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Offshore Tax Evasion - Essay Example

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Final paper draft Addressing Offshore Corporate Tax Evasion In partial fulfillment of the requirements for Your Course Submitted by Your Name Your College Your College Location The DATE Abstract Tax evasion and tax avoidance are two sides of the same coin, both denying governments of needed revenue…
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Offshore Tax Evasion
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Download file to see previous pages However, there exist numerous opportunities for juristic entities such as corporations, foundations and trusts to avoid taxation by operating in multiple, carefully chosen jurisdictions using carefully chosen techniques designed to minimize taxes. This report identifies various methods of tax avoidance by multinational corporations and other entities and makes policy recommendations with respect to closing these loopholes and level the playing field between competing businesses and tax jurisdictions. Outline Introduction Offshore Tax Evasion and Avoidance Tax Havens Corporate Tax Avoidance Methods Use of Tax Havens Debt Allocation Earnings Stripping Transfer Pricing Contract Manufacturing Hybrid Entities Hybrid Instruments Magnitude of Losses Policy Issues Repeal of Deferral Partial Abolition of Deferral Formula Aportionment Splitting Foreign Tax Credits Recommendations and Conclusions. Introduction Offshore tax avoidance has greatly increased in the last decade. Multiple multinational corporations; banks and even individuals have shifted their tax responsibilities and eliminated tax in their domestic businesses (Owens, 2007). Tax avoidance resulted in reduced government revenue and reduced domestic businesses activity, as big multinationals were rewarded for their financial manipulation instead of innovation, job creation or productive investment. Lack of transparency by various governments has greatly facilitated offshore tax avoidance. Poor preparation at the policy level in countering tax abuse has resulted in many multinationals and individuals relocating their “tax home” to a tax haven. As mentioned by Sullivan (2008, p. 726), use of offshore accounts poses a threat to sovereign governments as companies use havens like Cayman Islands and Bahamas to evade tax. Global integration of financial markets and the improved communication and information technologies has made the creation of these offshore accounts and shell companies easy. Globalization, coupled with lack of transparency among various countries (which is vital in tackling tax abuse) has increased the incidence of tax evasion and avoidance at both the individual and corporate level. In the new era of banking without borders, corporations and wealthy individuals are free to transfer their capital abroad and channel it to passive investments in offshore jurisdictions. This makes it possible for them to evade paying income taxes. Offshore tax havens are countries that engage in “tax competition” with the high-tax regimes. As mentioned by Sullivan (2007, p. 329), offshore tax evasion and avoidance has put sustainable and responsible businesses at a competitive disadvantage as their competitors avoid taxation by the use of tax haven structures and strategies. Tax evasion deprives countries of revenue and this limits the development and modernization of infrastructure, which is vital for a strong economy. Offshore tax evasion According to Owens (2007), international tax evasion is categorized into corporations’ tax evasion and individuals’ tax evasion; it can also be categorized into legal tax avoidance and illegal tax evasion, depending on whether the tax avoidance is broadly or narrowly defined. International tax evasion could also be distinguished by the measures taken or measures that could be used in reducing the subsequent loss. Government revenue losses arising from individual tax avoidance are usually associated with the use of narrowly defined tax haven, corporate tax evasion ...Download file to see next pagesRead More
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