Chapter IC, Problem 20.4CDQ

Summary Introduction

Case summary:

On the purchase of Company SE, Company M caught attention from lot of people. Purchasing Company SE on cash deal bases created a good opinion in the people’s mind on Company M. $8.5 billion was the total amount paid by Company M for those funds that were collected from foreign countries. In order to avoid tax paying, the company has not sent back its foreign earnings to Country U.

Country U firms have collectively $2 trillion in foreign countries that are said to be untaxed profits. The tax rate of Country U is 35% and many companies are doing business throughout the world by keeping the cash unused. For example, Company M has $100 billion cash funds outside Country U and it also included for few low income tax countries like Country S, Country I and Country B.

Shareholders benefited from not paying the income taxes in Country U, which  is due to few financial decisions. The company was not able to address how Country U tax funds were able to benefit the whole country. At this stage, Country U was revising its company tax code, so there may be changes in the Country U corporate tax.

Characters in case:

Company SE.

Company M.

Country U.

To determine: Whether it is ethical for Company M to remain to hold cash abroad instead of paying the amount to Country U and whether this practice is done at the best interests of the shareholders.

Introduction:

A shareholder is an individual, institution or company who owns at least a share in a company stock. They are the owners of the company. They take part in both success and failure of the company. They are also known as stockholders.