Advantages And Disadvantages Of Tax Haven

Paying Taxes - Taxes are money taken from citizens that is used to fund the nation. Federal, state, local governments collect taxes from the citizens to be able to keep those governments and schools running, hiring police officers and firefighters to protect, and transportation (roads, trains, buses). If a citizen was to avoid paying taxes, they could possibly face jail time or monumental fines.

National administrations of various countries also offer investors a lot of tax benefits such as exceptional reimbursements and discounts like Goods and Services Tax. This is one of the reasons why a lot of people engage in real estate investing and learn more lessons that can somehow help them

“A tax that the government impose on financial income generate by all entities within their jurisdiction.” (Investopedia, 2016). Floridians don’t pay income tax but they pay federal income tax.

However, the companies only have to pay the U.S. tax for foreign revenues once they bring the profits back to the United States. As a result of these current tax laws, U.S. companies that seek to avoid high corporate tax rates hold their foreign earned profits overseas. “It just makes no sense to pay a substantial tax on it,” said Joseph Kennedy, a senior fellow at the Information Technology and Innovation Foundation (Rubin, R.). It is far too easy for an IT corporation to create a patent in a foreign country and direct revenue to a corporation within that country, thus avoiding the much higher U.S. tax rates. According to Joint Committee on Taxation estimates, the lost revenue is increasing over time as corporations find even more creative ways to make their U.S. profits look like offshore income (Richards, K., & Craig, J.). As result, multinational American corporations have as much as $2 trillion held in overseas subsidiaries and if brought into the United States with the current tax laws, the federal government could benefit by nearly $50 billion per year.

The main objective of many companies is to minimize their tax obligations. Jeffers (2014) discussed the reason of why companies adopt tax inversion strategies. The researcher indicated that the income maximization is a major reason of companies attempting to reduce their tax liability (pp. 100-101). Tax inversion strategies provide companies an advantage to lower income tax rate. Today, U.S. corporations renounce its U.S. citizenship and move to low-tax countries. Companies that reincorporate oversees are not obligated to pay U.S. taxes on earning income (p. 99). Many countries implement tax competition strategies to attract and retain businesses. Well-known companies, such as Exxon Mobil, Hewlett Packard, Tyco, General Electric, PepsiCo, etc. take benefits of tax shelter opportunities overseas (p. 102). Other benefits of the jurisdiction abroad are flexible banking laws and simplified litigation processes.

“The United States has the highest corporate tax rate of the 34 developed, free-market nations that make up the Organization for Economic Cooperation and Development (OECD). The marginal corporate tax rate in the United States is 35% at the federal level… according to the 2013 OECD Tax Database. The global average is much lower, at 25%” (Fontinelle, 2014). Even though there are ways for businesses to decrease or even avoid these payments, this high figure deters foreign investors from considering the United States for business and sends them looking in more favorable countries like Canada or Ireland. Adding to pushing away potential foreign investors, U.S. firms flee to those tax favorable places to avoid it. “When these companies move their headquarters or create foreign subsidiaries, jobs and profits move overseas” (Fontinelle,

9. The Internet company Google managed to avoid $2 billion in international income taxes in 2011 by moving a hefty sum of its revenues to subsidiaries in Bermuda, according to CNBC, which cited a report by Bloomberg.[1] The search giant reportedly stashed $9.8 billion in revenues to its shell company in Bermuda — which doesn't have a corporate income tax — last year allowing the company to shave its overall tax rate by almost 50 percent. Google's Bermuda move was disclosed in a Nov. 21 filing by a subsidiary in the Netherlands. While the company's move to shift funds to the country was legal, it could spur the growing global criticism of corporate tax

