Over the past number of years, several multinational organisations have been accused of tax avoidance. It appears that many of these large corporations have been using aggressive tax planning practices taking advantage of complex, yet legal loopholes in tax legislation to avoid paying corporation tax in the United Kingdom.
You must produce an individual written report that critically analyses the case both for and against such business practices. This analysis should use contemporary evidence alongside academic literature and must explicitly consider the ideological and ethical issues. Your report must also provide appropriate conclusions and recommendations to an appropriate range of stakeholders.
ACADEMIC LITERATURE REVIEW
2. In the research article named “Is CSR associated with Tax avoidance”, the authors Qiang Wu, Chun Keung Hoi and Hao Zhang have established an empirical relationship between the CSR and Tax avoidance. They have found out that the companies which are associated with excessive amounts of CSR activities have actually done more tax avoidance than normal companies. These companies’ financial reports show greater discrepancy in the tax payments. These companies also have much more uncertain position in tax payments. Overall, the research shows that companies with excessive CSR activities are usually more aggressive in the matter of tax avoidance. This leads to the conclusion that the corporate culture has a high influence in the matter of tax avoidance (Hoi & Wu, 2013).
3. In the research paper named “The curious case of corporate tax avoidance” the author Grahame Dowling has found out that in contrast to the popular believe CSR activities of organizations are strangely silent on the matter of tax avoidance. While it can be argued that paying taxes is the best way for following CSR activities as the governments will utilise that money to improve the society as a whole. There are still many flaws in the corporate tax laws in the UK and the majority of the companies choose to exploit those flaws rather than being socially responsible for the growth of the country. This paper is aimed at the implications tax avoidance activities have over the credibility of a company. It also manages to shed light on the aspect of corporate practice which is deliberately hidden from the view of public (Dowling, 2013).
TAX AVOIDANCE: BUSINESS RESPONSIBILITY
Ipsos MORI conducted an IBE survey in the year 2012 and the results of the survey shows that the British public feel that tax avoidance is the second most significant issue that the corporates need to address. Sadly the situation has not improved over the last few years. A company which is avoiding taxes are seen as greedy and selfish and this damages their reputation in the market. For example, Amazon and Starbucks were accused of avoiding taxes and the people organized rallies and campaigns against these leading companies. This has put a dent on their reputation in the UK market (Sikka & Willmott, 2011).
The corporate tax rate in UK is 20% which is less than many other countries. UK has reduced the tax rates over the years to increase business ventures within the country. But, the companies are still unwilling to pay taxes even at this fair rate. Paying fair amount of taxes is seen as a socially responsible thing to do for the corporates as that tax money is invested in services such as healthcare, infrastructure and education. In another way it can be said that the companies themselves benefit from these services directly or indirectly. Tax avoidance has largely been considered as not only immoral but also unethical practice. This practice undermines the integrity of the tax system of the country (McGuire & Omer, 2012).
Corporation tax is a type of tax which is paid based on the profits earned by a company. If there is no profit then there should be no corporation tax. However, there are discrepancies regarding how the profits were calculated. Sometimes companies show high sales figures but they calculate profits in such a way that shows they have not made any profits which is highly unlikely and it raises questions regarding ethics of the company. Many MNEs currently operating in the UK are paying no or very little corporation taxes (Clausing, 2014).
TAX AVOIDANCE: BUSINESS IRRESPONSIBILITY
Some sceptic corporates have a totally different view in this matter and they question the usefulness of the taxes that they are paying to the governments. They even argue that tax avoidance and evasion works for the benefits of the society as a whole. For this point of view the crucial point is how one sees the benefits of government activities. People have two general views about the working of a government. The first one is that the government only works for the benefits of its citizens. But, this view is considered as naïve by many people. The second view is that the government does some necessary works which has to be done and can only be done by the government and they do a larger portion of work that shouldn’t be done at all. So, it is beneficial for the country if the corporates avoid taxes and the government has no funds for such harmful activities (Shafer & Simmons, 2010).
This type of thinking was supported by Public Choice theory which was developed in the later stages of the 20th century. This theory states that the people who run the state are individuals like the rest and they are driven only by self-interest. These interests are expanded by giving power and scope to the government itself. Governments try to maximize the revenues and this revenue is not only used for the benefit of the public. Corruption in the government is rampant in many countries in the world and these corruption cases fuel this theory (Huseynov & Klamm, 2012).
