Many International Corporations Presently Avoid Tax Legally - Assignment Example

BUSINESS TAXATION ASSIGNMENT By Part 1. Paddys assessable employment income for 2013/14 Annual salary £52,000 Other remunerations from April to September as follows: Accommodation value by 2011 £155,000, annual value of accommodation £12,000 (does not impact assessable income) Furniture value by 2011 £2,900 and monthly rent £768 (does not impact assessable income) Mileage allowance 42p per mile total miles covered 4,000 miles (add to assessable income) Packing free yet cost the company at £80 per month ( does not impact salary) Reimbursement of £340 spent (add to salary) Course fee £625 Monthly salary (Annual salary/ 12) = £52,000/12 = £ 4,333 Subtract equivalent of last three month (October, November December) = £13,000 Assessable salary (52000-13000) = £ 39,000 Allowance (42 * 4,000) = £ (168,000/100) = £ 1,680 Add reimbursement £340 Subtract parking cost (80 *6) = £480 Subtract course cost £625 Gross salary (39,000 + 1,680 + 340 – 480 – 625) = £ 39,915 Add the interest for the period up to September (0.04 *39,915) =1,597 * ¾ =1197.5 Mr Paddy has the following income and expenditure for 2013/14 (Sandler 1995). Salary from his job 39,000 Benefits from employment (1680 +340) 2,020 Parking cost 480 Course cost 625 Accommodation annual value 12,000 Mr. Paddy assessable salary Income from earning 41,020 Less: expenditure 13,105 Net income 27, 915 2. Paddys tax-adjusted trading profit for the seven months ending 30 April 2014 i) Provisional account profits by April £40,202 Premium paid £5,400 Annual rent £24,000 (ignored since was paid in advance so inclusive of profit brought forward) (Great Britain 2005). Car expenses £60 business trip and fuel consumption £2,520 Repairs and renewals £1,425 Legal and professional fees £ 440 Sundry expenses £1543 Capital items £ 15100 VAT registration advice cost £ 180 Received dividend £2250 Personal pension £4000 Liabilities for the period Car expenses £60 business trip and fuel consumption £2,520 Repairs and renewals £1,425 Legal and professional fees £ 440 Sundry expenses £1543 Total liabilities = £5,988 Assets Received dividend £2250 net (not taxable) Personal pension £4000 net (not taxable) Capital items £ 15100 Initial profit 40,202 Capital items 15,100 Gross profit 55,302 Less liabilities 5,988 49,314 Less VAT 180 Tax-adjusted trading profit 49,134 Income Taxable for Paddy Non-savings Interest Dividends Earnings 40,202 Trading income 15,100 Interest 4,000 Dividends 2,250 Total income 55,302 4000 2,250 The £180 paid for VAT advice is treated as an expense though when claim is sought then it becomes foreign income. It is possible to claim VAT on costs which were incurred pre VAT registration and these expenditures associate with the start up of the commerce (James, 2011). ii) Paddy’s income tax liability for 2013/14 (Lal & Lal 2010). Net income 41, 020 Less: Allowance 1,680 Taxable income 39,340 32, 010 @ 20% 6,402 7,330 @ 40% 2,932 39340 Tax Liability 9,334 Part 2 Many international corporations presently avoid tax legally Company tax avoidance has enforced itself on to the matter of numerous governments again lately after it came out that more international corporations are paying no or little tax in a number of the sector that they function (Great Britain 2013). Apple, Amazon, Google and Starbucks are a few of those corporations that have come under analysis and obligatory to account for their tax strategies. Tax avoidance is taking legal procedures to minimize taxes that are in accordance to available law, such as legal tax loopholes and tax deductions and other (Schreiber, 2013). However, if loopholes are not sealed then corporations that legally utilize those chances cannot be blamed. It could be a moral issue but any business platform seeks to minimize on expenditure. These multinational corporations point out that these systems are lawful and they have a responsibility to shareholders to reduce their tax bills. This could be zero in to unfair business tactics; however, it is the responsibility of tax regulators to put in place measures to bridge the gaps (Mirrlees 2008). This lead to a need for the development of an international tax system that is just and fit for principle for the modern financial system. It is evident that the current tax rules were enacted long time to curb double taxation. Technological advancement has given big firms opportunities to exploit tax evasion and the best where to curb such unfair situation is to create a lean global tax system. The unfortunate thing about tax evasion is that it hinders the national growth due to low revenue collection. Therefore for adequate growth and fair competition in respective industries (SMEs and Multinational corporations), there must be a fair and fit global tax systems. This concept was backed by EU commission in their statement to curb tax avoidance by multinational corporations (Schreiber, 2013). The European Commission supposed it strategy to seal a loophole that permits some corporations to pay no or little tax by channelling profits overseas. The