Tax

Your huddled masses yearning to breathe free, the wretched refuse of your teeming shore. Send these, the homeless, tempest-tots to me, I lift my lamp beside the golden door! ” Do our immigration policies still honor the words written by Emma Lazarus in 1883 on the base of the Statue of Liberty, and if so, what impact do they have on our economy?

The issue of whether our economy is impacted negativity or positively by undocumented workers and what should be done about It Is a widely debated topic in this country right now and reported about on every form of media (news, print, social) available on a dally basis. The Issue of undocumented Immigration Is Important; It concerns fundamental, moral and economic questions about how we deal with Immigration In our country. Various arguments have been presented about this issue.

We will consider the argument from people who feel the undocumented workers negatively affect the economy, why those views are flawed, review the evolution of immigration along with immigration policies and what are in effect presently, what policies would promote change regarding immigration, as well as how we can build a bridge between the two arguments. I will then put forward suggestions for the introduction of ways in which we can begin the changes in policy to best suit both sides of the argument. It has been argued that undocumented workers drain the economy and Just benefit a few businesses at the expense of Americans citizens.

An article written by Steven Amalgam, published in the City Journal summer 2006, supports the belief : “unskilled, undocumented workers benefit a handful of Industries by getting low cost labor, and the taxpayers foot the bill. ” In other words, undocumented workers and their illegal families are a drain on our economy. It is claimed that they send every penny they earn to their country of origin, use public services they are not entitled to, perform menial labor, do not pay taxes and their children abuse the right to public services and education.

However, as the pamphlet by Neighborhood center states: ” in fact there is no question as to the importance of the buying power of undocumented immigrants. The real predictor of wage disparity is not whether someone is an immigrant (regardless of status), it is lack of education. Foreign-born entrepreneurs with startups businesses have been behind 25 percent of these businesses in this country. Three quarters of the undocumented Immigrants pay payroll taxes and they contribute $7 billion In Social Security funds annually without the ability to collect Social Security.

While the majority of the children of undocumented Immigrants are born here legally and are eligible to public services and education, their parents for fear of deportation are negative impact on the economy is Just a myth; there is a net benefit to the nation’s total economic output raising it by a reported $21. 5 billion per year (USA Today). In addition, according to a study by the investment research company, Standard & Poor’s, “the cost of providing services to undocumented workers is largely offset by the economic benefits they generate. We can see why if you look at the economic effect on the country without researching your views toughly, on the surface you may be able to put together a shaky argument, but after researching the facts you do see that undocumented workers actually boost our economy, as we see in Gordon H. Hansom’s, The Economics and Policy report of illegal immigration in the United States; “the current regime of illegal immigration, despite its faults, has been efficiently beneficial to US employers that they are doubtful about the capacity of Congress to improve the situation and therefore unwilling to take the political risk of supporting reform.

The collected taxes impact our economy now while baby boomers are starting to collect their Social Security benefits they boost the system by the unconvertible funds of undocumented workers. ” Before we can understand how we arrived at the present immigration policies here in America, we must look back at the evolution of immigration and immigration policy from the 1600 to present time. Our long economic history in America has been shaped by the groups of immigrants that have settled here, what contributions to the economy they brought with them and how the immigration policy changed in response to the influx of each group of immigrants.

We will start our review looking at a few immigration groups, the changes made to our immigration policies starting with the English Settlers with traders and their contributions to the economy to present day influx of Middle Eastern and Latin origin immigrants benefiting our economy with access to low cost and back breaking labor. In the 1600 hundreds the traders that were brought by the English settlers not only brought the spices and hard goods to trade, they brought slave labor for trading as well.

This group, African slaves would grow quickly to 20 percent of the population providing cheap labor, and since they were considered property, they were not allowed to be naturalized till 1870. Many different groups came and made contributions to the economy of cheap labor with their meat processing skills, work ethic and willingness to take on highly dangerous back breaking Jobs. With each new group the policy changed; the first immigration law enacted in 1790 (after nearly a century of unregulated immigration and massive economic growth) began defining and restricting citizenship to the United States.

The act of 1790 was revised, further restricting and adding requirements for obtaining citizenship. The Asian immigrants experienced a similar exclusionary period as did the Africans; they were allowed to live in the US but were not allowed to become citizens until 1943 when the Chinese Exclusion Act of 1882 was repealed. President Ronald Reagan was instrumental in bringing forth the Immigration Reform and Control Act of 1986.

Many revisions have been made to the immigration laws, but t was never as publicized as after September 1 1, 2001 when fear of Terrorism brought the need for reform so we can exclude individuals suspected to be terrorists. Presently the immigration laws are not an easy path to becoming legal and are not family friendly because they separate parents from their American born children Just life. “America’s immigration system is outdated, unsuited to the needs of our economy and to the values of our country.

We should not be content with laws that punish hardworking people and deny businesses willing workers and invite chaos at our borders. ” George W. Bush, February 2, 2005. George w. Bush and Barack Obama did not agree on many things, but “They share a belief that the high levels of illegal immigration are an indication of the current policy being broken, and that immigrants by and large make a positive contribution to America. “We need immigration reform that will secure our borders, and….. That finally brings 12 million people who are here illegally out of the shadows…

We must assert our values and reconcile our principles as a nation of immigrants and a nation of laws. ” Barack Obama, June 28, 2008. Two Presidents, from two different political parties, with very efferent political views share the same view that our immigration system is broken. What changes should be made to the immigration policy here in America? How will those changes affect the economy? What is the moral impact on families? These are questions which divide many; philosophers, labor unions, political parties, the people within political parties, the people in nail salons and Americans in general.

Peter Brooklime (1999), a political philosopher, a ND supporter of placing restrictions on immigration that would all but end immigration to this country, believes the current immigration policies second guess the American people and Jeopardize our nation. Brimless beliefs historically were supported by Labor unions and their leaders, yet even these groups are realizing that the number of immigrant union members has been rapidly increasing (Migration Policy institute 2004) and if they do not begin to embrace the immigrants a large number of their membership base will disappear and possibly their existence as well.

To the other extreme, Walter Block argues “like tariffs and exchange controls, migration barriers of whatever type are egregious locations of laissez-flare capitalism” (Block 1998; 168). The Democratic Party says they support “immigration reform” and point fingers at the Republican Party for not having it done yet. Ironically, a Republican President supported and pushed for the most encompassing reform possible “Amnesty in 1996”. We need to arrive at a compromise of the two schools of thought.

Yes we do have to protect ourselves from terrorists and criminals, but not at the cost of our crops not being picked or produce being too high to purchase, our manicures and pedicures getting out of control price sis or our restaurants having to raise prices so high only the rich could afford to eat out. We need to also morally take into consideration families. Why should I, a second generation American( paternal side of my family) and a multi generation American( on the maternal side of my family), with children who are first generation Americans be denied my late mother in law to visit and stay with us as long as is mutually agreed upon.

The Consulate in Ecuador at first denied us a visa for my Mother in Law. I had to fight for my rights as an American to bring her home with me. They only gave her a 3 month visa. I also had to close my eyes after the three month visa expired to her being illegally in America. So America’s immigration policy made this grandmother a criminal. While we ponder on what to do about immigration we must control ourselves from falling subject to xenophobia, misconceptions and political rhetoric.

We do need to continue with researching the brings forth in their applications to come to America or that are here presently “illegally’. The paperwork involved should not be so difficult that we only further the economy by creating further Jobs in the immigration law field. If you have family here already and have been contributing to our economy through your hard work, contributing to our economy through your spending power and good civic behavior, why should you have a difficult path to legalization?

Simplify paperwork, intensify background checks of those applying and their family members here and in their country of origin, require medical examination and community service components in the legalization path. Allow those that are here to pay a nominal fee, submit simple applications to change their immigration status from illegal to in process of globalization and come out of the shadows. This will really protect our borders by knowing who is here amongst us.

Willingness to do good works for the many non- profit organizations that exist should be much more important than your financial resources in your country of origin in any path to legalization. Policy should be put in place allowing immigrants here to move from “illegal” to citizen in a reasonable amount of time with the before mentioned components built in so we can weed out the criminals not willing to live by our laws and contribute to our society and support he growth of our country, while rewarding the immigrants that with their diversity and civic responsibility add to the strength of our country.

These policies would improve the type of applicant, reduce need for expense of immigration lawyers, and reduce the need to spend on expensive man power in INS offices, and embassies, move the emphases on skilled, community minded, productive, family oriented immigrants willing to pay their taxes and contribute to diversity and economic growth of our wonderful country. We need to build a bridge between the main two arguments of public safety nickering terrorists and Jeopardizing our economy, as well as moral fiber with policies that will have protections of the many while also representing the fiber that made our country what it is.

Allowing the right wing to impose restrictions on immigration based on fear is not in the best interest of our country. In conclusion, we are a nation of immigrants. The only Americans that truly belong here is those with Native American Indian ancestry. The rest of the American population is either descendents of immigrants or immigrants themselves; some by choice and others forced to migrate due to refugee, slavery etc. Our Country was made by immigrants, and this is a supporting case point to continue allowing immigration at a fairly high level.

Chapter 7:

1. All employees’ cars must display a company parking sticker.
2. Our company’s health benefits are available immediately.
3. Will you please send me your latest print catalog?
4. The manager questioned John’s travelling first class on a recent business trip.
5. Is the bank open until 6 p.m.?
6. You must replace the ink cartridge, see page 8 in the manual before printing.
7. Justin wondered whether all sales managers’ databases needed to be updated.
8. “Health care costs”, said the CEO, “will increase substantially this year”.
9. In just two months time, we expect to interview five candidates for the opening.
10. The abbreviation GMT means “Greenwich Mean Time”, doesn’t it?

