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)
As we know, companies used to minimise their taxes paid by using the "Grey Area" of the tax regulation. You have been promoted ‘Parallel universe’ in your article,but,how to make parellel universe work?
ReplyDeleteThanks for your comment, I think the function of using the "grey area" is for company to tax avoidance.
ReplyDeleteAs I have mentioned that an example of taxpayer subsidy for Barclays capital and Barcap being able to borrow relatively cheaper. What I mean of ‘Parallel universe’ is that company should have the responsibility to pay the tax bill that pay back to public. It is an ethical decision for the company.
I agree that in a way it could be seen as an unethical decision of the organisation that wishes to explore foreign markets because of low tax rates and benefit from it. However the business has to look our for its own wealth and if it operates profitably, it benefits the country it chooses to operate in by providing employment oppurtunities, which then drive some of the tax (paid by the workers) back into the society. Plus if the business does well, its employees potentially benefit from rewards and incentives. Would you not agree?
ReplyDeleteThanks for your comment, it urge me to think from different orientation.
ReplyDeleteYour opinion is another perspective for company to contribute to society.
In fact, there is mutual benefit between companies and society. As we know, the companies only set up their business in a good mechanism of society or a potential society (sufficient natural resources). Meanwhile, the companies provide employment opportunities to the public. Thus, it creates a developed country.
The Government acts as the role like intermediary. When the company operates profit in this country, tax just like the fee of intermediary to the Government. Thus, the Government has the ability (sufficient funds) to maintain a sound framework that provides to the public, including entrepreneurs, investors continued to develop their business in this region. As the result, it creates a “parallel universe” that achieves a win-win situation for both sides.