Articles Posted in Tax avoidance

IMG_0081-300x193In his book, Moneyland, Oliver Bullough details how wealthy individuals and large companies take advantage of a long list of loopholes to hide profits and leverage their control over the world. With a combination of geography and demography, Bullough takes readers on a journey of the corrupt practices followed by some of the most influential entities in the world.

Tax havens and lenient laws are part of what makes such an extreme level of corruption possible, and seemingly legal. Known tax havens like the Cayman Islands, Bermuda, and Switzerland have been used by corporations and individuals around the world to hide profits and reduce tax fees for decades. With little to no taxes owed on profits in these locations, tax havens are extremely inviting to the greedy. But how does it work?

The idea is quite simple. For example, a company in the United States merely has to open a subsidiary located in a tax haven to reroute profits and enjoy the more lenient practices of that area. This practice is only made safer for the individuals involved due to the fact that most tax havens have little to no legislation preventing or criminalizing such acts.

Forty percent of today’s cross-border direct investments reported by the IMF – $18 trillion in value – are being booked in just 10 countries that offer corporate tax rates of 3 percent or less.

An independent international research organization, The Corporate Tax Haven Index, has published a report https://www.corporatetaxhavenindex.org/introduction/cthi-2019-results , which was named the United Kingdom and a handful of OECD countries as the jurisdictions most responsible for the breakdown of the global corporate tax system. The United Kingdom, says the report, is mostly responsible through its controlled network of satellite jurisdictions. These countries undermine the ability of governments across the world to meaningfully tax multinational corporations. Over $500 billion in corporate tax is dodged each year globally by multinational corporations. Forty per cent of today’s cross-border direct investments reported by the IMF – $18 trillion in value – are being booked in just 10 countries that offer corporate tax rates of 3 percent or less.

The Corporate Tax Haven ranks countries based on the degree to which it enables corporate tax avoidance. Each country’s corporate tax haven score is then combined with the scale of corporate activity in the country to determine the share of global corporate activity put at risk of tax avoidance by the country. The greater the share of global corporate activity the higher it ranks on the index.

tax evasionAccording to a list by Oxfam, a charitable organization that works to alleviate global poverty, Bermuda is the worst corporate tax haven in the world. Joining Bermuda on this list are fourteen other tax havens, which include the Cayman Islands and British Virgin Islands. But, what makes Bermuda stand out among the others noted on this list?

Creating The List

Oxfam did not take the creation of this list lightly. In order to determine the tax havens that belonged on the list, Oxfam carefully researched numerous factors, including the presence of exceptionally low or nonexistent corporate tax rates and unfair tax incentives. Oxfam also took into consideration the cooperation, or lack of cooperation, of these tax havens in regards to international regulations designed to combat tax evasion. During its extensive research, Oxfam found that Bermuda and other British territories were among the worst tax havens in the world. This is especially true when considering the United State’s use of these tax havens.

Bermuda-300x225Bermuda was placed on an updated blacklist as a non-cooperative tax jurisdiction by the European Union. The EU hopes that this will inspire Bermuda, as well the other captive domiciles on the list, to take the concept of tax evasion and avoidance seriously, and keep globe financial in order.

Bermuda is listed alongside Aruba, Barbados, Guam, Vanuatu, and the US Virgin Islands. The creation of the updated EU blacklist was a result of a European Commission directed research and investigation. This time there were 10 new countries added to the updated list, which means 15 total jurisdictions are currently on it.

The general criteria for the EU blacklist involves three things. The first was tax transparency, which makes all financial actions easily visible in order to avoid any chance of hidden corruption. The second is good governance that will assure all financial actions are being monitored efficiently by a selected party. The third is the rate of economic activity and the verification of that activity to assure that there is a real, steady, and prospering economic flow.

DOL-300x200In order to assure that workers are being classified correctly, the Department of Labor and the IRS are working together to pay close attention to cases involving determination of work status and issuing the correct penalty to employers.

When it comes to doing work for money, employers can classify workers as either employees or independent contractors (IC). These classifications have a significant impact on the costs an employer must take on, as well as the control an employer has over its workers. The main reason employers would try to classify an employee as an IC is due to taxes. According to an IRS publication from 2008-2010,  “Federal employment withholding taxes represent nearly 70% of all federal tax revenue to be paid to the IRS, which seeks back taxes and penalties from employers that wrongly treat workers as self-employed contractors.” That being said, there are many actions in place when it comes to identifying which of these someone should be labeled as, responding to false classifications, and issuing penalties. With the rise in freelance services, this distinction is becoming more essential for society.

When it comes to defining whether someone should hold IC status or not, the DOL and IRS have several overlapping tests that will allow them to determine misclassification. While some states may have a different jurisdiction for working status, these tests are very thorough and effective at defining a general baseline. While these tests are truly impressive, and the DOL and IRS federal and state regulators are doing everything in their power to improve them daily, many professionals believe the simple approach of labeling everyone as an employee when status is not unquestionably apparent is the best approach.

A new technology called “zapper” enables a cash register to create a second false record of all transactions allowing under-reporting of sales receipts by retailers. Now the tax man is paying attention and use of the hardware and software may be illegal.

The program tricks  tax authorities with a second set of books that look convincing. Zappers,  have already been banned in 20 states.

The use of zappers is illegal and may be subject to criminal penalties. However, according to a New York Times report, governments worldwide have yet to find effective means of prosecuting their use.

The European Commission has made preliminary findings that Apple has benefited from illegal state aid after arranging deals with Irish officials in secreat, resulting in Apple paying less than 2% corporate tax for several years.

The Commission says it will publish its preliminary decision this week which  will explain why it believes that two tax agreements between the US computer, software and mobile phone maker and the Irish government – in 1991 and 2007 – were considered as illegal forms of state aid.

Apple has been in Ireland for 34 years. The company says the agreements set up with the Irish government are not illegal. The company denies wrongdoing.

U.S. corporations including Burger King, Medtronic Medical Devices and Chiquita Banana  and many others that  have merged with foreign firms and shifted their headquarters to avoid U.S. taxes, may not only come under scrutiny by the IRS but also by consumers who recognize that this activity is unpatriotic and damaging to our nation.

Some conservatives point out that publicly traded companies have a primary responsibility to the shareholders and saving loads of tax dollars meets this responsibility.  Balances against that, costs to the U.S. treasure are massive. The Joint Committee on Taxation stated that the nation will lose $20 billion in tax revenue in less than 10 years. Others think the losses will be much higher.

As Congress is in its typical gridlock mode, there is a force which could change the course of the corporate deserters and that is the buying and boycott power of the American consumer. Burger King, which presently pays about 35% in taxes, when there are no losses, might be able to reduce that to about 7% if it shifts its operations to Canada. However, given that most of the Burger Kings are in the U.S., if there was a consumer boycott, stock prices would plummet and sales would stagnate, offsetting by far any tax advantages.

During the past year, a dozen major U.S. corporations including medica group Liberty Global, Chiquita Banana and Pfizer have started shifting their headquarters and tax base overseas, according to Reuters. Several have re-based their operations to London including Aon Plc, CNH Global N.V., Delphi Automotive, Esnco, Liberty Global and Noble Corporation. Continue reading