Chapter 8:

1. All Southwest Airline passengers will exit the plane at gate 14when they reach Ontario International Airport.
2. Personal tax rates for Japanese citizens are low by international standards, according to professor Yamaguchi at Osaka University.
3. The Vice President of the United States said that this country continues to seek Middle East peace.
4. My father, who lives at the Midwest, has Skippy Peanut Butter and Coca Cola for breakfast.
5. Our Sales Manager and Director of Marketing both expected to receive federal funding for the project.
6. Although the Manager recommended purchasing Dell computers, our Vice President wanted to wait.
7. Sana Nadir, who heads our customer communication division, has a Master’s degree in Social Psychology form the University of New Mexico.
8. Please consult Figure 4.5 in Chapter 4 to obtain US Census Bureau population figures for the Pacific Northwest.
9. Did you see the article in Businessweek titled, “The global consequences of using crops for fuel”?
10. Christian plans to take courses in Marketing, Business Law and English during the fall.

Chapter 9:

1. We ordered three new computers and two printers for our department.
2. Thirty-one candidates applied for three advertisement positions.
3. My company paid $500 for me to attend the three-day workshop.
4. Our UPS deliveries arrive before eleven o’clock a.m.
5. Personal income tax returns must be mailed by April fifteenth.
6. We earned 7.5% dividends on our $2000 investment.
7. Our company applied for a $100,000 loan at six percent.
8. A total of two million people attended the World’s Fair.
9. I bought the item on eBay for $1.50 and sold it for $15.
10. The store offers a 30-day customer-satisfaction return policy.

We received your comments on our new packaging. We apologize for the experience that you have received. However, we want to point out that the brown packaging is the new approach used by the company to support environmental programs. Please be rest assured that your ice cream packages were completely cleaned before using.

We are valuing our customers, especially loyal ones like you. Your patronage is the life of our organization. Please do understand that the importance we are giving you subjects us to taking care of your interests. Even though we are now expanding our contribution to environmental assistance programs, we still value your convenience as a primary aim of our company. Rest assured then that we are making sure that you receive the best service that you deserve which includes packaging systems as well.

Thank you so much for your patronage and hope you continue being our customer in the further years.

Reviewing the program outline of the event festivals of the Edinburgh International Comedy Festival, I have noticed that the said organizer has still been using the old Hard Rock logo. As part of the interest for organizational effectiveness and uniformity, I urges the Edinburgh International Comedy along with the other event organizers to employ and use in their program the new and official brand logo of the Hard Rock Café. Please do note that the Hard Rock company has already implemented this new logo and that, under legal jurisdiction the said official insignia must be used in identity of the Hard Rock establishment.

For convenience, please use the following link to acquire the new official logo of the Hard Rock establishment in the company’s website. http://www.hardrock.net.official.logo

In the usage of this new official logo, the said event can be easily promoted thus, we encourage this transition for marketing benefits. Also, expected guests and other invitees can easily identify the venue as the Hard Rock management has already launch and promoted the new logo for market saturation. On matters of not complying to this matter by the 1^st of June, the Hard Rock management is inclined to pursue legal action considering this action as a breach of the logo usage agreement between the involved party. As such, we encourage this application.

It is widely accepted that the future prosperity of Canada rests on having a well-educated workforce. Yet, the cost to students of post-secondary education has risen rapidly over the last few years as government funding has dropped dramatically. Since the early 1980s, public funding of post-secondary education in Canada has gone down by 30 percent. In addition, across Canada, about 1. 1 million full-time students were enrolled in post-secondary institutions in 2001, but thousands have been turned away because of lack of space or they have not applied for admission because the cost of tuition is too high for them.

Ontario has the second-highest tuition fees in the country. On average, tuition fees can cost an undergraduate student close to $5,000 per year. Over 80 per cent of Ontarians believe tuition fees are too high, even with the current freeze. More than 90 per cent of students voted to reduce tuition fees. Yet Ontario Premier Dalton McGuinty has announced that tuition fees will be increasing by up to 36 per cent over the next four years. Ontario’s post-secondary system, which has 18 universities and 24 community colleges, receives the lowest per-student funding in the country.

For the most part, reductions in university funding by both the federal and provincial governments explain higher university tuition. The federal cash transfer payments for education and training have been cut by $7 billion since 1993. In the 2000-2001 federal budget, only a $600 million increase was allocated for both health and education, with no real requirement that any of the money be spent on education. But the Minister of Finance was able to find $55 billion in tax cuts for corporations, the banks and wealthy Canadians.

The money is available, but the wrong choices are being made. Students are now paying higher fees for a lower quality education – less access to libraries, less lab equipment, reductions in tenured teaching staff and support staff. Tuition fees are a regressive form of taxation. In 1997, Canadians spent 19 percent more on their household budget than in 1996 on education, but their total household spending did not increase. This does not mean that families are paying more for education, but it does mean that hey are sacrificing other expenses in order to meet the cost of an education. The government is attempting to deflect anger over tuition increases by pointing to changes in student aid. But the fact is the tuition fee increase over the next four years will effectively wipe out more than the student financial assistance investment to be phased in over the same period. In fact, for every dollar invested in student aid more than a dollar will be clawed back through tuition fee increases. In effect, students are borrowing to finance their own student aid program.

A post-secondary education is now out of reach for poorer Canadians. Those who can get to college and university often end up with debts on graduation, which can range anywhere from $30,000 for a four-year undergraduate program to $60,000 for those doing graduate studies. Professional faculties can lead to much higher debts: annual tuition at the University of Toronto’s medical school, for example, was more than $16,000 by 2003, and half of Canada’s 16 medical schools were charging more than $10,000 a year.

It can all add up to a six-figure bill after graduation – one observer suggested it’s one reason why doctors are opting for specialties rather than family medicine because the pay for the former is much higher. It’s been estimated that by 2020, a four-year university education will cost about $90,000. In addition to average annual increases, students are faced with deregulated fees. Deregulation of fees happens when a provincial government abandons all guidelines and legislation and lets individual institutions have complete control of tuition fee levels.

Deregulation represents one of the most serious threats to accessibility of post-secondary education, since it always leads to massive tuition fee increases. Dentistry now costs up to $30,000 a year. Even with the maximum federal and provincial student loans and the maximum private student line of credit, this fee can’t be met. Deregulation is not a new tuition fee structure, but the downloading of the cost of education onto the backs of students. Deregulation is not limited to university fees.

Community college programs in Ontario vary from $1,700 to over $8,000 a year. It is wrong for the public to believe, and even worse for governments to promote the myth that fees can be raised without affecting accessibility. In a study released by the Maritimes Provinces Higher Education Commission in 1997, it was reported that “there are clear indications of a systemic social inequality affecting accessibility, with students from lower income backgrounds being disadvantaged in their ability to meet the financial demands of attending post-secondary institutions. “

A registered trade mark symbol that calculates the economic profit by a specific method of the Stern Stewart & Co. is referred to as Economic Value Added or EVA. It is necessary for any business to earn the profit in such a way that, besides the coverage of the costs associated with the capital, it should be able to create a surplus for the growth of the business. In other words, EVA or the economic value added is, earning the profits over or above the cost of the capital. There exist many traditional methods to measure the corporate performance.

EVA is a new measure of corporate surplus and it should be shared between the management, employees and share holders. In contrast to the traditional profit that is available to the share holders, EVA is a clear surplus and the companies use EVA as an indicator of performance. EVA is also used as a basis to the compensation of the executive. To derive the surplus, cost of the capital is deducted from the profit after the tax and before the interest. EVA= NOPAT- WACC X Capital employed NOPAT is the net operating profit before interest and after tax

WACC is weighted average cost of the capital. Capital employed = net block + trading investment + net current assets. There is no need to adopt subjective assumption when profit and cost of the capital are identified. Capital Assets Pricing Model or CAPM is the basis for the derivation of the cost of equity, and CAPM is traditionally used by the founders of the EVA. EVA is a powerful tool for the measurement of the performance. It is an argument that if company is a better performer for its share holders, it can also become a better performer for all of its stakeholders.

SWOT analysis: It is necessary to generate a frame work of strategic alternatives after analyzing the situation. It is the important to analyze the strengths, weaknesses, opportunities and threats as applied to the EVA model in the present situation. Strengths: Companies use EVA not only to evaluate the performance but also use the EVA as a basic thing to determine the incentive pay. There exists a tension between the measure of performance that has a correlation with the wealth of the share holder and the minimum influence on the random fluctuation in the stock market.

The resolution of this tension is difficult with the performance measures which are based on accounting. (Easton. P, Harris. T, and Ohlson. J, 1992). According to Stewart and Bennet (1994), the “EVA is a powerful management tool that has international acceptance as the standard of corporate governance. EVA is the integrated frame work of the financial management and incentive compensation”. The legitimacy of the principles of macroeconomics and the principles of the corporate finance are justified by the EVA.

The EVA helps to focus the energies and resources for the creation of values that are sustainable for the companies, employees, shareholders and the management. Through EVA, it is possible to meet the objectives of the business and it is also possible to create a new corporate culture. It is possible to take decisions efficiently and effectively by analyzing the decisions through the principles of EVA. Through EVA it is possible to meet directly the interests of the management and the shareholders. (Rice. V. A, 1996).

EVA is a trendsetter in the managerial performance of the economics of a corporation. Changes in the EVA in a positive way may lead to the reduction of costs, managing the assets of the company in a better way, and in addition to reducing the costs of the capital; it also helps to invest in the projects of NPV in a positive way. (Peters, 2001). Weaknesses: The EVA as a percentage of capital employed indicates a true return of the capital employed, and the EVA was compared to the traditional measures in some studies.

