MULTINATIONAL COMPANIES LIKE MICROSOFT, APPLE, STURBUCKSAVOID BILLIONS

IN TAXES DUE TO ECONOMIC COMPETITION AMONGST NATIONS

SUBJECT: LB5214 CURRENT BUSINESS ISSUE
Student ID: 12898114
CREATED BY (NAME): SAMIR SARKAR
LECTURER: TAN BOON ANN
TUTOR: J AIME WONG
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EXECUTIVE SUMMARY
Some of the biggest names in technology Apple , Microsoft ,Google ,IBM ranked in
the top 15 of the 100 public-traded companies avoid paying taxes in the U.S on their
profits .These companies avoid paying taxes by using accounting tricks to make profits.
They used to shift profits outside the country to some other country with minimal or no
taxes. According to a report companies like Microsoft, Google, Apple held $800 billion
offshore through a combined 860 tax haven subsidiaries. A recent study found that Apple
pays almost no taxes on the $105 billion it boos offshore. Apple has structured three
subsidiaries by manipulating tax loopholes in U.S and other countries .The average tax
rate these companies paidis just 7% which is much lower than 35 % U.Scorporate tax
rate.As reported Google is operating 25 subsidiaries in tax havens but disclosed 2 in
2010.Microsoft disclosed 5 out of 10 subsidiaries in 2012.Strong action can prevent
corporations from using offshore tax havens and this will also restore basic fairness to the
tax system.
Companies like Starbucks, Microsoft and Appleavoid tax by applying several methods
like transfer pricing etc. TransferPricing is the pricing arrangement used by a company to
provide service to its associate enterprises.Sometimes more than one countries engage
among themselves in tax competition to attract MNCs.In the time of recession when tax
rates are low then these companies doesnt only generate employment but also helpful for
these tax competing countries to gain high taxes.Tax evictionhelps these MNCs to show
less and less profit.MNCs establish their headquarters in low tax countries and enjoy the
infrastructure of high tax countries. Thishelp them to shift profit between countries.But
on the other hand when questioned about that,these companies deny the allegation of tax
ovationby saying that they obey the tax legislation of the respective countries.these
companys tax evasionaggravated more because tax structure in different countries are
different so proper assessment of MNCs income and expenditure cannot be done.
Corrective actions are ASAP requiredto be taken by respective Govt. of those countries
in which MNCs run their business and pay tax.
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Table of Contents
EXECUTIVE SUMMARY ............................................................................................................ 2
INTRODUCTION: ......................................................................................................................... 4
BACKGROUND: ........................................................................................................................... 5
ASPECTS OR ISSUES & PROBLEMS: ....................................................................................... 6
DISCUSSION................................................................................................................................. 7
RECOMMENDATIONS:............................................................................................................... 9
IMPLEMENTATION PLAN....................................................................................................... 10
REFERENCES: ............................................................................................................................ 11
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INTRODUCTION:
Now a day there are exits servile multi- national company those are do their business to make
profit and give benefit to the society .but on the other hand this company avoid a huge amount of
tax to a largest time. These companiesare apple Microsoft, Starbucks etc. Top global
multinational companies like Google, Microsoft, and Starbucksmake profits through subsidiaries
to offshore centres such as Cayman Islands, Bermuda to avoid paying taxes in the countries
where their goods are produced and in those where they are consumed. Gland House is a five-
story office building in Cayman Islands. It levies no income tax on the companies incorporated
there just by registering subsidiaries. They use legal accounting gimmicks to make their earned
profits appeared in a way that are earned in Cayman and thuspay
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BACKGROUND:
In the recent year multinational companies like Microsoft, apple,Starbucks theydoing business
and provide benefits in our society but they avoid billions in taxes due to economic competition
amongst nations.in the recent year globalizationthe problem of tax avoiding has become
enormous issue.MNCs have develop strategyto dominate the business world and business
corporation tax rate across the world.There for it is relativelyeasy for company to reduce their
tax burden by locating theirheadquarter in low tax country.This way any profit that a subject to
low tax rate and thus company are accused of descries the government tax revenue .Many may
consider that this company have done wrong. Because many screams in the tax avoiding are
legal and clear way of using the system.However the business environment demented by the
giant like apple Microsoft.Impact of tax avoiding may not only belong the government to
propertycompany like apple Microsoft haven unfair advantage over domestics best company
i.e. other company in the country dont have the same ability that they have to located country
overseas.
