Maneuvering Liquid Assets in a Multi-National Company: Formulation and Deterministic Solution Procedures

Over a finite horizon each national subsidiary of a multi-national company can be forecast to be a net source or sink of funds. Each of these subsidiaries in each year is considered to be the node of a network; funds flow along the directed arcs connecting the nodes. Liquid assets carried by the subsidiaries on the arcs between time periods earn interest minus adjustments for expected devaluations. In each time period a flow of funds between each pair of subsidiaries can be achieved by manipulating transfer prices and managerial fees, by making short term intersubsidiary loans, and by paying dividends up the intersubsidiary ownership tree. The costs and constraints on these flows are outlined with particular attention given to the IRC Subpart F regulations of the U.S. 1962 Revenue Act, and to the 1968 regulations of the Office of Foreign Direct Investment. It is shown to be extremely important that subsidiary dollar accounts count toward the compensating balance requirements of a U.S. bank, and it is also shown that there are benefits to a global tax consolidation under Subpart F. The problem can be solved as a generalized network (weighted distribution problem). This avoids the need to guess at the average discount rate if it is to be solved as an ordinary network.