Transfer pricing and multinational financial institutions : the case for replacing arm’s length price with a unitary approach

The international tax system, designed a century ago, has not kept pace with the modern multinational entity rendering it ineffective in taxing many modern businesses according to economic activity. One of those modern multinational entities is the multinational financial institution (MNFI). The recent global financial crisis provides a particularly relevant and significant example of the failure of the current system on a global scale. The modern MNFI is increasingly undertaking more globalised and complex trading operations. A primary reason for the globalisation of financial institutions is that they typically ‘follow-the-customer’ into jurisdictions where international capital and international investors are required. The International Monetary Fund (IMF) recently reported that from 1995-2009, foreign bank presence in developing countries grew by 122 per cent. The same study indicates that foreign banks have a 20 per cent market share in OECD countries and 50 per cent in emerging markets and developing countries. Hence, most significant is that fact that MNFIs are increasingly undertaking an intermediary role in developing economies where they are financing core business activities such as mining and tourism. IMF analysis also suggests that in the future, foreign bank expansion will be greatest in emerging economies. The difficulties for developing countries in applying current international tax rules, especially the current traditional transfer pricing regime, are particularly acute in relation to MNFIs, which are the biggest users of tax havens and offshore finance. This paper investigates whether a unitary taxation approach which reflects economic reality would more easily and effectively ensure that the profits of MNFIs are taxed in the jurisdictions which give rise to those profits. It has previously been argued that the uniqueness of MNFIs results in a failure of the current system to accurately allocate profits and that unitary tax as an alternative could provide a sounder allocation model for international tax purposes. This paper goes a step further, and examines the practicalities of the implementation of unitary taxation for MNFIs in terms of the key components of such a regime, along with their their implications. This paper adopts a two-step approach in considering the implications of unitary taxation as a means of improved corporate tax coordination which requires international acceptance and agreement. First, the definitional issues of the unitary MNFI are examined and second, an appropriate allocation formula for this sector is investigated. To achieve this, the paper asks first, how the financial sector should be defined for the purposes of unitary taxation and what should constitute a unitary business for that sector and second, what is the ‘best practice’ model of an allocation formula for the purposes of the apportionment of the profits of the unitary business of a financial institution.

Asian international student attrition among Australian universities : are wellness programs the answer?

Education is one of Australia’s largest service-based exports. International students comprise approximately 24% of enrolments at Australian universities (Sawir, Marginson, Deumert, Nyland, & Ramia, 2008); and approximately 80% of these students are from the Asian region (Australian Federal Government, 2012). The financial cost of international student attrition for universities is significant. The Australian Federal Government Department of Education, Science and Training reports the attrition rates for first-year international undergraduate students ranged between 4% and 22.5% across all Australian Universities (2013). Academic, psychological, and sociocultural adjustments to a new environment can be challenging for international students. This process manifests from various stressors such as communication difficulties, adjustment to a new teaching style, new cultural norms and pressure on academic performance. These stressors result in an often overwhelming attempt to integrate and function effectively, and can consequently affect a student’s ability to meet academic requirements. The relationship between a student’s ability to successfully complete a higher education program is consistently related to a range of academic and non-academic factors. The role of specific Australian higher education institutions is vital in facilitating the continued education of Asian International students. Initiatives targeting an enhancement of modifiable lifestyle factors may have the potential to enhance a student’s ability to effectively and successfully transition into a lifestyle that facilitates their ability to adjust to the requirements of Australian universities. One possibility is the prospect of providing wellness programming, coaching and education targeting lifestyle behaviours for acculturation.

Convergence in the ownership and governance of East Asian firms

In the past decade, policymakers in over 70 markets have introduced corporate governance codes or best practice guidelines. In East Asia, they have been introduced in Hong Kong in 1999 and 2006, Indonesia in 2000 and 2007, Malaysia in 2000 and 2007, the Philippines in 2002, Singapore iu 2001 and 2005, South Korea in 2003, Taiwan iu 2002 and Thailand iu 2006. The common focus of these codes is to encourage but not force companies to improve their corporate governance practices to a specified target level, e.g., board independence of 30%. Another commonality is that the guidelines apply to all listed companies regardless of their ownership structure or other characteristics.

Institutional investors, risk/return and corporate governance : practical lessons from the Global Financial Crisis

The global grown in institutional investors means that firms can no longer ignore their influence in capital markets. However, not all institutional investors have the same motives to influence the firms they invest in. Institution investors' ability to influence management depends on the size of their investment and whether they have any business relations with the firm. Using a sample of Australian firms from 2006 to 2008, our empirical results show that the proportion of a company's shares held by institutional investors is positively associated with firm governance ratings, risk and profitability. This study shows that a positive association between risk and return is associated with large active institutional ownership, which we interpret as shareholders with sufficient power to pressure management to increase short-term profits.

