TAXATION

Taxation

Taxation

Question One

Write a briefing paper for Caroline which explains, (with examples), how companies such as Amazon, Google are making substantial profits in the UK yet paying very little corporation tax.

Answer

Like Caroline, majority of people remain confused about how big companies adopt the practice of corporate tax avoidance and are getting away with it easily. The practice of corporate tax avoidance seems baffling and frustrating after realizing the fact that United Kingdom has set a very low tax rate. Having such low tax rates in the country make it easy for big companies to pay off taxes out of their huge revenues. Even then, companies tend to find ways for avoiding the corporate taxes.

An attempt to avoid taxes in a country which has extremely low tax rates does not seem appropriate. The citizens of a country like United Kingdom avail all the facilities provided by the government must realize the needs of government and must also cooperate with the government by paying the taxes. After transparency has been made a key priority of the British government; various controversies regarding big companies paying little tax in United Kingdom has been observed.

It is quite astonishing that huge companies like Amazon, Google and even Starbucks attempt to avoid paying taxes in United Kingdom. The fact becomes even more unbelievable because United Kingdom imposes an extremely nominal tax rate over the business of companies. Avoiding taxes over the sales in Britain have become a culture of these organizations. Companies tend to have complex tax structures and tend to avoid taxes to the maximum extent.

Recent surveys has made it quite clear that big Companies like Starbucks, Amazon and Google have been avoiding the taxes in Britain and are certainly not playing their parts in the development of United Kingdom despite taking benefits of doing business in the country. For instance, Starbucks made sales of £400m last year; however did not pay any corporate tax. Isn't it astonishing? Yes it is. Starbucks managed not paying any taxes by transferring money to the Dutch sister company for royalty payments.

Also, buying coffee beans from Switzerland and paying higher interest rates for borrowing other parts of the business made Starbucks able to avoid the taxes. Similarly; Amazon made sales of £3.35bn in United Kingdom last year but only paid taxes of £1.8m. Further, the Google United Kingdom paid only £6m in taxes while earning almost £395m. Big companies have learnt the art of avoiding corporate taxation while making huge returns every year (Knight, 2012 Pp. 1-2).

Big multinationals like Google, Amazon and Starbucks have been severely criticized by the Public Accounts Committee for avoiding corporate taxes. It has been argued that global firms assume taxpaying activity as their insult. However, all the activities that these big companies are involved in for avoiding taxes are completely legal. This remains again an extremely astonishing fact. The activities of companies cannot be claimed as illegal because they are avoiding taxes, not evading them.

Tax avoidance falls in between the tax compliance and tax ...