According to these studies the companies give a rosy picture in terms of EPS, ROCE and RONA. The traditional measures do not give a real value of the share holders and measurement of EVA has to be done based on the ideal about the value of the share holder. (Thenmozhi, M, 2000). The missing link between the EVA and improved financials is productivity and it is important to apply EVA properly. The EVA allows the firm to identify whether the return on the capital is outstripping the cost of the capital. (Ray.R, 2001).

Opportunity: The value generating power of an organization is represented by the EVA, and three factors are responsible for computing the EVA. a) adjusted earning before interest after tax b) weighted average cost of the capital c) capital employed The changes in any of these above three factors will lead to a change in the EVA. (Debdas,R,2006). The share holder value of a company is the criteria to measure its performance and a real measure of this is possible only through EVA. (Bennet Stewart, 1991).

A performance measurement model like EVA creates an economic value as it provides an opportunity to revise the policies the company that can improve the performance of its employees through educating and learning about the policies that paves the way for the success of the company. Ultimately it is the shareholder who provides the capital for the investments, acquisitions and the formation of the assets, and the company’s effort to use the best of its efforts to use the capital effectively. EVA helps in achieving this target. Threat:

The EVA is regarded as the most viable alternative that can measure the value of the share holder more accurately and comprehensively than the other available methods. (Bennet Stewart,1991). It is the variant of older residual income concepts, and it is heralded as the ‘the real key to creating wealth’ (Fortune, 1993), ‘a star to sail by’ (The Economist, 1997), ‘the key to making shareholders rich’ and the ‘new winner in the metric wars’ (Martin, 1996). EVA has it wider acceptance as the innovative measure of the performance and is implemented widely in US, Europe and Australia. (Dodd and Chen,1996).

Despite the above propositions, the EVA needs further investigation as the benefits associated with it are limited and weak to support the claim that EVA is beneficial. (Ittner and Larcker, 1998). As has been stated by some researchers that the EVA that is implemented across the organizations is similar, contradictions exist in that there is diversity in the implementation of EVA in different organizations. (Malmi and Ikaheimo, 2003). There is a need for a thorough study of the EVA that examines “the key implementation issues influencing the success or failure of various economic value measures”(Ittner and Larcker, 1998, p.214).

This type of study helps “ in providing a more a more comprehensive understanding of why VBMs value based management tools such as EVA fail, or identify whether there are contingent factors that might explain differences in such practices” (Malmi and Ikaheimo, 2003, p. 249). Introduction: Shell Oil Company, an affiliate of the Royal Dutch Shell Company is an international company of Anglo Dutch origin and is largest of the oil companies of the world. The company is the market leader in the supply of gasoline and it has a 50percent ownership with Saudi Aramco, an oil company owned by the government of Saudi Arabia.

It has 80% holdings with Pecten, an oil exploration firm that performs explorations at various offshore locations. The business of the company was independent in United States with its stocks traded on NYSE. The group head offices have a little role in the American business. Even after its acquisition by the Shell Company in 1984the business of the Shell oil was independent, and the independence was gradually decreased with the interference of the companies in running the business. The company has been issued violation for its infringements in the of the clean air act.

The company has initiated a sustainable energy programme that promotes sustainable energy. Merger and acquisition: The desire of a company to grow vertically and horizontally is fulfilled by the process of mergers and acquisitions in contrast to the organic growth where the development of the company from within is slow and difficult.

It is the strategy of the big companies to search for the targets that have the potential for mergers and acquisitions. A senior person of the company takes decisions, and these decisions are based on the policy of the company whether to diversify or expand by continuously scanning the business world.Mergers and acquisitions make an impact on the organization with changes in the ownership, and in ideology.

References:

Debdas Rakshit. (2006), EVA based performance measurement, A case study of Dabur India Limited Vidyasagar University Journal of Commerce, Vol. 11, pp. 1-21, March 2006 Dodd, J. L. and S. Chen. (1996). “Economic Value Added (EVA). ” Arkansas Business and Economic Review, Vol. 30, No. 4, pp. 1-9. Easton, P. , Harris, T. & Ohlson, J. (1992), “Aggregate Earnings can explain most security returns”, Journal of Accounting and Economic, June – September.

Ittner, C. and Larcker, D. (1998) “Innovation in Performance Measurement: Trends and Research Implications”, Journal of Management Accounting Research, 10, pp. 205-238. Malmi, T. , and Ikaheimo, S. (2003) “Value Based Management practices – Some evidence from the field”, Management Accounting Research, pp. 235-254 Ray, Russ (2001), “Economic Value Added: Theory Evidence, A Missing Link”, Review of Business, Vol. 22, No. 2, Summer 2001. Stewart, G. Bennett (1994), : Fact and Fantasy”, Journal of Applied Corporate Finance, Summer, Vol. 7, No. 2, 1994, pp. 71-84.

Section 1: “Cigarette tax hike sparks panic buying” By Ashley Hall Updated Thu Apr 29, 2010 What is the main issue presented in the media report? Discuss what has actually happened: In the year of 2010, the Federal Government raised taxes on cigarettes by an extra 25 per cent, resulting in an increase price of $2. 16 to every pack of 30 cigarettes. A proclamation stated by Prime Minister Kevin Rudd on the crackdown on Internet advertising of cigarettes was mentioned. Mr. Rudd also affirmed ‘the government will spend $27. million on an anti-smoking campaign (Hall, 2010) This media report outlines the publics impulsive buying of cigarettes upon the government’s mention of the very rapid increase in taxes, thus resulting in an upward increase in price. It mentions the dismays retailers and tobacconists faced due to the tax hike. Further more, mentioning the concerns of philanthropists and other individuals. Highlight the reason for the issue being raised: This issue was one that arose quite soon after its announcement, as it impacted the country in its majority in numerous ways.

The justification behind this issue was the government’s lack of planning. The release of the tax hike occurred only several hours before its prospected start of midnight that night, which ultimately left little or possibly even no time to adjust and prepare for the subsequent price increase. (Hall, 2010) Outline what possible impacts this change could have: The unexpected change posed many impacts on an abundant area of the population. The change impacted the consumers (smokers), the suppliers/producers, retailers/tobacconists, charity workers and the government.

The sudden publication of the price increase would lead to a majority of smokers purchasing larger amounts of cigarettes than usual, in an attempt to purchase the product at a cheaper price rather than at its increased price. The retailers/tobacconists face the prospects of higher demands and physical impossibilities such as lack of stock and time to prepare. Although on the contrary as stated by the executive director of Quit Victoria “100,000 people will quit smoking as the result of the price increase and 250,000 children will not take up the habit”. (Hall, 2010)

From another viewpoint, the rapid increase in tax had an immediate negative impact on the number of people seeking assistance. This is solely the case, as a widely held proportion of smokers come from low-income groups, “In fact, people from low-income groups are 13 times more likely to quit smoking in the face of a prime increase than those from higher income groups”. (Hall, 2010) Who are the key stakeholders that are impacted by the issue outlined in the report? The key groups that may be impacted by the issues raised in this report are ultimately the key stakeholders; i. e. he customers, suppliers, regulators and competitors. The customers (smokers) are faced with the increased price on packets of cigarettes. Which ultimately puts an excise burden on consumer’s income. The suppliers were faced with a rapid increase in demand in the hours before the implementation of the tax increase, and perpetual demand between the periods after the tax. This is due to the notion that smokers are not willing to go cold turkey over night simply due to an increase of $2. 16, but ultimately the possible immediate decline in number of packets bought/sold in the event prior to the tax increase.

Suppliers are also faced with the concern of consumers opting for substitute goods (This means a good’s demand is increased when the price of another good is increased) for example replacing cigarettes with chewing gum (even considering that cigarettes are inelastic). (McTaggart, 2010) Regulators, which in this case are the Government, are faced with constant scrutiny regarding their decisions and lack of planning. However, this tax hike increased an extra $5 billion over four years, which the Government would put towards its health and hospitals overhaul (Hall, 2010). So evidently, back into the economy.

An increase in people seeking assistance will also place possible strains on charity workers, as people will continue to spend money on cigarettes rather than necessities. Competitors are also faced with a possible increase in demand, as the price of one good is increased, the demand of the substitute good is increased (McTaggart, 2010). Students and groups of people from low socioeconomic status will be directly affected the greatest. For those who come from high-income classes, their wages are generally increasing as the 25 per-cent increment is implemented, which ultimately does not substantially affect their income as a whole.

However, students and people from low socioeconomic status groups are giving up necessities of life to feed their smoking addictions. What economic theories can be dawn from this media report? Opportunity cost: Graph 1: The theory of Opportunity cost (Graph 1): the amount of other products that must be sacrificed to obtain an extra unit of any product. The opportunity cost refers to the benefit forgone from the best alternative use of resources. (McTaggart, 2010) As the economy moves from point B towards point C, it must give up successively larger amounts of good B to obtain the same equal increment in good C (Layton, 2009).

In relation to cigarette tax, people from lower income groups are giving up the necessities in order to feed their smoking addiction. Demand, Supply and Elasticity: Graph 2: The demand for cigarettes increased during the period of the government’s announcement and until midnight when the price increase was implemented: i. e. a change in consumer’s expectations about future prices brings forward an increase in consumption. (McTaggart, 2010) Graph 3: Change in demand is where the demand has shifted to the left hand side. Rise in price will see a greater quantity supplied (quantity will rise), shift in supply curve. McTaggart, 2010), (Layton, 2009). From midnight the equilibrium shifted to the left side along the demand curve by the price increase. As the result, as it was mentioned above, the quantities demanded decreased, due to the tax increase. Result in consumer and producer paying the burden of the tax increase. (McTaggart, 2010) Section 2: “Apple Shares hit as iPhone sales Fall Short” Sky News Oct 19, 2011 What is the main issue presented in the media report? Apple, one of the leading technological companies in the world has recorded revenues uncharacteristically short of expectations.

