The Art of Aggressive Tax Planning - Essay Example

?TAX DEBATE In the wake of global capitalism, multinational companies have mastered the art of aggressive tax planning. Economic experts reckon that in their quest for maximum self-profitability, global multinational giants have ingeniously created tax avoidance mechanism with help from their professional advisory agencies as well as the mainstream government. In the United Kingdom, the government has developed lenient tax regimes that grant tax breaks to Google, Starbucks, and Amazon. This subtle and unscrupulous mechanism has created major fallout in the public domain as the issue of ethicality arises. The reputation of the key players involved - the mainstream government/ Her Majesty's Revenue and Customs, professional advisory agencies, and the companies themselves – has been tainted considerably, as a result. The issue of aggressive tax planning raises the question of ethics. Each of the aforementioned players has a critical role in the arrangement as ensuing thesis underscores. In an attempt to tackle the query at hand, it is important to understand the roots of the economic power plays of the international system. In his discourses, Immanuel Wallenstein discusses political economy of global capitalism. In an attempt to articulate his major argument, Wallenstein develops a theoretical framework, which he calls the World Systems Theory. According to this theory, there is a characteristic structural disparity brought about by capitalism. He espouses that in the political economy of capitalism, the developed economies of the West emerge as the holders of capital since they control the market. Subsequently, the impoverished countries of the third world provide cheap labor and raw materials required to facilitate production. Echoing the same thoughts, Karl Marx had earlier noted that elite nations of the West could not continue to enjoy this prestigious condition without exploiting the poor countries. Information retrieved from the annals of Karl Marx’s ideology dubbed the Communist Manifesto indicates that there are two key players in the power play of the international system: elite individuals and multinational companies. In the political economy of global capitalism, self-preservation is the ultimate goal. For multinational companies, the subjects of this study, aggressive tax planning is one of the devious tactics used to meet this end goal. Role of Key Players in Aggressive Tax Framing As famed global visionary, Steve Jobs once said, with great power comes responsibility. Through aggressive tax planning perpetuated by their lobbyists, strategic planners and advisers with the help of the mainstream government, multinational companies have ignored their responsibility role by shirking away from their duty to care. By ignoring their duty to care, they ignore their ethical duty thus abusing their corporate social responsibility. Their subtle tax circumvention mechanisms are a show of greed and thirst for economic power, which raises ethical concerns. Sources retrieved from Amnesty International indicate, “Starbucks had sales of ?400 million in the UK last year, but paid no corporation tax. Amazon, which had sales in the UK of ?3.35 billion in 2011, only reported a "tax expense" of ?1.8 million And Google's UK unit paid just ?6 million to the Treasury in 2011 on UK turnover of ?395 million.” Economic experts from the Wall Street Journal apportion blame to professional advisory agencies. The professional advisors of the companies themselves have come under fire on the type of advice that they have given which has in turn given rise to the tax avoidance. Key professional services firms such as Deloitte Touche, PricewaterhouseCoopers (PwC), KPMG, and Ernst & Young are equally as guilty as the companies themselves are. Certain experts argue that these advisory agencies are the real culprits. According to the Wall Street Journal, these advisory agencies wilfully mislead and manipulate the companies for their own profitable purposes. Top economists accuse the advisory agencies of advising the companies on various ways in which they can avoid corporation tax by “exploiting the loophole” of OECD principles. By so doing, the advisory agencies become ‘partners in crime’ so to speak for aiding and abetting tax circumvention through disingenuous practices such as aggressive taxing. Likewise, the mainstream government is equally to blame for the egregious offences. Her Majesty’s Revenue and Customs is unreasonably lenient towards companies that partake in aggressive tax planning. Amazon, Starbucks, and Google specifically receive gratuitous tax breaks under the auspices of aggressive tax regimes. Economists observe that major multinationals have professional lobbyists whose fundamental role is to persuade the government to design aggressive tax regimes. They achieve this by reaching out to politicians and policymakers in the House. Professional lobbying, as experts reckon, is perhaps the most effective tool of ensuring the survival of major companies since it loosens tax regulation by the mainstream government leading to amendment of lax legislation on the same. In a recent press release to address the ethical issue of these acts, John Lewis’ managing director, Andy Street urged both the Treasury and Her Majesty’s Revenue and Customs to ensure that money “earned in a particular country” was “taxed in that country.” Street warned that persistent tax avoidance by powerful economic giants such as Google, Starbucks, and Amazon would drive domestic companies in the UK companies out of business. In light of these concerns, there is a foreseeable detrimental effect to the economy of the United Kingdom that even leading companies such as John Lewis are being wary of. Capitalism is by its very nature exploitative. In the political economy of global capitalism, self-preservation is the major consideration of companies such as Google, Starbucks, and Amazon. Economic experts at the Wall Street Journal reckon that the companies have mastered the art of aggressive tax planning, which has become an ethical issue. In their quest for maximum self-profitability, global multinational giants have ingeniously crafted tax avoidance mechanism with help from their professional advisory agencies as well as the mainstream government. In the United Kingdom professional advisory agencies such as Deloitte Touche, PricewaterhouseCoopers (PwC), KPMG, and Ernst & Young are equally to blame for helping these companies avoid taxes by exploiting legal loopholes. Similarly, by being too lenient in their tax regimes the government - Her Majesty’s Revenue and Customs – has made it possible for the companies to thwart taxes. References Ebrahimi, H, 2012, “John Lewis warns Amazon's tax avoidance 'will drive UK companies out of business” The Telegraph Moore, J, 2011, “Ecology, Capital, and the Nature of Our Times: Accumulation & Crisis in the Capitalist World-Ecology,” Journal of World-Systems Analysis 17(1), 108-147 Read, S, 2012, “Tax-avoidance could backfire on companies: Firms, which find ways to dodge paying tax, are facing a PR disaster that could hit their shares” The Independent Wallenstein, I, 1983, Historical Capitalism, London, Verso Read More