The sweet aroma of success: Modification of products for new markets in the case of TORQ by Di Bella Coffee

In 2002, Phillip Di Bella’s childhood passion for coffee and keen entrepreneurial spirit led him to establish a small coffee roasting warehouse in in the inner suburbs of Brisbane (Di Bella, 2012). With a keen sense of direction and passion for his coffee products and providing unparalleled customer service, Di Bella Coffee quickly grew to become a key player in the coffee roasting scene. This passion for the ultimate coffee experience is evident in the firm’s logo ‘Di Bella Coffee Inspires Passion’. Phillip Di Bella stated that ‘the common denominator of this company is about inspiration and passion. We are not a coffee company, we are a people company. You know, are we inspiring you from the moment you walk in the door to the moment you leave. If you are not feeling inspired then we haven’t done our job properly as a company’. Fundamentally, providing the ultimate coffee experience, as detailed in the following case is one in which focuses on the coffee consumption experience, not the coffee itself. Over that last 10 years Di Bella Coffee has constantly strived for the ultimate coffee, while expanding business operations into the booming Asian coffee market, establishing headquarters in Shanghai in 2010. In 2011, Di Bella Coffee commenced their second international venture with the launch of operations in India (Di Bella Coffee, 2012); followed shortly by the creation of a new category of coffee, set to revolutionise to coffee industry. The fusion of two traditional forms of coffee; espresso coffee and instant coffee, to create a third category- espresso instant, led to the development of TORQ by Di Bella.

Identifying the financial barriers to deliberative, affordable apartment development in Australia

Purpose The purpose of this paper is to identify the financial barriers to the supply of affordable apartments in Australia and examine whether demand aggregation and ‘deliberative development’ (self-build) can form a new affordable housing ‘structure of provision’. Design/methodology/approach Market design, an offshoot of game theory, is used to analyse the existing apartment development model, with ‘deliberative development’ proposed as an innovative alternative. Semi-structured interviews with residential development financiers are used to evaluate whether deliberative development could obtain the requisite development finance. Findings Our investigation into the financial barriers of a deliberative development model suggest that while there are hurdles, these can be addressed if key risks in the exchange process can be mitigated. Hence, affordability can be enhanced by ‘deliberative development’ replacing the existing speculative development model. Research implications Market design is a new innovative theoretical approach to understanding the supply of housing, offering practical solutions to affordable apartment supply in Australia. Originality/value This research identifies financial barriers to the supply of affordable apartments; introduces theoretical understandings gained from market design as an innovative solution; provides evidence that a new structure of building provision based on ‘deliberative development’ could become a key means of achieving more affordable and better designed apartments.

Interdependence between Greece and other European stock markets: A comparison of wavelet and VMD copula, and the portfolio implications

The interdependence of Greece and other European stock markets and the subsequent portfolio implications are examined in wavelet and variational mode decomposition domain. In applying the decomposition techniques, we analyze the structural properties of data and distinguish between short and long term dynamics of stock market returns. First, the GARCH-type models are fitted to obtain the standardized residuals. Next, different copula functions are evaluated, and based on the conventional information criteria and time varying parameter, Joe-Clayton copula is chosen to model the tail dependence between the stock markets. The short-run lower tail dependence time paths show a sudden increase in comovement during the global financial crises. The results of the long-run dependence suggest that European stock markets have higher interdependence with Greece stock market. Individual country’s Value at Risk (VaR) separates the countries into two distinct groups. Finally, the two-asset portfolio VaR measures provide potential markets for Greece stock market investment diversification.

Short-term Price Behavior and the Effect of Foreign Investors in Finnish Equity Markets (summary section only)

As globalization and capital free movement has increased, so has interest in the effects of that global money flow, especially during financial crises. The concern has been that large global money flows will affect the pricing of small local markets by causing, in particular, overreaction. The purpose of this thesis is to contribute to the body of work concerning short-term under- and overreaction and the short-term effects of foreign investment flow in the small Finnish equity markets. This thesis also compares foreign execution return to domestic execution return. This study’s results indicate that short-term under- and overreaction occurs in domestic-buy portfolios (domestic net buying) rather than in foreign-buy portfolios. This under- and overreaction, however, is not economically meaningful after controlling for the bid-ask bounce effect. Based on this finding, one can conclude that foreign investors do not have a destabilizing effect in the short-term in the Finnish markets. Foreign activity affects short-term returns. When foreign investors are net buyers (sellers) there are positive (negative) market adjusted returns. Literature related to nationality and institutional effect leads us to expect these kind of results. These foreign flows are persistent at a 5 % to 21 % level and the persistence of foreign buy flow is higher than the foreign sell flow. Foreign daily trading execution is worse than domestic execution. Literature which quantifies foreign investors as liquidity demanders and literature related to front-running leads us to expect poorer foreign execution than domestic execution.