Wall street analysts predicted iPhone sales during their fourth quarter earnings to be ’20 million sales’, with a short fall of ’17 million sold’. With overall revenues recorded at $28. 3 billion, substantially short of expectations (Sky News, 2011). Apple new chief executive ‘Tim Cook’ does not seem concerned about the recorded short fall of the company since the passing of Co-founder Steve Jobs. Recorded losses in revenue for Apple fourth quarter could be significantly the result of many factors (Sky News, 2011). The main contributing factor, being the short after release of the iPhone 4s.

Due to the release of the iPhone 4s, consumers were withholding from purchasing older models of the iPhone, with the thought ‘I would rather wait a litter longer to purchase a new and updated version’. Ultimately the thought of consumers’ posses’ greater opportunity for Apple sales in the future but resulted in revenue falling short in their fourth quarter. The recorded revenue had a negative impact on the company. With the actual versus predicted sales of the iPhone falling short, Apple shared dropped 5% upon the announcement (Sky News, 2011).

A drop in share price negatively affected the company, especially since a drop in share price has now only occurred since the passing of co-founder Steve Jobs. A drop in share price could result in consumers questioning whether they should continue to purchase Apple products, or if the drop in share price is a signaling factor that there is a higher demand for substitute goods. This could be the case as many other leading technological companies are constantly trying to innovate new and improve models of phones, laptops and tablets to keep up with Apples constant improvements.

For example Samsung release of their new tablet caused large amounts of disputes between themselves and Apple, as Apple saw a large opportunity for threat to sales of their iPad. Although this is the case, the new iPhone 4s has sky rocketing sales of four million in its first three days on the market. As new chief executive ‘Tim Cook’ said: “customer response to iPhone 4s has been fantastic, we have momentum going into the holiday season, and we remain really enthusiastic about our product pipeline. ” (Sky News, 2011). Who are the key stakeholders that are impacted by the issue outlined in the report?

The key groups that may be impacted by the issues raised in this report are ultimately the key stakeholders; i. e. the customers, suppliers, shareholders and competitors. The customers are ultimately those who predict they continuing success of the company, without customer sales Apple would not exist. The hit of Apple shares could negatively impact consumer sales. A decline in the share price could signal a train of though in consumers mind that possibly there is a need for greater innovative or the threat of higher competitors in regards to Apple products.

If consumers are being told that a company is recording predicted short falls in their expected revenue consumer might be apposed to their products, resulting in customers opting for substitute goods. (McTaggart, 2010) The suppliers in this report are in fact Apple and all other retailers that stock Apple products. The short fall of iPhone sales resulted in a decrease in revenue. Which ultimately lead to a decrease in the price of Apple shares. A decrease in share price could lead to a decline in possible sales, which results in a supplier surplus.

Suppliers have a greater number of products to sell in relating to consumers who are interested in buying their product (McTaggart, 2010). In the event of the release of the iPhone 4s, suppliers are faced with higher consumer demand, which could result in a shortage of iPhone 4s in relation to consumer demands. Apples brand name and reputation is a very important asset to the company, with this issue being raised, it could have an impact on one of their largest assets. Shareholders, are those individuals or companies who have financially invested an interest in Apple, a decrease in share price negatively impacts shareholders.

Decline in the share price by 5% results in a decrease in the value of shareholders wealth. The final group that is impacted by issues of a decline in Apples share price is competitors. This could have a positive impact to competitors. Negative public announcement over such a large and dominant company could result in a substantial amount of consumers opting to purchase products competitors offer, simply due to the decisions of other individuals. A consistent pattern in the public shows, that if a product is negatively represented in more than one way consumers will be very reluctant to purchase that product.

Resulting in a positive advantage for competitor’s products. The group that would be impacted the most would be the suppliers. They are the key foundation of the company, without continued success the company could face greater hardships and decline in sales leading to a decline in revenue and share price as which occurred in the month of October 2011. What economic theories can be drawn from this media report? Supply and Demand: Graph 1: Demand curve during period of Apple reporting shortfall of sales and decreased revenue in recording during their fourth quarter.

The graph above is a representation of changes in demand. Apple change in demand during this period is caused by consumer expectations, tastes and preferences. Where the soon to be released iPhone 4s resulted in the decrease of current iPhone sales. (McTaggart, 2010), (Layton, 2009). Graph 2: The Above graph is a representation of the supply and demand curve during the first release of the iPhone 4s. The supple curve remains constant (from period before and after the release of the iPhone 4s). Where significant changes occurred in relationship to the demand curve.

The increase in demand which resulted in a right ward shift of the demand curve was a direct result of ‘taste or preferences of consumers’ a key determinant in the changes in demand (Layton, 2009). This was the case as consumers withheld from purchasing older models of the iPhone with anticipation of purchasing the newer and improved version of the iPhone (iPhone 4s). This resulted in Apple experiencing greater quantities demanded as stated in the article “iPhone 4s has sky rocketing sales of four million in its first three days on the market”. Change in demand results in change in new equilibrium (Sky News, 2011). References:

McTaggart, D. , Findlay, C. , and Parkin, M. (2010), Economics, Sixth Edition, Addison-Wesley, Sydney Lecture Slides, Blackboard, University of Technology, Sydney, Insearch (2011), Economics for Business Unknown. 2011, ‘Apple shares hit as iPhone sales fall Short’, Sky News, YAHOO, viewed 4 November 2011, http://news. yahoo. com/apple-earnings-hit-drop-iphone-sales-220800212. html Layton, A. , T. Robinson and I. Tucker (2009), Economics for Today, Cengage Learning Australia, Australia: South Melbourne. Faculty of Business (2010), Guide to Writing Assignments (3rd ed. ), Faculty of Business, University of Technology, Sydney

Tax incentives have been an integral part of Singapore’s economic development strategy since the 1960s. For more than 30 years, tax incentives have been used to attract investments and create jobs. Now we are the focal point for foreign investments, research and development and services in Asia. Over the years the government has introduced a wide range of tax incentives for a balanced economic growth of the various business sectors.

This paper analyses how these incentives play a part in attracting foreign capital inflows to enhance the financial and industrial sectors in Singapore and their effectiveness in achieving our goals.  Purpose The purpose of this research is to gain an understanding of the tax incentives scene in Singapore, how it works and it effectiveness in achieving our aim of being a vibrant and robust global hub of knowledge-driven economy.

As part of our research, the following questions were asked to direct us on our study:  What are the tax incentives available under the ITA, EEIA and DTA to attract foreign capital inflows?  How effective are these tax incentives?  Methodology We derived our information from books, online journals and other internet resources.

The Birth of the Income Tax Act, EEIA and DTA From a small fishing island to a cosmopolitan country within a p of 44 years is what Singapore has become today, with per capita GDP equal to that of the leading nations of Western Europe (Central Intelligence Agency, 2008).

As a small island with limited, or rather, no resources to depend on, we have simply taken the world by surprise through the phenomenal economic growth that has taken place in a short period of time (Fordham, 1992)[2]. Our only resources are fish and deepwater sea and despite all the limitations that we were faced with, we have secured a place in the world map as the leading financial, educational, services, manufacturing and research and development hub. Then, “what is the clandestine of our achievements? ” is the question that arises in all our minds.

After being separated from Malaya, the government’s ambitious plans for the country to be industrially developed seemed too far-fetched especially with no natural resources to call its own (Fordham, 1992). It did not, however, relent to the fact that achieving its goals is uncertain now with its given economic state. Its leaders knew at that time Singapore needs to promote investment in new industries so that its goals can be achieved. Being under developed and with no achievements or resources to call its own, it was a palpable fact that Singapore had to make radical changes to attract foreign investors.

This is when tax incentives were spotted as a viable option to magnetize foreign capital inflows. The pre-existing Income Tax Act (1948) was evaluated to see how tax incentives could be integrated to accomplish these aspirations. Along with this, in 1967, the Economic Expansion Incentives Act (EEIA) was first introduced to solidify the expansion and development programs that were being carried out by the Economic Development Board (Fordham, 1992). In early 1960s, Singapore recognised the need for a dynamic manufacturing sector and export policies to draw MNCs so that we could be used as a production base to export goods worldwide.

As a result of these aims, EEIA was introduced to grant tax benefits to manufacturing companies setting up production in pioneer areas in Singapore (Fordham, 1992). The development of international trade and multi national corporations has increased the issue of double taxation. As a company or individual looking beyond your own country for business opportunities and investments they would naturally be concerned with the problem of double taxation. Consequently, they would seek to structure your operations at a minimum tax cost. This is where DTAs or tax treaties come into play 2.

Incentives Available Under ITA to Attract Foreign Capital Inflows

Singapore has always been maintaining a competitive tax rate by being the lowest among the developed countries. Its purpose is to create an encouraging business environment for economic expansion (Tan, 1996). According to GuideMeSingapore, 2008, a web portal providing one-stop information on Singapore’s business environment to entrepreneurs, commented that “Singapore is often cited as the leading example of countries that continues to reduce corporate income tax rates and introduce various tax incentives to attract and keep global investments”.

This is obvious in the frequent lowering of corporate tax rates since 1987. In 1989 the corporate income tax was reduced to 33 percent from 40 percent to follow the worldwide trend of lowering corporate taxes. The corporate tax rate was further lowered in 1990 to 31 percent to encourage multi-national companies (MNCs) to locate their treasury and financial operations here (Tan, 1996). From then on, corporate tax rate has been gradually decreasing.

In 2004 corporate tax rate was reduced to 20 percent and with the release of the 2009 budget speech, corporate taxes will be cut to 17 percent in 2010. The aim of these reductions is to help businesses to curb operational costs so that Singapore can gain a competitive edge in continuing to attract high-tech and high value-added investments (Liu, 2007). From our research we found that there are several tax incentives in place to pull foreign investments to Singapore (IRAS, 2008) and we will be focusing on those that are relevant to our study.

