International Law and OECD - Essay Example

Running head: International Law and OECD proposal International Law and OECD proposal s According to the answers.com, the definition of taxation is described as, the amount levied on the citizens or the companies of the country by the governments of the respective countries (Mifflin, 07). When countries charge their citizens for living in the country and the companies, which are operating in the country, that amount is said to be the tax. The people who pay tax regularly are the taxpayer citizens and the taxpayer corporations. Tax is that amount of money, which cannot be avoided anyhow. It is because, the government has a fair record of the people living in the country and the businesses providing services or manufacturing goods. The meaning of tax can be actually described as the money, which is charged by the government for Public Sector Borrowing Requirement (PSBR) (Public Acts 1994). When we interpret the definition, we may find out the reason why countries charge tax. The governments levy tax upon its citizens because they want money to regulate it in the whole country. It as actually meant for the betterment of the country and the nation itself. Governments may built roads, built a better infrastructure, improved public organization services, improve the level of education, building schools to remote areas, proving better and free health care, etc. Government may charge the tax to invest back to the country in turn. Where as international law refers to the general rules and regulations practiced in most part of the world (Mifflin 2007). It is the law which is followed by all the countries worldwide and so it is called international. There are certain rules and procedures which are followed in every country of the world. These practices are important to carry out in the country, as they enable governments to work and perform better and in organized way. Those laws are called international, as they are practiced in every country and are accepted as well. And in one way or the other, it may also by this way, bind nation together and states as well. It is because different parts of the world have different customs to follow, different governments, variations in language, colour, creed, religion, etc. but the thing which binds then together is the law which they practice in the country, only that is common in them and it keeps the countries linked together. This essay will include all the necessary and valid information about the international laws regarding the taxation issues. As far as the case study is concerned, I will try to ensure the reader abut the authentication of the information and will make sure that my answer shall convince the reader as well. The essay will proof to be the perfect guide for the three friends for their decision about the avoiding tax and the OECD proposal about the business. As described in the case study, that the friends do not want to pay taxes and their nature of business is to contribute to the tertiary sector of the country. It is yet no specified that whether the owners plan is to provide services to the country only or to the rest of the world as well. The type of job which these friends are going to do can be practiced in a country as well as outside the country, ignoring boundaries. It is because of the reason that, the friends will have headquartered at one place and will precede the business from there only. That means headquarter; will exist in one place, yet their operation in different part of the world at the same time. This is what most of the translational companies do, ignoring the boundaries. But trans-national businesses do not try to void tax and in this case, the partners are trying to ignore the tax as well. Now, it is very essential to understand the two types of taxes, direct and indirect. Before I shall proceed, I may make it clear that the direct taxes are unavoidable. This means, the direct taxes cannot be ignored and we have to pay them even if do not want to. These taxes are the most common source of governments to raise funds for the betterment of the country. It is because, these taxes are liable to be paid by every citizen and the company operating in that country. If one does not pay direct taxes, then that person or that organisation is said to be a defaulter and the government can take any initiative against him, anytime. On the other hand, indirect taxes are avoidable and it depends on the person whether he choose to pay it or not. It is because of the fact that consumer has choice whether to consume the good or service or not. These taxes are levied on the goods and services present in the market. They are very common taxes and every penny gained from the collection of tax, is the governments revenue. For instance, when a person gets his salary slip for the whole month he has served the organisation, there is always an amount which is deducted from the salary already. That amount is the direct tax levied by the government and it charges are deducted already. This amount which has been charged cannot be avoided from the deduction. In some countries, a bit of a space is given to the taxpayer to pay the direct tax on his own. But in other countries, they do not allow such behaviours, as government may perceive that people will avoid this tax and become defaulters. As we see the case study and analyze the problem, we may conclude instantly that the entrepreneurs are searching for a free tax zone. According to the international law followed by the government of United Kingdom (Public Acts 1994), the free tax zone is only provided to the tangible goods security. It is because it a place where these tangible goods can be put in and can be protected as well. It is kind of a warehouse without charge of the Value added tax or Indirect tax. The services business, as described in the case study cannot be practiced there in the tax free zone as they do not accommodate humans or running businesses, only goods which are tangible. Secondly, the international law does not allow much of the country's internal information leakage to any other state or country (Public Sector Information 08). The business of evaluating the company's growth and the suggesting the ways in which the loss can be shared and the profits can be saved, is a dangerous job. It is because, while the owners will evaluate the business performance, it may come to know about many of the internal matters of the company. The international law of Power of Information, does not allow sharing some of the personal details of one economy to the other. The type of business which these friends are operating in, is very different from the other sorts, it needs comparing the other businesses and sorting out the solution according to every business policy. So, the owners should be very specific and fair enough to deal with crucial information regarding companies. It is stated in the Article 39, international policy practiced in Europe (1997), that there are some limitations on the grounds of movement of people or services in between different countries. According to the law the people or the services which are shared should be fully adhered to the policies of the government. As it will be the other government's responsibility to take care of their citizens and businesses at once. That means there is no means of cheating done or can be done, are possible. If the person or the business is caught red handed in process of abiding rules of informing the next country about the services, then there shall be no mercy granted. Consequently, the entrepreneurs have to inform the country about the services they intend to provide to their businesses and that means the tax cannot be avoided. It is because, once a country know about the services being provide by the foreigners, they will charge high taxes, because they are giving chance to other country citizens to work in their country. This will also, de-motivate or create problems for the native businesses of that country. The same Article 39, also suggest that if the business is setup in another country, then that business will have to employ the natives of the foreign land as well. The reason being, that they have to promote employment in their own country and as far as they are letting businesses to establish in their country, ensuring the employment of the people as well of that country where they are operating. This technique will enhance the rate of employment in the host country and at the same time, it is giving opportunity to other businesses to reside in their country. Through this way even, the owner's plan of abiding or lowering tax rate is impossible, because it then has to employ more workers from that country and that will cover the cost. According to OECD proposal, the business of the three friends can sustain in the tax haven countries, but it needs some additional spending to be paid to the government (Exit taxation and the need for co-ordination of Member States' tax policies, 07). That means, the country will accept the businesses as it is working and provide with an exemption of the taxes as well but for that reason, the company has to subsidise its services. It is because, countries may argue about the tax invasion otherwise, as it is the incentive provided by them to the other foreign businesses, so in turn, even businesses shall also comply with the same strategy. Subsidising the services of the businesses means to save from the levied tax, and spent it on the subsidising plan. The cost of providing the service will even cannot be covered, if the partners decide to subsidize their services. It is because, the company is an infant one, and the owners have it as their first experience of owning the business. The business does not have essentials of the assets, and that is called the Goodwill (Anti-abuse measures in the area of direct taxation, 2008). The goodwill is the relations of the organizations with several external forces of the environment, i.e. suppliers in manufacturing business, competitors, clientele, etc. Thus, the business has no goodwill and it is new for the owners. In other ways, the business may contribute to the country in anyway they want. The subsidiary method is what called the principal one, but there are other methods as well. Other techniques may include the idea of Corporate Social Responsibility (CSR) (Tax treatment of losses in cross-border situations 07). It is one of the very main and pivotal ideas to carve a niche in the society and sustain a living. Corporate social living means to contribute to the society positively, with doing something for the country you are operating in this means, serving the country in other words. This is even not a good idea to save the tax and pay bills of contributing to the others society. The cost of the business will in fact, won't decrease but surely increase. There will be no advantage guaranteed to the owners of the business if they practice the concept of corporate social responsibility. As the friends are operating a new business, it will be really hard for them to generate funds enough so that they may do other things from business as well. It will be better for them, if they will try to cut costs in every possible way and see the benchmarks also. In each and every country, where tax exemption policies are kept, there is always a condition behind it (Co-ordinating Member States' direct tax systems, 07). Of course, other countries will not wait for foreign businesses to come and set up their organizations. It is because country's first preference is to boost their own businesses and not to boost other foreign ones. When they allow other businesses to join the country, there is always a reason, like the employment, issue, the subsidiary, the type of business one has to operate in other country, its potential, etc. In this case, the partners were very fond and had an urge to do the business on their own. But it is not that easy to get the circumstances done as we want them to. In the conclusion, one must agree that there are too many conditions behind the concept of the tax haven't zones. The basic advantage is not ours, but the countries which provide tax free zones and they surely have a right to do it as well. It is because they will think from their perspective and their growth. The new business to sustain in the world is very hard task to do, especially when the partners are running for the tax exemption policy. The entrepreneurs tried to cut their costs through making a plan of keeping the headquarters in a tax heaven. But that plan, as far as I see, is unsuccessful. It is because, there are more costs levied on a mere condition of tax exemption, which bound the company's operation to run smoothly and to make profit. The business will merely sustain as the costs are too much with it. Work Cited: The American Heritage Dictionary of the English Language, Fourth Edition Copyright 2007, 2000 by Houghton Mifflin Company. Updated in 2007. Published by Houghton Mifflin Company. http://www.answers.com/taxation [5th July 1994] Public Acts 1994 Value Added Tax Act 1994 (c. 23) http://www.opsi.gov.uk/acts/acts1994/Ukpga_19940023_en_1.htm Summaries of legislation, 07, "Co-ordinating Member States' direct tax systems" Last updated: 4.6.2007 http://europa.eu/scadplus/leg/en/lvb/l31058.htm Summaries of legislation, (2007). "Tax treatment of losses in cross-border situations" Last updated: 6.6.2007 http://europa.eu/scadplus/leg/en/lvb/l31059.htm Summaries of legislation, 08, "Anti-abuse measures in the area of direct taxation" Last updated: 28.2.2008 http://europa.eu/scadplus/leg/en/lvb/l31062.htm Summaries of legislation, 07, "Exit taxation and the need for co-ordination of Member States' tax policies", last updated: 18.6.2007 http://europa.eu/scadplus/leg/en/lvb/l31060.htm Power of Information, 2008, "Public Sector Information" Last Updated: 14/11/2008 http://www.opsi.gov.uk/advice/poi/index Read More