Today, US multinational corporations are inclined to keep their cash related to the subsidiaries which are located oversees in US dollars and even in US banks (Linebauch). It is possible to determine several reasons for multinational corporations to hold large “foreign” cash balances in US‐dollar accounts. The main reasons are the possibility to preserve money because of different economic situations in foreign countries and reduce the possible economic risks (Linebauch). The next reason is the opportunity to protect the companies’ profits from being taxed in the USA because of the particular features of the tax law. According to the US tax law, these funds are discussed as being located overseas that is why such an approach is the best way to shield the money from tax because only domestic profits can be taxed in relation to the property and funds of multinational corporations (Linebauch).
The developed tendency is the real issue for investors because the discussed financial resources cannot be controlled by shareholders. Thus, if the funds are invested overseas, they cannot be discussed as the part of the profits to be shared by the corporation’s shareholders. These profits can contribute to the overall company’s development, but they are not available for shareholders as it is stated in the article (Linebauch).
From this point, the practice of keeping subsidiaries’ funds oversees in the US banks and in US dollars is important and rather advantageous for CFOs of the multinational corporations (Linebauch). The reason for the situation is the fact that such a distribution of funds provides possibilities for contributing to the corporation’s development and to the US economy without referring to the tax issue. Furthermore, saving the money in US‐dollar accounts, companies protect themselves from any potential losses associated with the necessity to exchange money according to the frequently changing foreign-exchange rates (Linebauch). Thus, CFOs can concentrate not only on the variants to protect the funds of the corporations’ subsidiaries but also to avoid the additional returns to investors and tax issues. As a result, the practice is rather beneficial for CFOs to develop more effective strategies than for investors to receive any profits.
Works Cited
Linebauch, Kate.Firms Keep Stockpiles of ‘Foreign’ Cash in U.S. 2013. Web.