border mergers and acquisitions (M&As) that have increased dramatically in economies especially over the last few decades. It is also established that mergers and acquisitions come in waves - so far, six waves have been researched. The main aim of the presented paper is to analyse the activity of the European Union countries on the M&As market and to describe the main motives for cross-border M&As and how the performance of cross-merger M&As is measured.

In the presented paper we develop model of apportionment of cost generated by variability and mean value of flows from (to) shared services centre. It can be either cash pool or distribution centre, or even some kind of customer service centre. The apportionment formula for the cost of capacity generated by flow variability turns out to be regression coefficient of flow to (from) the distribution centre (cash pool) generated by particular company within the multibusiness enterprise as endogenous variable to flow of inventory (cash) for the whole distribution centre (cash pool) as exogenous variable. The cost generated by the flow of requirements (goods, money) itself, i.e. by the mean value of the flow, has to be split between SSC customers according to their share on that flow. Result does not depend on the form of cost function as long as it is strictly increasing function of flow from (into) SSC (orders, stock, cash) and of mean of that flow.

We examine contemporary practice of transfer pricing rules enforcement in this paper. We have used neoclassical microeconomic framework with transfer price estimated via comparable uncontrolled price method. We have found that if vertically integrated multinational enterprise (MNE) has possibility to evade tax through transfer pricing, then it produces higher quantity of final product, than it would if no possibility of tax evasion existed. Secondly we have found that although nowadays' transfer pricing rules require use of enforcement instruments (penalty), there is no penalty high enough to extinguish tax evasive transfer pricing totally, and if market for the product produced in country with high tax rate is perfectly competitive or there is monopolistic competition, no optimal penalty can be found. That changes at oligopolistic, monopolistic or duopolistic market of that product - there we could find optimal penalty.

In this paper we compare income taxes to VAT and tax credits to tax deductions in terms of their ability to distort factor prices, provide fair taxation, avoid tax-evasive transfer pricing and induce Pareto improvement of tax policies. On the base of theoretical discussion and thought experiments we conclude that VAT is due to its nature superior regarding these requirements. We also have found out that a wider use of tax credits within VAT would be useable to prevent profit shifting. Some adjustments of VAT compared to current practice are needed to achieve the best results. More rigorous proofs, both theoretical and empirical are needed.

In this paper we analyze possible source of tax evasion in the multinational entity (hereinafter "MNE"). We show that the tax obligation of the whole MNE depends on the ownership structure of companies, which form MNE and that the structure could be described by matrix form. Therefore the basic tax optimization tasks of MNE via transfer pricing can be understood as linear programming problems. In addition we propose a way to identify possible tax evasion realized via transfer pricing in MNE.

Using 4-dimensional panel data (time, industry, country, companies) we examine the differences between European quoted and non-quoted companies at the level financial performance and some financial ratios. We find that quoted companies perform significantly better not only in terms of profit, but also in terms of cash flow generation. We also find some interesting differences in financial structure, liquidity and collection and credit period, not only from the perspective of quotation, but also between European regions (thus different trade habits), e.g. significantly longer credit period and collection period for countries with more relaxed trade habits (Spain, Italy, France). Our findings have some indirect implications for agency theory, for view of different accounting standards conservatism and earnings management, as well as (mainly) for business and stock valuation and financial planning.

Both older and recent literature on transfer pricing is not unified about the opinion whether optimal transfer price should be equal to marginal cost of supplying company and set by centralized decision (of vertically integrated multibusiness enterprise headquarters) or whether it should be set by negotiation or even set on level of market (arms-length) price. Those, who argue for setting transfer price by negotiation or at the market price base their arguments on market imperfections like information asymmetry, motivation of managers, et cetera. This paper deals inter alia with problem of methodology transfer pricing mathematical modelling. We prove that optimal transfer price should be equal to average cost of the supplying division plus part (or whole) economic profit of the multibusiness enterprise, independent on the market conditions at the market of either intermediate or final product. Setting transfer price on the level of marginal cost is inefficient and would earlier or later lead to loss of multibusiness enterprise's ability to compete its rivals. Applicability of results of our research on multinational enterprises gives us possibility to use it for further research on optimal design of transfer pricing rules setting and of multinationals' taxation.