Corporate Taxation And Tax Avoidance

With the advancements in the globalization of the economy, corporations are finding more ways to avoid the extraordinary tax rates set in place of The United States Of America. With the loss of revenue from large companies dodging taxes the government must make up for the loss by either raising taxes or changing the tax code. A recent company to avoid american taxes is Johnson Controls, a company that “…would not exist as it is today but for American taxpayers, who paid $80 billion in 2008…”(The Editorial Board). This use of American resources to get through tough times, and run to another county during an economic incline is an act that calls for reform in the American tax system. However congress has not passed any legislation to fix the

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.

Throughout years large American industrial companies have been running away from U.S. taxes, but there has been a new change. Companies such as Apple and Google have been affected by a change foreign countries are going through collecting higher taxes than before. It seems as if no longer can these companies get away with paying low taxes. This is happening because the European Commission have passed an order to collect high taxes. One example is Ireland who was ordered to collect fourteen billion dollars from Apple, which brought a surprise to this company. Companies have run out of places to run and pay one percent or less of taxes in foreign places, instead of paying back home.

“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,

The main argument comes for allowing tax evasion is that corporate tax evasion makes products cheaper for consumers. While this is a possibility, it also doesn’t make sense. The whole reason corporations evade taxes in the first place, is to make as much profit as possible. So why would these corporations

The recent introduction of the hybrid entities has shielded the foreign firms from paying their appropriate taxes through the shielding of the taxable income and through using the foreign tax amounts on the other incomes (Messina, 2015). In this regard, only minimal taxes are remitted from the revenue generated by the local firms. Besides, people tend to evade tax charged on dividends and interests by not giving honest reports pertaining to the revenue generated abroad. Furthermore, individuals evade the taxes through transferring their funds to foreign accounts. Fortunately, the IRS can address the issue of tax evasion by changing the existing tax laws to remove the deductions and other restrictions, for instance, the foreign tax credits. Besides, it is vital to impose restrictions to curb tax evasion at a personal level through the desired policies of better information reporting and tougher penalties for the

By doing producing in countries with more relaxed taxes, the companies are keeping more of their profits.

Domestically, corporate taxes are a significant expense to businesses, so much so that corporations pour massive resources toward acquiring the knowledge to take advantage of not only their local tax system, but also international ones, in order to preserve as much capital as possible. As businesses attempt to attain wealth, they mobilize towards lower-tax jurisdictions. Organizational planning is also affected, as uneven taxes on different types of business entities lead companies like Enron to form network webs of varying entities (Luna, LeAnn, and Murray 2008). Resource allocation to operating tax loopholes and allowances may be considered uneconomic, but is crucial for business survival. Domestic corporate tax rates are also inherently political; as each party has differing mandates towards tax revenue generation and allocation. Governments now must consider tax policy one of the major pieces to their platform. In Canada, the Conservative Party of Canada has stressed the importance of the corporate tax rate as a vital cog in maintaining the health of the economy. Over the last 4 years, the Conservative Party has decreased the net corporate tax rate by 2.5% with intention to lower it further to 15% effective January 1, 2012 (Canada Revenue Agency 2011).

Outcry over the revelations indicated in the Panama and Paradise Papers demonstrates the significant public concern with the usage of international tax havens. While tax arbitrage is often legal, many stakeholders have serious ethical and legal reservations about a firm’s tax avoidant behaviors. Investors are becoming increasingly aware of the regulatory and reputational risks encountered in secretive low tax jurisdictions. Furthermore, stockholders and creditors are also troubled that firms engaging in tax avoidance are distracted from other activities that would enhance firm value.

On April 2016, the WSJ detailed on the article “The “Panama Papers” Scandal” the wrongdoing of a Panamanian Law Firm, Mossack Fonseca, which specialized on offshores holding companies. These companies were protecting “their clients by hiding wealth or suspicious transactions in tax havens.” Public figures, executives and celebrities were some of the clients of those companies, reported the WSJ. This article also reports that “more than 70 Swiss banks confessed to the U.S. that they encouraged tax evasion, many said … using Panamanian corporations.” In other words, the Panama Papers bring to light the possibility of tax evasion by many taxpayers who deposit funds illegally into those companies without a true business purpose. As a result, “the U.S Justice Department says it is reviewing the documents to see if they contain evidence of corruption that could be prosecuted,” stated the

Tax loopholes need to be eliminated because multinational corporations avoid paying billions of dollars in taxes to the United States. They use various malicious strategies using subsidiaries in other countries to avoid paying the statutory 35% corporate tax rate. OXFAM America, an organization that fights poverty, hunger, and injustice around the world, lists some of these strategies in a media briefing they released mid-April. These strategies include: artificially shifting ownership of assets, inversion, and “earnings stripping.”

As the superpower they are, the United States of America should set an example by revising the tax code for corporations who are avoiding taxes in their country. Many corporations prefer to pay taxes in countries where tax rates are lower, rather than in their country. Paying taxes in countries where tax rates are lower are legally, and popular. As we can see in the article “Tax Avoidance in Silicon Valley” by the Greenlining Institute

Not only Ireland, but also other European Union member states, such as the U.K., face “a collective projected deficit of 868 billion euros”. Google 's US parent company revealed it earned £3.3billion in the U.K. last year. But Google UK Limited paid just £20.4million in U.K. corporation tax on its enormous £642million turnover. It is reported that Google used subsidiaries in Ireland and Bermuda to legally dodge £1.2billion in taxes in 2012. Moreover, it was found in a Sunday Mirror probe that six of the world’s largest companies, Apple, Facebook, Amazon, Google, Ebay and Starbuck, paid merely 0.3 percent U.K. tax on their reported U.K. earnings

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

Tax havens are countries or foreign jurisdiction that offers favourable tax and financial secrecy to it’s customers investing from outside their border. There are roughly 45 tax havens today in the world among which Switzerland ranks no.1 because when it comes to financial information of clients the country implements a high level of secrecy. The tax havens are those countries which have a low tax rate with respect to foreign investment. There are both positive and negative effects of tax haven countries.The primary aim of tax haven countries are to attract foreign investors. If companies have paid taxes in the tax haven jurisdiction, then companies can avoid taxes in the home jurisdiction.