Deduction for Expenses on Research and Development Project (R)

This incentive was introduced in 2003 to allow company to deduct a second round of qualifying expenses from its income in addition to the automatic first deduction allowed under section 14D. Further amendments were made in 2008 to entitle companies for an automatic 50 percent tax allowance (PWC, 2008). This R allowance can be used to offset against the company’s chargeable income for the next 3 years (i. e. 2009 to 2013) to motivate companies to carry out more R projects.

This is coupled with meeting our aim to be a research and development hub in the global arena (MOF, 2008). After the introduction of the tax incentive, total R expenditure increased from $3. 4 billion to $4. 6 billion in 2005 (Lai, 2007). Majority of the R spending was contributed by the private sector, whose gross expenditure on R (GERD) increased by 1. 2 percent. By the end of 2005, GERD was at 2. 4 percent of GDP. Singapore had surpassed the EU-15’s and the Organisation for Economic Co-operation and Development’s (OECD) averages of 1. percent and 2. 3 percent respectively (Lai, 2007). The increase in figures shows the effectiveness of the tax incentive program. According to the report, this figure is still lower compared to U. S (2. 7 percent) and Japan (3. 0 percent). Considering the fact that these countries are bigger in land and population size, our achievement is still commendable.

Concessionary Rate of Tax for Approved Headquarters Program

The purpose Headquarters Program was to encourage multinationals to base their main back offices in Singapore. This was to be achieved through reduced tax rate which is applied primarily to large-scale multinational corporations that relocate the management and headquarters functions of their subsidiaries and affiliates from other countries to Singapore. Section 43E of Income Tax Act provides that companies with their substantial operations located here can qualify for a 10 percent concessionary rate of tax (IRAS, 2008). This tax incentive has pulled and is continuing to pull foreign venture capitalists who provide the foreign capital infows.

One such company is Societe Generale who received the OHQ award in January 2000. Besides this, Legg Mason Asset Management, Deutsche Asset Management, Merrill Lynch Mercury Asset Management and Zurich Scudder Investments are a few that were named in the MAS publication on New Initiatives for Enhancing Financial Sector Expertise, 2001. The motive for large-scale multinationals to relocate in Singapore is not only because of our highly advanced infrastructure, telecommunication and information facilities.

It is also due to the support and encouragement that our government has been continuously offering through such tax incentives.

Concessionary Rate of Tax for Finance and Treasury Centre (FTC)

Foreign and Treasury Centre was introduced with the aim to entice foreign corporations to use Singapore as a base for conducting treasury management activities for related companies in the region. Under this scheme, foreign companies can enjoy a 10 percent concessionary tax rate from fee income from FTC subsidiaries, related companies and associates for provision of FTC services.

According to Mr. Lee Chuan Teck, Executive Director for Financial Markets Strategy in MAS, by 2006 a total of 600 companies had chosen Singapore as their focal point to operate their financial services (MAS, 2006). According to the Survey on Corporate Risk Management Practices, 75 percent of the foreign MNCs cited EDB’s incentives as a reason for relocating their treasury centres in Singapore (Craig, 1997). This tells us the success of this incentive. 4.

Concessionary Rate of Tax for Financial Sector Incentives (Fsi)

The FSI scheme offers a concessionary tax rate of 5% for qualifying high growth and high value-added activities and 10% for mature but tax-sensitive activities. The FSI is a measure designed to invite the front and back offices of multinational financial groups to Singapore so as to meet our overall goal to be a leading centre for competence in knowledge-driven activities and a choice location for company headquarters with responsibilities for product and capability charters (Geeta, 2002). Singapore’s vision is to be a pre-eminent financial centre in Asia.

Technopreneurship 21 is the initiative that the government launched to achieve this goal. FSI plays a key role in attracting foreign multinationals to start-up their financial services in Singapore so that its dream of becoming a financial hub in the international arena can materialize. How far have been successful in this attempt is the question that we should be asking. As at 2005, 24 foreign full service licensees, 35 wholesale licensees and 46 offshore licensees operated in Singapore. Statistics provided by EDB (Embassy, 2006) for 2005 shows that foreign financial institution J.

P Morgan Securities Asia, U. S. based MNC, had assets totalling up to US$14. 5 billion in Singapore. Singapore Department of Statistics reported that the financial and insurance services sector had generated US$49,223 of Foreign Direct Investments in 2003. That is 34 percent of the total FDI for that year (Embassy, 2006).

Global Trading Company was launched to facilitate and develop international trading activities. The GTP is a merger of the Approved Oil Trader (AOT) and the Approved International Trader (AIT) programmes. The programme encourages global trading companies to use Singapore as their regional or global base to conduct activities along the total trade value-add chain from procurement to distribution, in order to expand into the region and beyond (IEsingapore, 2009). Over the years, the programme has attracted a vibrant cluster of global trading companies to hub their strategic business functions in Singapore. These companies are key players in their respective industries such as oil trading, petrochemicals, agri-commodities and metals (IEsingapore, 2009).

Minister for Trade and Industry, Mr Lim Hng Kiang announced in his speech during the Global Trader Networking Cocktail 2008 that in 2007, offshore trade by companies under IE Singapore’s Global Trader Programme, GTP, grew more than 30% to reach over US$465 billion. These companies employed over 7,000 staff and contributed S$7. 8 billion worth of total business spending. Much of the spending was in shipping, freight management and storage services, lending further testimony to Singapore’s strengths as a logistics and auxiliary services hub.

From a modest start of 25 companies in 1989, there are currently more than 230 companies under the GTP (MTI, 2008) . 3. Incentives Available under EEIA Tax incentives available under EEIA are discussed below (IRAS, 2008).

The first aim of Pioneer Industries was to attract capital from both local and foreign companies who invest in new industries in Singapore. This incentive was introduced to draw investment in innovative areas to enhance Singapore’s industrial development (Fordham, 1992). Companies which qualified for PI were given a full tax exemption on qualifying profits for a period of time ranging from 5 years to 15 years. Implementation of this incentive saw a surge in the number of manufacturing industries that were set up here. By 1997, petroleum industries and electronics industries were dominating the Pioneer Manufacturing Establishments. MNCs like Exxon, Shell Sumitomo, Seagate, Hewlett-Packard and Compaq were already located here then contributing a total of S$117,104 million of foreign equity investment in Singapore (H H, 1997).

As at 2004, the qualifying activities include services such as medical, publishing, education, automated warehousing facilities, exhibition and conference, financial, venture capital fund activity and so on (H H, 1997).

Development and Expansion Incentive (Dei)

This incentive is granted mainly to manufacturing and service industries that are engaged in capital investment to upgrade or modernize production capacity. The purpose of this incentive is to encourage greater growth and attract more companies to move into higher value-added activities.

Under this scheme, eligible companies are entitled to preferential corporate tax rates for qualifying profits above a pre-determined base for a specific period (SPRING Singapore, 2008). According to the statistics collated by Ministry for Trade and Industry, the total investment by foreign companies in Singapore in development projects increased from$6,608 in 1997 to $17,187 in 2007.

Overseas Enterprise Incentive (Oei)

OEI was put in place to encourage local businesses to invest in a venture company, technology investment company or overseas investment company. OEI provides tax exemption on the qualifying income. Overseas investment should result in new business opportunities, activities as well as new technology to be introduced in Singapore. For instance DBS Bank, Bakerzin and Charles and Keith are a few prominent local bred companies which have ventured overseas. DBS Bank, Singapore’s local bank, has ventured into countries like Thailand, Hong Kong, India, Japan, U. S and many more (IESingapore, 2008). Bakerzin has franchises in KL, Jakarta, Shanghai and US while Charles and Keith had ventured into the Middle East and Asia Pacific markets (IESingapore, 2008). Effect of DTA in attracting foreign capital inflows According to the Inland Revenue Authority of Singapore, we have 59 Double Taxation Agreements with various countries. These treaties were signed to relieve taxpayers from the burden of double taxation when they repatriate their earnings to their home country. These treaties aim to offer relief from double taxation, either by way of tax credit, tax exemption or a reduced tax rate. These reduced rates and exemptions vary among countries and specific items of income.

Treaty provisions generally are reciprocal (apply to both treaty countries). Only Singapore tax residents and tax residents of the treaty country can enjoy the benefits of a DTA. Signing of these treaties has resulted in increased foreign investments from countries such as Europe, U. S. and Japan. In 1996 the total foreign investments was $125,274. The major investors then were Japan, Europe and U. S. In 2006 the investments rose to $363,935 and the major players are Japan, Europe, U. S, European Union and South and Central America and the Caribbean.

Conclusion

Policies have been the driving force for a small nation like Singapore to achieve so much within a short period of time. With no natural resources, foreign capital inflows in the form of foreign direct investments has played major part in shaping our nation to what it is today. With less to offer, tax incentives are one of the key reasons that had attracted many foreign companies creating a pool of foreign capital inflows. Our research on the various tax incentives has showed us that, indeed, they were effective enough to attract foreign companies to locate here with their technology and know-how.

The early years efforts to industrialize our economy paid off and that had enabled us to improve our air and seaport facilities, telecommunication, information technology, warehousing and logistics facilities. Tax incentives have been working in the background and today these are some of our achievements (www. sedb. govs. sg): Now as we move towards being knowledge based economy with technopreneurial goals, our tax incentives have been further enhanced through the R deductions and allowing more activities to be qualified under the Pioneer Industries.Thus in our opinion, the tax incentives offered under ITA, EEIA and DTA have been effective in attracting foreign capital inflows which have shaped our country thus far.

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Background Paper: Obstacles to cross-border listings and acquisitions in the financial sector A. Purpose of the paper In September 2004, the informal Ecofin Council in Scheveningen discussed the issue of lagging crossborder consolidation1 in the banking area. This low level of cross-border consolidation is not confined to banking, but is relevant for the whole financial sector, with some nuances. In the upcoming Financial Integration Monitor report, the Commission will dedicate a chapter on the quantitative aspects of crossborder restructuring, confirming the trends discussed in Scheveningen.