EXAMPLES OF TAX AVOIDANCE CASES
2. Apple had shown an effective tax rate of 2% in the recent years on non US profits. Around 60% of its sales were routed through subsidiaries in the Northern Ireland. This followed an investigation as Apple is one of the biggest brands in the world and the tax rate of 2% was just astonishing. It has been found that the tax rate doesn’t represent their current status of business (Schwartz & Duhigg, 2013).
3. In a similar type of case it was found that Google has reported a tax rate of 2.4% on it’s off shore businesses. They also shown majority of their non-US sales through Ireland. The leader of the labour party of UK said that Google had paid a tax of £10 million with revenue figures of £11.9 billion.
4. Another case that generated much controversy in the UK was the case of Starbucks. They paid tax of £8.6 million between the years of 1998 and 2011. In this time they had revenues of £3 billion. They used to reduce the taxable income by paying interest for other parts of their business in other countries like Netherlands and Switzerland (Austin & Wilson, 2015).
IDEOLOGICAL ISSUE OF TAX AVOIDANCE
ETHICAL ISSUE OF TAX AVOIDANCE
1. UK needs to introduce proper laws regarding anti avoidance of corporate taxes. The laws present at the moment are ambiguous in nature so many companies are taking advantage of it. The law needs to be close ended and strict actions need to be taken if the laws are violated.
2. The UK government can make it mandatory for the corporates to publish financial reports country wise. It means that the operation done in one country will be separate from another country. If this is applied then the companies will not be able to show interest expenditures of another country. This will increase the taxable income.
3. Tax reformation needs to be done in not only for the MNEs but also for the SMEs to discourage them from avoiding tax. SME sector is very large in the UK and they account for a large portion of the GDP.
4. A system needs to be there to properly enforce the companies into declaring proper financial reports for tax purposes. The system needs to evaluate the taxes paid by the companies. There should be no scope for bending the rules of law.
5. Last but not least important recommendation is that the UK needs to reverse the trend of job cutting in the HMRC. HMRC staff numbers has been declining steadily over the last decade. In 2005 there were 92000 staffs in HMRC and now there is less than 60000 staff. This number is simply not enough to ensure tax payments. HMRC needs to increase its staff so that they can collect the taxes in a proper way.
Place Order For A Top Grade Assignment Now
We have some amazing discount offers running for the studentsPlace Your Order
2. Barker, W., 2009. Ideology of Tax Avoidance, The. Journal of Business Ethics, 12(2), pp.14-18.
3. Clausing, K., 2014. Multinational firm tax avoidance and tax policy. National Tax Journal, 45(6), pp.12-17.
4. Desai, M. & Dharmapala, D., 2015. Corporate tax avoidance and firm value. The Review of Economics and Statistics, 24(7), pp.55-57.
5. Dowling, G.R., 2013. The curious case of corporate tax avoidance: Is it socially irresponsible? Springer Science: Business Media, 13(6), pp.173-84.
6. Dyreng, S. & Hanlon, M., 2013. The effects of executives on corporate tax avoidance. The Accounting Review, 39(4), pp.46-49.
7. Fuest, C. & Riedel, N., 2010. Tax evasion, tax avoidance and tax expenditures in developing countries: A review of the literature. Report prepared for the UK , 38(5), pp.89-92.
8. Hoi, C.K. & Wu, Q., 2013. Is Corporate Social Responsibility (CSR) Associated with Tax Avoidance? Evidence from Irresponsible CSR Activities. The Accounting Review, 88(6), pp.2025-59.
9. Huseynov, F. & Klamm, B., 2012. Tax avoidance, tax management and corporate social responsibility. Journal of Corporate Finance, 38(5), pp.77-79.
10. McGuire, S. & Omer, T., 2012. Tax avoidance: Does tax-specific industry expertise make a difference? The Accounting Review, 39(3), pp.45-47.
11. Schwartz, N. & Duhigg, C., 2013. Apple's web of tax shelters saved it billions, panel finds. New York Times, 78(3), pp.114-18.
12. Shafer, W. & Simmons, R., 2010. Social responsibility, Machiavellianism and tax avoidance: A study of Hong Kong tax professionals. Accounting Forum, 20(2), pp.33-35.
13. Sikka, P., 2010. Smoke and mirrors: Corporate social responsibility and tax avoidance. Accounting Forum, 34(3), pp.153-68.
14. Sikka, P. & Willmott, H., 2011. The dark side of transfer pricing: Its role in tax avoidance and wealth retentiveness. Critical Perspectives on Accounting, 23(6), pp.78-83.