Introduction There is an increasing amount report claimed that the UK government losing money from tax avoidance. The BBC reported that some multinational companies use tax avoidance strategy to decrease the tax. It seems like these companies are lack of corporate social responsibility. However, tax avoidance does not equal to tax evasion. Some individuals assert that the government should publish a new policy to stop tax avoidance. While many others argue that it is blameless economic activity in the economic market to reduce the tax.
Personally, I am in favor of the latter view. This essay will give the background of tax avoidance and discuss whether the government should ban tax avoidance. Background of tax avoidance The meaning of tax avoidance is the legal usage of the tax regime to one’s own advantage, to reduce the amount of tax that is payable by means that are within the law. Vanessa Barford and Gerry Holt stated that Starbucks sales? 400m last year without paid any corporation tax in the UK in 2011. It happens there is a similar case, Amazon only reported? 1. 8m when they got? 3. 35bn sales in 2011. Holt, 2012) These companies use the loopholes to maximum their financial benefits. This loophole is the tax rate of the parent company and subsidiary company are differently. These companies make the price without referring to the market price. They are driving up or down the price with their own purpose. As a result, they can transfer the profits from one company to the other. By doing this, they can decrease parent company’s account profits, so the company can avoid the high tax. For example, Starbucks brought coffee beans from another country and transferred their money to its sister company.
The main issues here is that Starbucks are able to show that the transfer prices for the sister company transactions, such as purchase of coffee beans, royalties for use of the Starbucks’ name and interest on sister company debt are all acceptable based on transfer pricing studies. (Holt, 2012) The boss of multinational companies also can immigrant to another country with low tax rate. The difference of tax rate between countries the key of tax avoidance. One founder of Facebook Eduardo Saverin used this method to avoid more than $100m. Should government stop tax avoidance
Conclusion It is very difficult to craft a set of domestic tax laws that try to encourage investment, are fair, easy to apply and police, don’t lead to double taxation, can’t be circumvented and result in domestic corporations paying an appropriate level of tax. In my view, a “fairer” tax result would likely be achieved if the profits of multinationals were apportioned between the countries in which they operate on the basis of factors that are not as easy to manipulate e. g. turnover, employee cost and assets. However I can’t see how agreement can be reached on implementing this.