Indeed, between 1999 and 2004, the report will show that cross-border mergers and acquisitions (M&As) accounted for around 20% of the total value of M&As in the financial sector, whereas cross-border deals represented 45% of M&As in other sectors over the same period. 2 Finance Ministers asked the Commission to examine possible explanations for this low level of pan- European restructuring specific to the financial sector, by reviewing the obstacles to cross-border M&As, in order to identify possible internal market failures, gaps or shortcomings.

It should be stressed that the role of the Commission is to ensure that existing EU law is enforced properly, as well as to propose growth-supportive actions, within the context of the overall EU competitiveness policy. It must be equally clear that the Commission does not intent to favour specific business models or to influence individual market decisions, as long as they are compatible with the Treaty rules and the EU secondary law.

On that basis, it is the role of the Commission to analyse market functioning, in order to detect any unjustified obstacles that would hamper companies in making their own decisions regarding their business organisation in the Internal Market. The misuse of the supervisory powers to block cross-border mergers has been identified by Ministers of Finance as a possible obstacle to cross-border mergers and acquisitions. The Commission has already taken steps to improve and clarify the current provisions in the relevant directive, to avoid such situations.

At the same time, there may be other factors explaining the lack of cross-border mergers in the financial services sector, when assessed against the domestic consolidation3 process. This paper tries to draw a first list of potential obstacles to cross-border mergers, i. e. obstacles that would make a cross-border merger less attractive, more expensive or more complex than a domestic merger. It covers the whole financial sector, trying to distinguish between market segments when relevant. Obstacles to consolidation in general (i. e. bstacles that impede domestic consolidation as well) are not covered. Obstacles to forms of integration other than cross-border M&As (such as direct cross-border provision of services) are also out of the scope of this paper, even though some obstacles might be relevant for different channels of integration. This list is aimed at providing all possible explaining factors, in order to serve at a later stage as a base for discussion on which of those obstacles should, and could, be removed in order to achieve the objective of improving the functioning of the Internal Market for financial services.

It is not a policy paper, but a first analysis of the explanations behind the facts discussed at the Scheveningen informal Ecofin Council. 1 Cross-border consolidation means in this paper consolidation involving entities located in different EU Member States. 2 The full study will be published in the “Financial Integration Monitor – 2005”, due in May 2005. 3 Domestic consolidation is to be understood as consolidation occurring within a single EU Member State.

DG Internal Market and Services – April 2005 IPM survey on obstacles to cross-border mergers and acquisitions 2 In its present form, the paper does not distinguish between those obstacles that are key to explain lagging cross-border consolidation, and those of a more anecdotic nature. In addition, some obstacles mentioned here might be not relevant any more, but they may have influenced the situation of the past few years and could therefore provide part of the explanation for low cross-border consolidation up to now.

However, we tried to mention the ongoing developments related to each obstacle identified. Introduction To Cross Border Listing The last two decades has witnessed acceleration in financial globalization represented by an increase in cross-country foreign assets. This has been the consequence of the international liberalization of capital flows as well as of the technological progress. These two phenomenons have lowered the barriers among individual national capital markets; however, geography has not become irrelevant.

Obstacles to international capital flows (mainly the legal restrictions and costs associated with trading and acquiring information on firms listed abroad), i. e. the segmentation of markets, still exist. These barriers are creating incentives for corporate managers to adopt financial policies such as international cross-listing. For example, the US exchanges over the last few decades have attracted a sizeable share of the cross listed firms. Reasons for Cross border Quotation

Cross border listings can help the company raise more capital by targeting new shareholders. However not all cross border listing are accompanied by share placements as this may affect liquidity and share price. Publicly-listed foreign corporations would therefore undertake to list on overseas exchanges for a variety of reasons: 1. To boost its status as a truly global player. 2. To raise Capital through debt or equity. 3. To increase trading volume. 4. To improve shareholder relations. 5. To enhance its visibility among overseas investors and consumers. 6.

To tap into retail and institutional funds and benefit from changing global attitudes toward equity investing Challenges and recommendations of cross border listing There are challenges that happen to exist when considering cross-border listing for a company or country in general. First of all, potential investors located in the secondary market might be reticent, unwilling to trust and invest in a foreign firm on the market. In such a way, the company might lose prestige rather than gain more of it whilst entering a foreign xchange market. Secondly, barriers exist between countries; the real challenge might be the attitude regarding foreign firms entering a local market; this encompasses shareholder attitudes from an internal point of view of a company, as the latter might not be willing to go abroad in certain cases. Furthermore, political attitude of the secondary market’s country plays a great role in the presence of barriers. Restrictive political attitudes might give rise to more barriers than usual to those wishing to enter the exchange market.

This might also be the case the other way round, more precisely, regarding political stability; meaning that political instability in a country results in the market to be more risky and potentially unprofitable for the external firm. Another challenge is the element of uncertainty concerning policy factors such as taxation, accounting and financial standards and mechanisms but also the country’s economic and financial policies that might change, for example in the case of a change in political regiment.

Such a change, if radical in some cases can become very challenging in terms of adaptation for the firm. . Methodology The paper tries to distinguish between three generic categories of obstacles: (i) Execution risks: those are obstacles that may pose a threat to a successful outcome of a bid, or may well result in the blocking of a deal. This category also covers obstacles because of which the expected result of a bid may not be what could be expected, even though the bid itself was successful.

Obstacles in this category may not materialize and therefore may not have a direct cost, but their simple perception may deter potential bidders, or target entities and their shareholders, from initiating a merger process. (ii) One-off costs: those are specific costs that are caused by the execution of the cross-border deal, and would not exist in a domestic merger or acquisition deal. (iii)On-going costs: those are additional costs in the management of the merged entities, once the merger is achieved, which would not exist in the management of merged entities within the same domestic arket. Those costs can be direct (additional costs to manage the entities merged cross-border compared with the entities merged domestically) or indirect (lower synergies within the entities merged cross-border that within the entities merged domestically). The identified obstacles are also grouped according to their nature: legal barriers, tax barriers, implications of supervisory rules and requirements, economic barriers and attitudinal barriers. A summary table is enclosed at the end. * * * C. Identified obstacles to cross-border mergers

I. Legal Barriers a) Execution risks 1. Cross-border takeover bids are complex transactions that may involve the handling of a significant number of legal entities, listed or not, and which are often governed by local rules (company law, market regulations, self regulations). Not only a foreign bidder might be disadvantaged or impeded by a potential lack of information, but also some legal incompatibilities might appear in the merger process resulting in a deadlock, even though the bid would be “friendly”.

This legal uncertainty may constitute a significant execution risk and act as a barrier to cross-border consolidation. ?? The new Takeover Bids Directive (2004/25/EC), adopted on 21 April 2004, lays down common rules in order to ensure greater legal certainty for cross-border takeovers. The Directive has to be transposed by May 2006. DG Internal Market and Services – April 2005 IPM survey on obstacles to cross-border mergers and acquisitions 3 2. The financial sectors of some Member States include institutions with complex legal setup resulting in opaque decision making processes.

An institution based in another Member State might only have a partial understanding of all the parameters at stake, some of them not formalized. Such a situation might constitute a significant failure risk, as a potential bidder might not have a clear understanding of who might approve or reject a merger or acquisition proposal. 3. In some cases, legal structures are not only complex but also prevent, de jure or de facto, some institutions to be taken over or even merge (in the context of a friendly bid) with institutions of a different type.

Such restrictions are not specific to cross-border mergers, but could provide part of the explanation of the low level of cross-border M&As, since consolidation is possible within a group of similar institutions (at a domestic level) whereas it is not possible with other types of institutions (which makes any cross-border merger almost impossible). 4. In some Member States, the privatization of financial institutions has sometimes been accompanied by specific legal measures aimed at capping the total participation of non-resident shareholders in those companies or imposing prior agreement from the Administration (i. . “golden shares”). Some of such measures were clearly discriminatory against foreign institutions, when it came to consolidation. ?? The European Court of Justice has indicated that such measures were not justified by general-interest reasons linked to strategic requirements and the need to ensure continuity in public services when applied to commercial entities operating in the traditional financial sector. See for instance cases C-367/98 (judgement of 4 June 2002) or C-463/00 (judgement of 13 May 2003). 5.

In some Member States, company law allows the company boards to set up defence mechanisms, such as double voting rights and poison pills, to prevent any hostile bids. Such asymmetries in company law might distort the level playing field within the EU, and protect national markets, sometimes to the benefits of participants in these markets. ?? The initial Commission’s proposal for the new Takeover Bids Directive (2004/25/EC), adopted on 21 April 2004, included the approval of shareholders before activating defence mechanisms to counter a takeover bid.

This provision has been repelled by the European Parliament and the Council. In the adopted text, Member States may decide to forbid such arrangements (i. e. opt in). 6. Even if an acquisition is successful, there may exist impediments to effective control, i. e. there may be a risk that the acquiring company does not acquire proportionate influence in the decision making process within the acquired company – while being exposed to disproportionate financial risks. This can be explained notably by the existence of special voting rights, ineffective proxy voting or use of the Administrative office by a foreign acquirer.

Also barriers (or restrictions) to sell shares could hamper the process. ?? As mentioned in §5, the Commission’s initial proposal for a new Takeover Bids Directive tackled some of these issues, but some provisions were taken out of the final version during the co-decision procedure. Also, as part of the Corporate Governance Action Plan, the Commission opened a consultation on the exercise of Shareholders’ rights which was closed in December 2004. 7. Differences in national reporting schemes, notably as regards accounting systems, may result in difficulties to assess the financial situation of a potential target. ??

