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Tax avoidance is the legal usage of the
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law. A
tax shelter Tax shelters are any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments. The methodology can vary depending on local and international taxation, internatio ...
is one type of tax avoidance, and
tax havens A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a government A government is the system or group of people governing an organized community, generally ...
are jurisdictions that facilitate reduced taxes. Tax avoidance should not be confused with
tax evasion Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trust (property), trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities ...
, which is illegal. Forms of tax avoidance that use legal tax laws in ways not necessarily intended by the government are often criticized in the court of public opinion and by
journalists A journalist is an individual that collects/gathers information in form of text, audio, or pictures, processes them into a news-worthy form, and disseminates it to the public. The act or process mainly done by the journalist is called journalism ...
. Many
corporations A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal ...
and
businesses Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit." Having a business name does not sep ...
that take part in the practice experience a backlash from their active customers or online. Conversely, benefiting from tax laws in ways that were intended by governments is sometimes referred to as tax planning. The
World Bank The World Bank is an international financial institution that provides loans and Grant (money), grants to the governments of Least developed countries, low- and Developing country, middle-income countries for the purpose of pursuing capital pro ...
's
World Development Report The World Development Report (WDR) is an annual report published since 1978 by the International Bank for Reconstruction and Development (IBRD) or World Bank. Each WDR provides in-depth analysis of a specific aspect of economic development. Past r ...
2019 on the future of work supports increased government efforts to curb tax avoidance as part of a new
social contract In moral and political philosophy, the social contract is a theory or model that originated during the Age of Enlightenment and usually, although not always, concerns the legitimacy of the authority of the state over the individual. Soci ...
focused on
human capital Human capital is a concept used by social scientists to designate personal attributes considered useful in the production process. It encompasses employee knowledge, skill, skills, know-how, good health, and education. Human capital has a subst ...
investments and expanded
social protection Social protection, as defined by the United Nations Research Institute for Social Development, is concerned with preventing, managing, and overcoming situations that adversely affect people's well-being. Social protection consists of policies and p ...
. "Tax mitigation", "tax aggressive", "aggressive tax avoidance" or "tax neutral" schemes generally refer to multiterritory schemes that fall into the grey area between common and well-accepted tax avoidance, such as purchasing municipal bonds in the United States, and tax evasion but are widely viewed as unethical, especially if they are involved in profit-shifting from high-tax to low-tax territories and territories recognised as tax havens. Since 1995, trillions of dollars have been transferred from
OECD The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organization, intergovernmental organisation with 38 member countries ...
and
developing countries A developing country is a sovereign state with a lesser developed Industrial sector, industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is al ...
into tax havens using these schemes. Laws known as a General Anti-Avoidance Rule (GAAR) statutes, which prohibit "aggressive" tax avoidance, have been passed in several countries and regions including Canada, Australia, New Zealand, South Africa, Norway, Hong Kong and the United Kingdom. In addition, judicial doctrines have accomplished the similar purpose, notably in the United States through the "business purpose" and "economic substance" doctrines established in '' Gregory v. Helvering'' and in the United Kingdom in '' Ramsay''. The specifics may vary according to jurisdiction, but such rules invalidate tax avoidance that is technically legal but is not for a business purpose or is in violation of the spirit of the tax code. The term "avoidance" has also been used in the tax regulations 'examples and source needed''/sup> of some jurisdictions to distinguish tax avoidance foreseen by the legislators from tax avoidance exploiting loopholes in the law such as
like-kind exchange A like-kind exchange under Taxation in the United States, United States tax law, also known as a 1031 exchange, is a transaction or series of transactions that allows for the disposal of an asset and the acquisition of another replacement asset wi ...
s. 'correct example needed''/sup> The
US Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. Federal tribunals in the United States, federal court cases, and over Stat ...
has stated, "The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted". Tax evasion, on the other hand, is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Both tax evasion and some forms of tax avoidance can be viewed as forms of
tax noncompliance Tax noncompliance (informally tax avoision) is a range of activities that are unfavorable to a government's tax system. This may include tax avoidance, which is tax reduction by legal means, and tax evasion which is the criminal non-payment of tax ...
, as they describe a range of activities that are unfavourable to a state's tax system. According to
Joseph Stiglitz Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economics, New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sc ...
(1986), there are three principles of tax avoidance: postponement of taxes, tax arbitrage across individuals facing different tax brackets, and tax arbitrage across income streams facing different tax treatment. Many tax avoidance devices include a combination of the three principles. The postponement of taxes is the present discounted value of postponed tax is much less than of a tax currently paid. Tax arbitrage across individuals facing different tax brackets or the same individual facing different marginal tax rates at different times is an effective method of reducing tax liabilities within a family. However, according to Stiglitz (1986), differential tax rates may also lead to transactions among individuals in different brackets leading to “tax induced transactions”. The last principle is the tax arbitrage across income streams facing different tax treatment.