commission that is the EUs administrative section envisaged that the move would increase billions of Euros in much-required revenues for nationwide governments (Great Britain 2013). Tax avoidance seems to be as a great deal of a moral matter as a legal one. The indicted international corporations have all been swift to explain that they are lawfully rendering all the necessary tax. Apple’s boss executive for instance defended his corporation’s situation in recent past claiming they pay all the taxes they are suppose to pay (Mirrlees 2008). However, public upheaval reveals that just remitting what is officially required is not automatically satisfactory. One reasonable clarification is that the perception of pressure to maintain commercial profits and enlargement at almost any cost persists in spite of a global financial downturn. Functioning in a situation of globalised monetary systems, MNCs are capable to strategically place themselves to take benefits of both low levy zones and low work costs, making sure that earnings, and investor self-assurance that obtained from this, are sustained. So the problem tax avoidance is a moral concern since corporations are profit making ventures and would try to reduce costs as much as possible (Schreiber, 2013). Effects of tax avoidance Taxpayers, businesses and governments all affected when some corporations manipulate the tax structure to avoid remitting their reasonable share of levies. It is evident, international corporations still have not mastered that tax honesty is an essential fraction of corporate accountability. So the most excellent way to deal with them is to put measures that curb their actions (Brown 2012). According to Mr. Semeta, tax commissioner, taxation ought not to be an impediment to all that is excellent about the technological revolution, however, people must also make sure that the digital industry plays fair and reimburse fair (Tooma 2008). The reputational impacts of tax averting are an enormous concern for corporations. Corporations not only have to establish their blamelessness but also restore customer trust. For instance, Starbucks reacted to tax avoidance assertions by issuing a letter in state newspapers stating that it will reimburse considerably more tax in subsequent two years, despite of earnings. In addition, Google has reacted to latest criticism by illustrating the global tax system as unreasonable and articulated its support for global improvement (Brown 2012). The pressure is not only in corporations that are facing public demands to transform their ways. Nations too are encountering criticism, most lately with Ireland indicted of reducing a two per cent commercial tax contract with Apple. Ireland’s PM has since maintained this is not the situation and has also guaranteed to completely support an international reform to manage tax avoidance (Tooma 2008). Tax averting has also turn into a widespread predicament in industrialised countries. A signal of fury swept the United Kingdom when Starbucks and a number of MNCs were established to be remitting next to zero in UK commercial tax (Great Britain 2013). This leads the query, how large amount of Starbucks earnings reached its wage-level UK workers or certainly the coffee farmers around the globe that it’s provide chain relies on? Evidently, in spite of the background, almost none of the earnings from these engagements appear to reach downward (Mirrlees 2008). Reforms on tax system According to the OECD (Organization for Economic Co-operation and Development), existing tax systems need upgrading as they can be exploited unfairly by international corporations (OECD & GFTEITP 2013). It is also upon multinational to embrace corporate responsibility to ensure they remit satisfactory taxes. This will boost their reputational aspects concerns in regards to winning and sustaining customers’ loyalty. The closing gap should be implemented by multinationals in their quest to ensure tax responsibilities and fair competition (Great Britain 2013). Some improvements to the tax structure are currently taking place.  The US has executed FATCA (Foreign Account Tax Compliance Act) that requires every foreign monetary organization to account to the IRS (Internal Revenue Service) concerning their American customers (McGilL2013). The probable result will be an international FATCA and the UK has acknowledged agreements on distributing tax data with numerous tax havens counting Guernsey, Jersey, and Isle of Man. According to FATCA, U.S. personal taxpayers ought to report information concerning certain overseas financial records and offshore facilities on Form 8938 and affix it to their revenue tax declaration, if the sum asset worth exceeds the suitable exposure threshold. To shun being suspended, a foreign monetary organization may register with the Internal Revenue Service, get a GIIN (Global Intermediary Identification Number) and account precise information on America financial records to the IRS. American financial organization s and other U.S maintenance representatives must both hold back 30% on some payments to foreign units that do not certificate their FATCA condition and account information concerning certain non-financial foreign amenities (McGilL2013). If a jurisdiction gets into an IGA (Intergovernmental Agreement) to execute FATCA, the coverage and other conformity burdens on the monetary organizations in the jurisdiction may be abridged. Such financial organizations will not be subject matter to preservation under FATCA (McGilL2013). This kind of check and balance will ensure that the corporation is protected and the revenue collection is met.  