From January 2005, listed EU companies will be required to publish their consolidated accounts using International Accounting Standards, as endorsed by the Commission. Member States have the option of extending the requirements of the IAS Regulation (EC 1606/2002) to unlisted companies and all banks and insurance companies and to the production of non-consolidated accounts. DG Internal Market and Services – April 2005 IPM survey on obstacles to cross-border mergers and acquisitions 4 b) One-off costs 8. The national laws of some countries might include restrictions on the type of offers that can be executed (i. e. ash only vs. exchange of shares). Even though such measures are not in themselves discriminatory to cross-border mergers, they might constitute a barrier to cross-border consolidation, given that the different features of such mergers (notably in terms of size) could call for a specific type of offer. c) Ongoing costs 9. Differences in employment legislation across the EU may also create barriers for efficient and flexible (re)organisation. In particular, the procedures to move staff within a pan-European group remain very complex (furthermore in some cases, prudential rules impose constraints on the location of staff – cf. n insurance art. 3 of Directive 95/26/EC). Those differences may also result in higher legal costs to deal with the different legal systems, as well as complex processes and different timelines when trying to introduce changes on a cross-border basis. 10. The different accounting systems across the EU have also required companies to set up adapted IT, specific personnel and reporting systems. This limits the scope of possible cost synergies when two institutions merge across the border, where as such synergies do exist when two institutions merge within the same Member States. ? See §7. 11. The consumer protection rules are very different from one Member State to another. This heterogeneity translates into the necessity of country-customised financial products compliant with those rules, and therefore also specific IT systems that handle those products and consumer relationship. For instance, this has been evidenced in the mortgage credit sector in the report recently published by the mortgage credit forum group set up by the Commission.

Furthermore, those different rules are often based on the “general good” provisions and consequently potential abuses aimed at protecting the national markets are difficult to challenge in court. ?? A significant example is the case C-442/02 (CaixaBank vs. France), where the European Court ruled in October 2004 that France could not ban interest bearing current accounts in that it constitutes an obstacle to the freedom of establishment. 12. Differences in national implementations of the Directive on data protection may also interfere with an optimal organisation of businesses within merged companies.

Indeed, it can have a strong impact on IT systems and limit back-office rationalisation. 13. More generally, differences of approaches in private law, sometimes explained by historical or cultural factors, may impose a country-by-country approach for some products or services (especially in the insurance sector), with the same results as differences in consumer protection rules. Those differences include notably liability and bankruptcy rules, with the implied difficulties of enforcing cross-border collateral arrangements, as well as differences in legal rules for securities. ? The Commission is working with researchers and stakeholders to develop a Common Frame of Reference for contract law as a form of handbook identifying best solutions in European contract law and giving guidance on the different approaches used, with a view to providing common definitions, principles and model rules for use in lawmaking (see COM 2004 (651) final: “European Contract Law and the revision of the acquis: the way forward”). DG Internal Market and Services – April 2005 IPM survey on obstacles to cross-border mergers and acquisitions 5

II. Tax barriers a) Execution risks 14. As mentioned earlier, mergers and acquisitions are complex processes. Despite some harmonised rules, taxation issues are mainly dealt with in national rules, and are not always fully clear or exhaustive to ascertain the tax impact of a cross-border merger or acquisition. This uncertainty on tax arrangements sometimes requires seeking for special agreements or arrangements from the tax authorities on an ad hoc basis, whereas in the case of a domestic deal the process is much more deterministic. ??

The Merger Directive (90/434/EEC) provides for the deferred taxation of capital gains arising from cross-border corporate restructuring carried out in the form of mergers, divisions, transfers of assets or exchanges of shares. Taxation of the capital gain is deferred until a later disposal of the assets. In October 2003, the Commission put forward a proposal to improve the Mergers Directive (90/434/EEC), which aims at clarifying the scope of the Directive as well as ensuring it applies to European Companies and European Co-operative Societies.

Political agreement by the Council was reached on 7 December 2004. 15. The uncertainty on VAT regime applicable to financial products and services may put at risk the business model or envisaged synergies. The EU’s VAT legislation in this area is badly in need of modernisation and because of its inadequacies, there is an increasing tendency to resort to litigation. The outcome can often be uncertain and as a result tax implications may place a question mark over otherwise sound business strategies. In recent years, the number of significant ECJ cases on VAT and financial services has increased steadily.

Individual judgement may indeed clarify the law in particular circumstances but often at the cost of consequences which may not always be compatible with overall Community policy objectives. ?? To take just one example, case C-8/03, Banque Bruxelles Lambert SA vs. Belgian State, the ECJ arrived at a judgement on the VAT treatment of open-ended investment companies (SICAVs) which has the potential to create tension in achieving the objective of equality of treatment and sustaining a level playing field for operators across the EU.

In the absence of legislative measures, it is inevitable that the Court will play an increasing role with uncertain consequences. The Commission has attempted to address the provisions of the 6th VAT Directive (77/388/EEC) dealing with financial services but without much success. DG Taxud is currently looking at the distortive effect of these provisions and intends to proceed with a process of modernisation which will better ensure their compatibility with the objectives of the Internal Market and give business greater certainty about the tax implications of business decisions. ) One-off costs 16. The principal relief from the Merger Directive (90/434/EEC) is the deferral of tax on the capital gains on the assets transferred in a transaction covered by the Directive. However, in some cases where the Directive does not apply, special corporate structures have to be put in place to avoid such an exit tax on capital gains. This is for instance the case when permanent establishments are transferred from one Member State to another, by a holding company located in a third Member State.

It can also occur when a subsidiary is converted into a branch. ?? See comment of §14. Also related to this issue is the judgement published in March 2004 (case C-9/02 – de Lasteyrie du Saillant) by the European court which ruled that taxation on unrealised capital gains of a natural person moving to another Member State constitutes an obstacle to the freedom of establishment. c) Ongoing costs 17. The issue of transfer pricing is a complex one for a group operating in several countries.

As was evidenced in the Commission’s Communication “Towards an Internal Market without tax obstacles – A strategy for providing companies with a consolidated corporate tax base for their EU-wide DG Internal Market and Services – April 2005 IPM survey on obstacles to cross-border mergers and acquisitions 6 activities” (COM(2001) 582), a lack of common approach to allocate profits may rise to numerous problems on the fiscal treatment of intra-group transfer pricing, notably in the form of high compliance cost and potential double taxation. ??

The Commission set up a “EU Joint Transfer Pricing Forum” with Member States and business representatives, meeting on a regular basis. Bringing together all parties concerned to discuss the issues at stake it helps to reach a better common understanding and allows to identify possible non-legislative improvements to the practical problems in order to reduce compliance cost and prevent disputes. 18. A group operating across several Member States may wish to centralize support functions to increase operating efficiency. But in many cases the result will include creating a VAT penalty on the inter group supply of services (e. . legal services or other back technical operations) to another Member State. Given that in the financial services sector VAT is at best only partially recoverable, this represents significant additional costs that penalised cost synergies to expect from a crossborder merger when compared to a national merger. This tax penalty on cross-border shared service operations is in addition to the general bias towards vertical integration which is widely perceived as a barrier to efficiency in the existing VAT provisions. ?? See comment of §15. 19.

The lack of a homogeneous system of loss compensation across the EU affects the profit taxation at the group level. A group with several subsidiaries in the same Member State may offset profits in some of them by losses in others, whereas it will be more difficult, if possible at all, with a group with subsidiaries in several Member States. Therefore groups may prefer intra-domestic consolidation to enjoy wider diversification effects as they may benefit from direct horizontal loss compensation instead of deferred and incomplete vertical compensation between subsequent fiscal years. ? In the pending case C-446/03 (Marks & Spencer), the European Court Justice has been asked whether it is contradictory to the EC treaty to prevent a company to reduce its taxable profits by setting off losses incurred in other Member States, while it is allowed to do so with losses incurred in subsidiaries established in the State of the parent company. 20. Specific domestic tax breaks may favour specific, non-harmonized products or services, with the result that every institution has to provide this service or product if it wants to remain competitive.

In such a situation, a merger between two entities located in that domestic market may yield synergies of scale, whereas it will be more difficult to exploit comparable synergies for a foreign institution taking over a domestic one, while not being entitled to the tax break in their home state. 21. In some cases, there may be discriminatory tax treatments for foreign products or services, i. e. products or services provided from a Member State different from the one where it is sold.

Therefore, a cross-border group will be disadvantaged when trying to centralise the “industrial functions” (e. g. asset management functions) over a domestic group since the latter may keep all its value chain within the country and still benefit from synergies. ?? In the area of asset management, the Commission has opened a number of infringement cases to examine the tax treatments of dividends on foreign investment funds that could potentially be discriminatory (infringements 2000/5059 vs. DE, 2002/4714 vs. AT, 2003/2009 vs.

FR, 1994/476 vs. EL, 2003/2010 vs. IT). 22. The impact of taxation on dividends might influence the shareholders’ acceptance of a cross-border merger. Even though a seat transfer or a quotation in another stock market might be justified for economic reasons, groups of shareholders could be opposed to such an operation if it implies higher non-refundable withholding tax, and thus lower returns on their investments. ?? See COM(2003) 810 for a presentation of the different tax schemes applying to dividends across the EU.