However, the introduction of such a law becomes increasingly difficult when the companies being questioned are some of the largest and wealthiest in the world. In order to truly understand the stature of these companies, one would need to look into some of the statistics regarding them. Remarkably, according to Al Jazeera America “the largest 500 U.S. companies would owe an estimated $620 billion in U.S. taxes” if they had to declare all their overseas stockpiles, of around $2.1 trillion (“Al Jazeera America”). In addition, it found that “three-quarters of the 500 biggest companies utilize tax havens”. The top three offenders included Apple, General Electric and Microsoft. In many cases according to the report, the money is not being utilized to improve foreign economies. By this they mean to say that, U.S. businesses were not using their overseas profit to build factories and employ individuals. Instead, the overseas profit was a result of accounting tricks purposely implemented to benefit the business alone. To put all of this in perspective, the United States is losing billions of dollars to foreign economies. These taxes are being introduced into countries such as Ireland and Luxembourg. In other words the money that should be invested in the United States of America on public services, is being

Tax inversion can be commonly found to be used in America. Tax inversion is when a corporation or business relocates their operation overseas to reduce how much taxes they have to pay. When companies are picking a country to relocate to they are mostly looking for one that has lower tax rates and little to no corporate requirements. I can see in way why corporations take this route when it comes to high tax rates, but looking at it from a bigger picture I believe that corporation should not be allowed to relocate to avoid tax rates. Taxes are vital to the economy as they play a big role in our life every day. Taxes pay for public schools, police department, roadwork, public transportation, and much more. I have personally used many of the services

The reason tax havens exist, is for the same reason why they existed 50 years ago; to attract money and investments from around the world. When multibillion dollar corporations put billions of dollars in the banking system, it gives the local economy of that country a little boost. That stored in the banks can now be lent out to people to buy homes, cars, or even start a

Abusive Tax Shelters – Avoid using abusive tax structures to avoid paying taxes. The IRS committed to stopping complex tax avoidance schemes and the people who create and sell them. Be aware of people peddling tax shelters that sound too good to be true. If there is doubt, seek an independent opinion regarding these complex situations or offers.

In America, there has recently been a great deal of talk about tax policies which favor the rich and unfairly burden the poor. However, the benefits given to corporations make the advantages extended to individuals pale by comparison. By 'routing' profits through Bermuda, Puerto Rico and other notable tax havens, esteemed corporations like Microsoft, Google, and Apple have been effectively able to skirt the 35% corporate tax in America. Even for the profits recorded as existing in America, "through tax breaks and loopholes," the average amount these companies will pay upon their earnings is a mere 17.3% (The price isn't right, 2013, The Economist). Apple is particularly crafty in its ability to dodge state corporate taxes. Although the company is based in California, its official location is in Reno, Nevada, which has no state corporate tax rate, in contrast to California's 8.84 percent (Report: Apple legally avoids billions in taxes, 2012,CBS News).

This claim says that it is acceptable for companies to move their business to other countries where the tax rate isn’t as high so they can avoid paying more taxes than they would here in the US. It is legal for US businesses and organizations to move their practice to another country where the tax rate is lower. This is called “corporate inversion.” In the United States, there are many rules and regulations when it comes to paying taxes as a business. There are also brackets that businesses are broken down into depending on their income and revenue. The corporate tax rate in the US is usually around 25% and it varies from around fifteen percent to thirty five percent.

A tax haven is a country that offers foreign corporations and individuals relatively low corporate and income tax rates, with a politically and economically stable environment. Some tax havens are Switzerland, Hong Kong, Bermuda, Ireland, and the Cayman Islands. Although the businesses have moved across seas, the United States forces them to pay the corporate tax. Fortunately for the businesses, it they keep their income and money across seas they do not have to the pay the American corporate tax, Unfortunately this is ghastly for the United States Government businesses keep their products and profits over seas.

The actions of multinational corporations (MNCs), which derive from their morally dubious goals, may be completely legitimate within a capitalist society. One of these actions that will be examined in this essay is the use of tax havens, as a way of avoiding higher tax liability. This paper will utilise the case study of Apple’s tax avoidance, in examining the legitimation of a company’s goal of profit maximisation, a goal that is against the moral/social consensus