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ASPECTS OR ISSUES & PROBLEMS:
Various problems regarding tax ovationare as follows:-
1) Proper assessment of income and expenditure cant be made because of different tax
structure in different countries in which they run business.
2) MNCs show faulty figure (lower) of profit to avoid tax.
3) MNCs avoid tax and the burden of which are fallen into the common public of the
countries in which MNCs run business.
4) Accounts of the MNCs are being manipulated by the managers of the MNCs to avoid tax.
5) GNP (Gross National Product) and GDP (Gross Domestic Product) of the countries in
which the MNCs run their businessshow faulty figures as these companies pay much less
tax than they should pay and manipulate accounts.
6) Proper picture of the business of the companies are taken far away from the eyes of the
shareholder, investors, suppliers etc.
7) The price of the productsof these MNCs rises and the common public suffers.like the I-
phone 4 costs about $500 in retail, but how many people know that it actually cost just
$187.50
8) The owners of these MNCs have income which hasno valid documents.
9) If these MNCs evade tax but cant escape then their corporate image in the market is
destroyed.
10) Tax elationalso affectsthe quality of the product being produced by these MNCs.
There are threemain componentsconsists of GDP growth in any country that is Government
Investment,export,and consumption.so if the multi-national company like apple Microsoft
etc.avoidedtheir tax than economy slowing down.Gross Domestic Product of the countries in
which the MNCs run their business show faulty figures as these companies pay much less tax
than they should pay and manipulate accounts. MNCs avoid tax and the burden of which are
fallen into the common public of the countries in which MNCs run business
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DISCUSSION
Companies like Microsoft,Starbucks,and Applehave been accused of both tax avoidance and
tax elation.Thesecompanies sometimes pay much less tax than they should by cleverly applying
tax enationmethod. Dueto the consequencesof globalization many multinational companies are
developed now a days whohave to run their business among several(more than one)
countries.As because tax structure is different in different countries these companies have an
advantage of shifting their headquarters to low tax countries to avoid or pay much less tax than
they should pay.These companies avoid billions of tax.Sometimes contracts are signed in low tax
countries just to pay much less tax than the correct amount.So the Govt. of those low tax
countries isdeprived of the tax amount.
Some people argued that this practice is not an illegal one but just a clever way to avoid tax. By
avoiding huge amount of taxation multinational companies give competition to the small
companies.This happens in a particular way. Small companies because of their inability to
relocate their business to low tax countries,they have to pay full amount of tax.Whereas just
because of their ability multinational companies shift their headquarters or business and sign
contracts in low tax countries.MNCs show much less profit to avoid or reduce taxation. This
practice compel the small companies becomes incompetent and at last they are compelled to
leave the market.As because tax structure is different in different countries,this brings an
advantage to the MNCs of not having aunique or universal tax structure because MNCs run their
business among more than one country.So simultaneously proper assessment of income and
expenditure of these MNCs by respective Govt. cant be done.So this brings a chanceto the
MNCs to avoid or pay much less tax than they should pay.
For several reasons MNCs choose to establish operations in different countries. Those are-to
enjoy the local raw materials to produce goods,to employ the local labours in chip rate.On the
other hand several countries engage in competition amongthemselves to attract MNCs.Because
it is helpful in many ways.Like in the time of recession when tax rate takes down then it will be
helpful to generate employment for those countrys people by the MNCs and also the countries
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are enable to gain high tax from these MNCs.So several countries becomes engage among
themselves in tax competition.Tax competition is described as the adaption of tax policy by the
Govt. to attract new investment.
