Incorporating International Tax Laws in Multinational Capital Budgeting

after-tax cash flows to differ from its before-tax cash flows. To estimate the future cash flows that are to be generated by a proposed foreign project (such as the establishment of a new subsidiary or the acquisition of a foreign firm), MNCs must first estimate the taxes that they will incur due to the foreign project. This appendix provides a general background on some of the more important international tax characteristics that an MNC must consider when assessing foreign projects. Financial managers do not necessarily have to be international tax experts because they may be able to rely on the MNC’s international tax department or on independent tax consultants for guidance. Nevertheless, they should at least be aware of international tax characteristics that can affect the cash flows of a foreign project and recognize how those characteristics can vary among the countries where foreign projects are considered.