Sustainable biomass production for energy in selected Asian countries

This paper presents a synthesis of assessment of sustainable biomass production potential in six Asian countries-China, India, Malaysia, Philippines, Sri Lanka and Thailand, and is based on the detailed studies carried out in these countries under the Asian Regional Research Programme in Energy, Environment and Climate (ARRPEEC). National level studies were undertaken to estimate land availability for biomass production, identify and evaluate the biomass production options in terms of yield per hectare and financial viability, estimate sustainable biomass production for energy, and estimate the energy potential of biomass production in the six Asian countries. Sustainable biomass production from plantation is estimated to be in the range of 182.5-210.5, 62-310, 0.4-1.7, 3.7-20.4, 2.0-9.9 and 11.6-106.6 Mt yr(-1) for China, India, Malaysia, Philippines, Sri Lanka and Thailand, respectively. The maximum annual electricity generation potential, using advanced technologies, from the sustainable biomass production is estimated to be about 27, 114, 4.5, 79, 254 and 195 percentage of the total electricity generation in year 2000 in China, India, Malaysia, Philippines, Sri Lanka and Thailand, respectively. Investment cost for bioenergy production varies from US$381 to 1842 ha(-1) in the countries considered in this study; investment cost for production of biomass varies from US$5.1 to 23 t(-1). (C) 2003 Elsevier Ltd. All rights reserved.

Long memory in return structures from developed markets

[En]The present study aimed at investigating the existence of long memory properties in ten developed stock markets across the globe. When return series exhibit long memory, the series realizations are not independent over time and past returns can help predict future returns, thus violating the market efficiency hypothesis. It poses a serious challenge to the supporters of random walk behavior of the stock returns indicating a potentially predictable component in the series dynamics. We computed Hurst-Mandelbrot’s Classical R/S statistic, Lo’s statistic and semi parametric GPH statistic using spectral regression. The findings suggest existence of long memory in volatility and random walk for logarithmic return series in general for all the selected stock market indices. Findings are in line with the stylized facts of financial time series.

Markets and microstructure

This document contains three papers examining the microstructure of financial interaction in development and market settings. I first examine the industrial organization of financial exchanges, specifically limit order markets. In this section, I perform a case study of Google stock surrounding a surprising earnings announcement in the 3rd quarter of 2009, uncovering parameters that describe information flows and liquidity provision. I then explore the disbursement process for community-driven development projects. This section is game theoretic in nature, using a novel three-player ultimatum structure. I finally develop econometric tools to simulate equilibrium and identify equilibrium models in limit order markets.

In chapter two, I estimate an equilibrium model using limit order data, finding parameters that describe information and liquidity preferences for trading. As a case study, I estimate the model for Google stock surrounding an unexpected good-news earnings announcement in the 3rd quarter of 2009. I find a substantial decrease in asymmetric information prior to the earnings announcement. I also simulate counterfactual dealer markets and find empirical evidence that limit order markets perform more efficiently than do their dealer market counterparts.

In chapter three, I examine Community-Driven Development. Community-Driven Development is considered a tool empowering communities to develop their own aid projects. While evidence has been mixed as to the effectiveness of CDD in achieving disbursement to intended beneficiaries, the literature maintains that local elites generally take control of most programs. I present a three player ultimatum game which describes a potential decentralized aid procurement process. Players successively split a dollar in aid money, and the final player--the targeted community member--decides between whistle blowing or not. Despite the elite capture present in my model, I find conditions under which money reaches targeted recipients. My results describe a perverse possibility in the decentralized aid process which could make detection of elite capture more difficult than previously considered. These processes may reconcile recent empirical work claiming effectiveness of the decentralized aid process with case studies which claim otherwise.

In chapter four, I develop in more depth the empirical and computational means to estimate model parameters in the case study in chapter two. I describe the liquidity supplier problem and equilibrium among those suppliers. I then outline the analytical forms for computing certainty-equivalent utilities for the informed trader. Following this, I describe a recursive algorithm which facilitates computing equilibrium in supply curves. Finally, I outline implementation of the Method of Simulated Moments in this context, focusing on Indirect Inference and formulating the pseudo model.

Linking Reduced Deforestation and a Global Carbon Market: Impacts on Costs, Financial Flows, and Technological Innovation

25 p.