In the cases C-315/02 (Lenz) and C-319/02 (Manninen), the European Court of Justice ruled in 2004 that taxation on DG Internal Market and Services – April 2005 IPM survey on obstacles to cross-border mergers and acquisitions 7 dividends should make no distinction between dividends originating from domestic companies and those originating from companies established in another Member State. In particular, tax credit mechanisms or reduced rates should apply equally to all dividends distributed by any company established in the EU. III. Implications of supervisory rules and requirements a) Execution risks 3. A cross-border merger may highlight gaps or imperfections in the regulatory framework which may make regulators feel uncertain how to proceed, leading to delay, the imposition of specific measures or a veto of the proposed merger. In the banking sector, for example, the emergence of large cross-border groups might raise local supervisors’ concerns regarding financial stability (e. g. the ongoing discussions on deposit guarantee schemes). In other sectors such as exchanges which had traditionally operated within one national market, regulators may be unclear how to operate in a cross-border context. ? The Economic and Financial Council is examining the effects of increased integration of the financial sector on financial stability and crisis management. Several areas, among which deposit guarantee schemes, are being scrutinized to ensure that the regulatory and supervisory framework is adapted to cross-border consolidation. 24. The misuse of supervisory powers, notably regarding those related to the approval of changes in the shareholding, have also been indicated as raising obstacles to cross-border consolidation.

Although it was confirmed by the Commission that such powers should only be used on prudential grounds (Champalinaud case), the current legislation offers significant leeway for supervisors to veto cross-border consolidation. ?? Following the mandate given by the Economic and Finance Council at their Informal Scheveningen meeting (10 and 11 September 2004), the Commission is considering the relevant provision of the Codified banking Directive and has put a discussion paper to the Banking Advisory Committee on 24 November 2004.

A similar discussion took place at the Insurance Committee on 1 December 2004. 25. The complexity of the numerous supervisory approval processes in the case of a cross-border merger can also pose a risk to the outcome of the transaction as some delays must be respected and adds to the overall uncertainty. In particular, in the case of a merger between two parent companies with subsidiaries in different countries, ‘indirect change of control’ regulations may require that all the national supervisors of all the subsidiaries must approve the merger. b) One-off costs c) Ongoing costs 26.

Despite a common regulatory framework, there might be significant divergences in supervisory practices at the level of institutions. Such divergences might be explained by optionality in the harmonised rules, including provisions taken at national level that exceed the harmonised provisions (‘superequivalent’ measures), or lack of coherence in enforcement of common rules. The consequence is a limit on homogeneous approaches, and therefore synergies, of risk control and risk management within a cross-border group. ?? The Lamfalussy approach has been extended to the areas of banking and insurance, which i. . provides for EU supervisory committees in charge of achieving greater convergence in supervisory practices. The new Capital Requirements Directive provides an enhanced framework for supervisory cooperation, as will the upcoming Solvency II Directive. 27. The multiple reporting requirements, in some cases combined with a lack of transparency in terms of requirements and definitions, may also impose a significant and costly administrative burden on DG Internal Market and Services – April 2005 IPM survey on obstacles to cross-border mergers and acquisitions 8 cross-border groups.

Indeed, a cross-border merger might cause heavier reporting requirements compared to those imposed on the two entities that are being merged. Instead of creating cost synergies as in a domestic merger, a cross-border might even create additional costs. ?? The Commission set up a forum group which set out several recommendations in a report published in June 2003. To follow-up on these recommendations and within the overall so-called “Pillar II” work, the Committee of European Banking Supervisors is investigating the technical solutions to enable a streamlined reporting regime in the field of banking. IV.

Economic barriers a) Execution risks b) One-off costs 28. The fragmentation of the European equity markets may impose additional transaction cost on a cross-border merger. For instance, the exchange of share mechanism can be complex, and more expensive, when the two entities involved are listed on different stock exchanges. The additional costs might also influence the bidder on the type of deals (i. e. cash vs. exchange of shares). c) Ongoing costs 29. Independently of the legal frameworks or tax incentives (see §13 and 20), some differences in product mix, are explained by habits, preferences or even history.

This is especially true for the most common products, such as payment instruments. As a result, the potential for product rationalization resulting from a cross-border merger is more limited than for a domestic merger. 30. In cross-border groups, there are also more non-overlapping fixed costs, which cannot be spread over several countries. Indeed, even without legal, tax or prudential barriers, there would remain differences between Member States that would require a differentiated approach to be adapted to the local environment.

This limits potential synergies. The most obvious example is language, and the implications in terms of customer services for instance. 31. The low level of cross-border consolidation might also be explained by a lack of potential targets, due to the lack of middle-size institutions. National consolidation of middle-size institutions resulted in the emergence of rather large and complex institutions. The few examples of cross-border mergers seem to indicate that it implies more often a big institution taking over a middle-size one.

Taking over a big institution may perceived as too complex (and risky), whereas the takeover of a small one might not be sufficient to offset the induced costs. 32. The absence of critical size in some market segments (e. g. investment banking) may incite institutions to enter into a niche strategy, where the advantages of cross-border mergers that create large players is less evident from an economic point of view. Indeed, not only it would be difficult to find synergies between two niche players, but also absolute size would not necessarily be an advantage if an institution wants to maintain its competitive advantage in its niche market. 3. Domestic mergers can contribute to increase market power, and therefore increased profitability even without any cost synergies (i. e. raising the income while maintaining the costs at a constant level). Since most of the retail markets are still organized on a national basis, cross-border mergers yield very few, if any, increased market power. 34. Differences in economic cycles across the different Member States may also play a role, in that the economic environment has a strong effect on bank profitability.

Different strategies might be DG Internal Market and Services – April 2005 IPM survey on obstacles to cross-border mergers and acquisitions 9 needed for different macroeconomic conditions, and therefore it might limit the scope of a potential pan-European strategy implemented at the level of a cross-border group, whereas domestic groups face a single economic environment. However, this could also be a driver for consolidation, as those differences in cycles can help to smooth the profitability by reducing risk and earnings volatility through geographical diversification. V. Attitudinal barriers ) Execution risks 35. Openly or not, some Member States may promote a “national industrial policy”, aiming at the creation of “national champions”. Among possible justifications, some may argue that such a policy may ensure adequate financing of the national economy. Political considerations may also play a role with recently privatised companies or institutions that have received public money. This political interference may block a cross-border merger, even though such this transaction is compatible with the existing rules. Such interference might not require formal powers or rules to materialize.

Indeed, as evidenced in the previous sections, there are many obstacles to overcome to carry through a cross-border merger that it is realistic to think that no cross-border merger can be achieved if there is a strong political opposition. In addition, such a policy may lead to tolerance of high levels of concentration at a domestic level, allowing (or even encouraging) domestic consolidation over cross-border consolidation and making it even more difficult to accept a foreign takeover of a national institution with a significant market share. 36.

Employees’ reluctance within the target company of a cross-border deal might also pose a threat to the successful outcome of the transaction. Indeed, employees may not accept to be managed from another country. A public opposition to the project may influence analysts’ assessment. Also employees may play a role if they have a participation in the company. 37. Cross-border mergers may imply a change in the place of quotation, or even in the currency of quotation. Shareholders’ acceptance of quotation changes may be limited, even all risks or tax impacts are eliminated. Indeed, the place of quotation may have an important symbolic value. 8. Given that cross-border mergers are complex and need to overcome a number of execution risks (as evidenced in this document), there might be an impact on shareholders’ and analysts’ apprehension of failure risk when it comes to cross-border mergers. b) One-off costs c) Ongoing costs 39. Interference with political considerations may also have consequences in the structures put in place after a cross-border merger. Such political concessions (e. g. guarantees of level of employment, no headquarter moves, protection of the local brand) may help in getting the merger through the ifferent obstacles, but constrain the resulting cross-border entity in realising the full potential of the merger as options may be severely limited. 40. Consumers may mistrust foreign entities, meaning that all parameters being equal, a local incumbent may have an advantage over a competitor identified as foreign. This explains why foreign institutions often prefer to keep a local brand, even though it might impede synergies across certain functions (e. g. marketing) or slow down the integration process (transition from one brand to another over a long period of time).

DG Internal Market and Services – April 2005 IPM survey on obstacles to cross-border mergers and acquisitions 10 Summary I. Legal Barriers II. Tax barriers III. Implications of supervisory rules and requirements IV. Economic barriers V. Attitudinal barriers a) Execution risks 1. Legal uncertainty 2. Opaque decision making processes 3. Legal structures 4. Limits or controls on foreign participations 5. Defence mechanisms 6. Impediments to effective control 7. Difficulties to assess the financial situation 14. Uncertainty on tax arrangements 15. Uncertainty on VAT regime 23. Concerns regarding financial stability 24.

Misuse of supervisory powers 25. Supervisory approval processes 35. Political interference 36. Employees’ reluctance 37. Shareholders’ acceptance of quotation changes 38. Shareholders’ and analysts’ apprehension of failure risk b) One-off costs 8. Restriction on offers 16. Exit tax on capital gains 28. Fragmentation of the European capital markets c) Ongoing costs 9. Employment legislation 10. Accounting systems 11. Divergent consumer protection rules 12. Data protection 13. Differences in private law 17. Transfer pricing 18. Inter-group VAT 19. No homogeneous loss compensation 20. Specific domestic tax breaks 21.

Discriminatory tax treatments 22. Taxation on dividends 26. Divergences in supervisory practices 27. Multiple reporting requirements 29. Different product mixes 30. Non-overlapping fixed costs 31. Lack of middle-size institutions 32. Absence of critical size 33. Market power 34. Differences in economic cycles 39. Political concessions 40. Consumer mistrust in foreign Entities Conclusion: Whether benefits outweigh costs depends on whether total trading volume increases subsequent to listing abroad (Mittoo 1992). Although financial markets are becoming more integrated globally, geography still has a role to play.

More precisely, regulations, technological variances, market barriers and legislation vary in different regions. Barriers still exist and stock exchange markets are trying to continuously bring those down by creating strategic alliances. Cross-listing provides several advantages to firms; they are able to reduce the cost of their equity capital as they can reduce the risk to investors. The company’s firms become more liquid and there is also better flow of information on the exchange markets. In such a way, cross-border listing becomes advantageous both for investors as well as the company itself