Should Multinational Corporations Minimize Tax Payment Through Operating in Global Environment?

[pic 1][pic 2]

[pic 3][pic 4][pic 5]

Contents

INTRODUCTION        2

DISCUSSION        3

∙        Tax avoidance by Multinational Corporations.        3

∙        An example on how Multinational Corporations can be taxed.        3

∙        Main motive of MNC’s is to increase profits- Freidman’s perspective        4

∙        Adrienne Von Tunzelmann’s perspective on Corporate Social Responsibility        4

∙        Evading Tax is unlawful and unethical in business.        5

CONCLUSION        6

REFERENCES        7

INTRODUCTION

In a global business environment, global taxation is a unclear topic for many scholars, business executives and teachers. But actually, many Foreign Direct Investments (FDI) and international operations are prejudiced by tax considerations because it is central to global decision making. So, why can’t multinational corporations pay tax according to their revenue?. Or since tax avoidance is legal, is it ethical for Multinational Corporations to do so?

I firmly believe that Multinational corporations need to pay tax according to their profits.      In this essay, first I will be arguing with the help of Friedman’s view which states that ‘In a free economy the only social responsibility of a business is to increase profits within the rules of the country’ (Coleman, 2013) which basically is tax avoidance. The two options on how they can be taxed in a global environment are through a Foreign Tax Credit System and Exempt Foreign profits from domestic taxation which will also be discussed in this essay.

Secondly, I will be discussing Adrienne Von Tunzelmann’s perspective on CSR of a company and how it can be integrated into business strategy without creating any tax issues. Based on Adrienne’s view, MNC’s should not just focus on maximising profits. They should act as a role model for the society while making profits and contributing to the society as well.  

However, tax avoidance and tax evasion can affect all the poor and middle class people. Think of advanced classrooms for your children, multi-specialty hospitals and new public transport systems like bullet trains, buses and roads which can all be done if the tax money can be taken. Some examples of Multinational corporations are also used to show who avoids tax payments or minimizes them.

Overall, this essay will argue that Multinational Corporation’s need to pay tax and should not avoid or evade tax with the use of any accounting tricks such as for example moving the profits to another country where there is low tax (NZ HERALD , 2016) mentioned by Adam Hunt in one of his videos published by NZ Herald.

DISCUSSION

• Tax avoidance by Multinational Corporations.

Basically, there are two options to minimise tax which are Tax avoidance and Tax evasion. Most of the MNC’s choose tax avoidance because it is legal and tax evasion is illegal.

Avoiding tax maybe legal and there are some methods involved such as Inversions, Transfer pricing, royalty payments etc. It mainly occurs due to the loopholes which exist by influencing the political parties. If the multinational corporations pay less tax, there will be more money left for the shareholders and the critics say that if the after-tax profits are still higher by tax avoidance then it may be shared between the top executives as bonuses or commissions (Contractor, 2016). 

According to the BBC news magazine report which mentions “Avoiding Tax robs our public services declares minister” (Holt, 2013) has become a moral issue. This was actually mentioned by one of the UK Ministers and it is a completely true statement. Avoidance of tax payments by MNC’s which are of billions could be used by the  government for the development of the country.

For example, in 2014 Google Inc. transferred 11.7 billion euros (approximately $13 billion) to Bermuda to reduce tax. However, Bermuda has no income tax charge on companies. Google has used a tax strategy known as “double Irish, Dutch sandwich” to effectively minimise tax payment. Google pays a certain amount of its profits as royalties to its Irish affiliate where corporate taxes are just 12.5%. The money was then sent to Google’s Dutch subsidiary, Google Netherlands Holdings BV to avoid further more tax. Then from there, google transfers its revenue to an Irish registered affiliate based in Bermuda called Google Ireland Holdings (Tracy, 2016). Through this strategy Google’s parent company known as Alphabet enjoys a tax rate of just 6% on non-U.S profits (Chew, 2016). This happens because it passes through a low corporate tax of 12.5% in Ireland and zero rate of tax in Bermuda.