The EU too is also contemplating to draft a regulation forcing international corporations to reveal commercial profits and levies on a state by state basis. This restructuring is probable to feature elevated on the subsequent G8 summit agendas (Okauru 2012). However, there will unquestionably be confrontation from governments to collaborate on a tax restructuring, as a lot of countries use the tax structure to present a competitive suggestion for business. It will surely be exciting to observe, not only the result of a likely global transformation, but also how international corporations and countries decide to respond.  It has been revealed that the current taxation systems may not adequately fit all the industries so reform should be done cautiously. Corporate tax matters are managed by a global structure that the UK and other nations are subject to. This international framework must be adjusted not to allow double taxation as tax avoidance is handled (Claus, Gemmell & Harding 2010). That international structure has not paced with transformations in the financial system, mainly in the electronic economy. That impacts corporations such as Google and Amazon. Some corporations have opted to involve in certain activities in jurisdictions that has favourable taxation structures for their businesses, by doing this they are capable to avoid taxes. However, the blame must not be put on such corporations alone but taxation systems bodies. There are heartening symbols that taxation avoidance has the interest of the G20, which converse the matter in Moscow last year and still committed to continue analyzing the best way forward (Bartlett, 2012). Sadly, the chances are piled against their efforts, given that nationwide self-interests to defend growing companies in this hard economic environment will unavoidably arise. The G20s strategy also says slight concerning the bigger shift needed to get away from profit-centric philosophy which propels such operations. While a number of token sign may be prepared through the G20, unless strategies are completed to transform views on profit which propel the inducements for tax averting, this will merely happen again in another structure. It is essential that policies and formed to enable corporations to pay tax without devising evasion means (Claus, Gemmell & Harding 2010). With fresh campaigns such as Enough Food for Everyone IF’ as of an extensive coalition of INGOs, public concentration is progressively being strained to the subject. As part of numerous key matters it seeks to urge activities on, the movement has used public media to rally public perception in the UK concerning tax avoidance. Nevertheless, there is also a necessity to involve with the civil society institutions in nations that are most radically impacted by such tax avoidance in a significant approach (Krugman 2013). Stronger international dialogue and linkages between CSOs (civil society organizations) will certainly simultaneously boost the request for public answerability from MNCs in mutually their original country and the nations they function in. It will be hard to get rid of the capability for MNCs to look for means of avoiding taxation totally. However, with the awareness this matter has already created, there is genuine potential to galvanize this dissatisfaction in a manner which efficiently links CSOs and can give some gauge of transnational responsibility. Conclusion The first part of this paper tackled the income and taxation calculations of Mr. Paddy. The second part handled the MNCs avoidance of tax. Apple, Amazon, Google and Starbucks are a few of those corporations that have come under analysis and obligatory to account for their tax strategies. Tax avoidance is taking legal procedures to minimize taxes that are in accordance to available law, such as legal tax loopholes and tax deductions and other. Taxpayers, businesses and governments all affected when some corporations manipulate the tax structure to avoid remitting their reasonable share of levies. References List BARTLETT, B. R. (2012). The benefit and the burden: tax reform--why we need it and what it will take. New York, Simon & Schuster. BROWN, K. B. (2012). A comparative look at regulation of corporate tax avoidance. Dordrecht, Springer. CLAUS, I., GEMMELL, N., & HARDING, M. (2010). Tax Reform in Open Economies International and Country Perspectives. Cheltenham, Edward Elgar Pub. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=534798. GREAT BRITAIN. (2005). 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