Taxation is not a voluntary payment or donation. It is a toll which is enforced contribution imposed by government. It is a non-penal, but compulsory transfer of resources from the private to the public sector (Wikipedia). Therefore, international company plans the strategy which will minimize the overall worldwide tax burden with most tax efficient position.
The most direct method for company to minimize the tax is keeping its operational base in low tax rate country. There are many countries tax rate are lower than UK, such as Philadelphia with 10% corporation tax, Cayman Islands with only 0% corporation tax. However, back to the discussion during the lecture, tax minimization strategy would have benefits for both the shareholder and the customer. Nevertheless, there would also generate loser. This discussion will leave to the last conclusion.
In my viewpoint, taxes are justified as it is necessary and beneficial to society because it reduces economic inequality which “the rich get richer and the poor get poorer” in a society. Let’s look at hot topic on Barclays paid ₤113m in corporation tax to the UK in 2009 which only 2.4% of its ₤4.6bn global annual profit. As we can see that the day after the news, tax-avoidance activists have targeted Barclays Bank. It is because bank has serious responsibilities as a corporate citizen. We need a strong banking system to support the economy growth for the society.
As we know long and short term cashflow may impact tax bill. Therefore, these figures cause the debate about excessive profits and bonuses in an industry underpinned by taxpayers’ money. Barclays therefore have commitment to the Treasury in Project Merlin that it would reduce the total paid out in bonuses. And result the banks decrease the bonuses compare with this year than last year.
In 2010, the total group revenue of Barclays is ₤31.44bn. However, there is also rising salary for staff which rose costs by 20% to ₤11.9bn, which ₤3,5bn was paid in bonuses. It is still a huge amount that affects the profit before tax. Therefore, Barclays has reported pre-tax profits of ₤6.07bn for 2010. Even Barclays paid over ₤2.8bn in taxes in the UK in this year. The bank still enjoying a better financial climate with only public opprobrium over bonuses remains unchanged.
What we need is ‘Parallel universe’, taxpayer subsidy for Barclays Capital and Barcap being able to borrow relatively cheaper which make profit at the end. However, Barclays had paid themselves (chief executive, shareholder, staff) with high salaries and bonuses. As the result, the taxes paid would be in a low amount. Let’s back to the discussion, don’t you think that the loser would be the taxpayer!?
Reference:
Tax - Wikipedia, the free encyclopedia. Available at: http://en.wikipedia.org/wiki/Tax (Accessed: 24 Februrary 2011)
Reference:
Tax - Wikipedia, the free encyclopedia. Available at: http://en.wikipedia.org/wiki/Tax (Accessed: 24 Februrary 2011)