If we see total income of apple of the financial year 2009-2012 is $30billion but they cannot
makes any corporate income tax return file or not paid any income tax to any national
government last five years. A recent study found that Apple pays almost no taxes on the $105
billion it boos offshore. Apple has structured threesubsidiaries by manipulating tax loopholes in
U.S and other countries.
Now a daywith the help of International Tax Law MNCs have an opportunity of shifting profit
and loss between high and low tax countries. These providea chance for them to enjoy good
infrastructure in high tax countries and tax advantages in low tax countries.
By transfer pricing method MNCs can shift their profit between several countries according to
their need.Transfer Pricing is the pricing arrangement used by a company to transfer physical
goods and intangible property or to provide services to associated enterprises.
However when MNCs applythe practise of shifting profits out of the local economy then tax
enationand tax avoidance occurs and ultimately the burden is shifted to the common people of
the country. But interestingly many times these MNCs dont consider themselves as tax avoiders.
Not only that they claim that they always follow ethical business practice and obey tax
legislation which is not true. Socorrective actions are requiredto be taken by respective Govt. of
hose countries in which MNCs run their business so that MNCs cant avoid or pay much less tax
than they should pay. Interestingly, these companies do not consider themselves tax avoiders.
Companiesthat use tax havens to shift profits make claim that they maintain highethical
standards, engagein socially responsible business practices and obey boththe letter and spirit of
tax legislation (Christensen 2012).
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RECOMMENDATIONS:
The government has to take servile corrective step to rectify the problems of the tax for this multi
-national company like apple, Microsoft, Starbucks etc.the main step are auditors should be
appointed by the government who will check the account related information of various multi-
national company so that proper assessment of income of expenditures of various multi-national
company can be done properly. The law regarding taxes of servile country should be amended
according to the need of the government. Theinformation on the ICS that is import control
system and links to the technical document that will be benefit to control of import and
exportgoods.If the government control exporting goods outside system that is National Export
System (NES) use for to send mandatory export declarations midlandexport summary
declarations(EXS) electronically and mandatory use of export control system (ECS) in every
port.
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Implementation Plan:
I suggested that if government makes some law or some rules like if government check their
bank account properly by national law than multi-national company cannot avoid tax. So it is
true that if The government has to take servile corrective step to rectify the problems of the tax
for this multi -national company like apple, Microsoft, Starbucks etc.The information on the ICS
that is import control system and links to the technical document that will be benefit to control of
import and exportgoods.If the government control exporting goods outside system that is
National Export System (NES) use for to send mandatory export declarations naiad export
summary declarations(EXS) electronically and mandatory use of export control system (ECS) in
every port.
The main step are auditors should be appointed by the government who will check the account
related information of various multi-national company so that proper assessment of income of
expenditures of various multi-national company can be done properly. The law regarding taxes
of servile country should be amended according to the need of the government.
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REFERENCES:
1.) http://www.dailymail.co.uk/news/article-2328121/Apple-tax-US-politicians-Apple-
avoiding-BILLIONS-taxes-setting-dummy-HQ-haven-Ireland-says-innocent.html
2.) http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb
=true&_pageLabel=pageImport_Home
3.) http://www.businessinsider.com/apple-microsoft-avoids-taxes-loopholes-irs-2013-1
4.) http://www.huffingtonpost.com/2012/09/20/microsoft-taxes-profits-
offshore_n_1901398.html
5.) Economic Policy, Volume 62, November 2013, Pages 989-1001Muhammad Khalid
Farooq, S. Kumar, Ram M. Shrestha
6.) National tax journal,Publisher-National Tax Association,Date-2009,Volume-
62,Pages703 725
7.) TAX AVOIDANCE, PRIVATE COMPANIES AND THE FAMILY,Publication Title-
Cambridge Law J ournal Publisher Cambridge University Press Date 03/2013