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Discussion Topic 1: United States companies planning to enter foreign markets must consider how the foreign operation will be established. There are several options: exporting, licensing, franchising, branch office, subsidiary, or a hybrid entity. Consider the pros and cons of the various options. Explain which option you might recommend for a United States company that wants to enter a foreign market. Discuss why your recommended option might be better than the alternatives. What factors did you take into consideration?

Discussion Topic 2: Hyperinflationary currencies create problems with conventional translation methods. What types of issues arise? As a result, there are special rules that apply to any Qualified Business Unit that would otherwise be required to use a hyperinflationary currency as its functional currency. What are these special rules and how do they resolve the previously identified issues?

Misey, R. J., & Schadewald, M. S. (Eds.). (2018). Practical Guide to U.S. Taxation of International Transactions (11th ed.). CCH Incorporated.

Do the Discussion first add citation and references then do the response each posted

Posted 1 

Hi, Class,

Entering a foreign market is a very complicated and important decision for a company. Tax strategy needs to be put in consideration in order to be a successful business. Exporting the product through an independent intermediary is a first try step when entering a new market.  The next step in the progression is to establish a branch sale office in the foreign country in order to further study the market and customers.

Licensing and franchising are more indirect method of entering a foreign market.  There are a lot of giant companies like: McDonalds, Kentucky Chicken franchising their patent, and trademark in foreign countries so their name become well known worldwide. In return, the licensor receives percentage of the local sales or franchise profit margin. The downsides is the company may lose some control of the quality and image of its product. I saw the food sold in China is completely different from the U.S.

Exporting sales, U.S. exporters sell their products through independent distributors will not have a taxable presence within the importing country. Therefore, no foreign tax reduction planning is not possible.  However, the protentional strategy is to pass title abroad on export sales to generate foreign source income.

All these methods have its pros and cons, It really depends on each company’s needs and circumstance.

I would recommend the franchise method because it is easier to expand the name of the company. Yet, the obligation and daily management fall on to the foreign company. 

Posted 2 

Hyperinflationary currencies create problems with conventional translation methods. In a hyperinflationary environment, conventional methods result in a mismatch of costs and revenues. This is because prior-year investments in inventory and equipment are deflated costs compared to the inflated revenues from the current year. as a result of this, there are special rules that apply to any Qualified Business Unit that would otherwise be required to use a hyperinflationary currency as its functional currency. it must use the US dollar as its functional currency. It also must compute its taxable income using the dollar approximate separate transactions method. these special rules attempt to mitigate the distortions caused by hyperinflationary currency by translating the QBU’s taxable income on at least a monthly basis, and by annual recognizing certain unrealized foreign currency gains and losses. 

Misey, R. J., & Schadewald, M. S. (Eds.). (2018). Practical Guide to U.S. Taxation of International Transactions (11th ed.). CCH Incorporated.