Anti-avoidance measures

An anti-avoidance measure is a rule that prevents the reduction of tax by legal arrangements, where those arrangements are put in place purely to reduce tax, and would not otherwise be regarded as a reasonable course of action. Legislative Measures Two kind of anti-avoidance measures exist; General Anti Avoidance Rules (GAAR) and Specific Anti Avoidance Rules (SAAR). The GAAR implies a set of generic anti-avoidance rules, while SAAR targets a specific avoidance practice or technique. Also, there is a set of bilateral measures pursued thorough treaties or double taxation agreements (DTAAs), this can be done via various clauses. Judicial Anti-Avoidance Measures Courts around the world have played an important role in developing SAAR and GAAR measures. But the two guiding principles in judicial anti-avoidance are business purpose rule and substance over form rule. The business purpose rule states that the transaction must serve as a business purpose. Which means that mere tax advantage cannot be the main business purpose. On the other hand, the substance over form principle is wider than the business rule and it is defined by the OECD as the ‘prevalence of economic or social reality over the literal wording of legal provisions’ (Ostwal, T.P.; Vijayaraghavan, Vikram 2010). EU Anti-Tax Avoidance Package The Anti-Tax Avoidance Package is part of the European Commission's agenda as an effort to implement a more effective corporate taxation in the European Union. This package was implemented in 2016 and offers measures to prevent aggressive tax planning and encourage of tax transparency among others. The Anti- Tax Avoidance Package counts with an Anti-Tax avoidance directive, recommendation on Tax Treaties, revised administrative cooperation directive and communication on external strategy. Anti-Tax Avoidance Directive (ATAD): On 20 June 2016 the European Council adopted the Directive (EU) 2016/1164 which contains five legally binding anti-abuse measures that should be applied as common forms of aggressive tax legislations. The member States must have applied these measures as from 1 January 2019. ATAD contains the following five anti-abuse measures: 1. Interest deductibility, to discourage artificial debt arrangements which are design to minimise taxes, 2. Exit taxation, for preventing the avoidance of taxes when companies are re-locating assets, 3. Incorporation of the GAAR for disregarding of non-genuine arrangements, 4. Controlled Foreign Company Rule (CFC), to deter that the profit is transferred to a low or no tax country, 5. Switchover rule, to prevent double non-taxation. Anti- Avoidance Measures by Country Australia Australia has a strong tax regime regarding avoidance which applies to large corporate groups, underpinned by the General Anti- Avoidance Rule (GAAR) adopted since 1981 with the Income Tax Act. The multinational anti-avoidance law (MAAL) is an extension of Australia's general anti-avoidance rules. This aims to make multinational enterprises pay their fair share of tax of the profits received and earned in Australia United States Since 1980s there have been six major tax reforms in the US. The first one, in 1981, introduced a variety of tax loopholes. With this, the tax shelter industry boomed, giving rise to a demand for tax reform. The 1986 tax reform was the most accurate attempt at reducing tax avoidance, but then the next reforms of 1993 and 1997 opened new opportunities for tax avoidance and increased incentives of tax avoidance. The 1986 tax law reduced the demand for tax shelters and the opportunities for tax avoidance by constricting the gap between regular rates and the minimum tax rates. Lowering the top marginal rates, restricting the ability to use losses on just one type of income for balancing gains on other income and finally by taxing capital gains with full rates. There was another tax act in 1993, in which the alternative minimum tax rates were increased, also the regular rates, and an increase in the absolute gap for upper-income people. In the 1997 act, a gap between the rates at which capital gains and ordinary income was introduced to all taxpayers. During the 2001 and 2003 tax acts introduced more opportunities for tax avoidance because the gap between the capital gains and ordinary income tax remained the same as both rates were reduced by 5%. Finally, in the 2013 tax act, increased the tax on capital gains and ordinary income to 20 and 39.6% respectively.


Methods


Country of residence

A company may choose to avoid taxes by establishing their company or subsidiaries in an offshore jurisdiction (see
offshore company The term "offshore company" or “offshore corporation” is used in at least two distinct and different ways. An offshore company may be a reference to: * a company, group or sometimes a division thereof, which engages in offshoring business p ...
and
offshore trust An offshore trust is a conventional Trust law, trust that is formed under the laws of an Offshore Financial Centre, offshore jurisdiction. Generally offshore trusts are similar in nature and effect to their onshore counterparts; they involve a set ...
). Individuals may also avoid tax by moving their
tax residence The criteria for residence for tax purposes vary considerably from jurisdiction to jurisdiction, and "residence" can be different for other, non-tax purposes. For individuals, Physical presence test, physical presence in a jurisdiction is the main ...
to a
tax haven A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
, such as
Monaco Monaco (; ), officially the Principality of Monaco (french: Principauté de Monaco; Monégasque dialect, Ligurian: ; oc, Principat de Mónegue), is a Sovereign state, sovereign city-state and European microstates, microstate on the French Riv ...
, or by becoming perpetual travelers. They may also reduce their tax by moving to a country with lower tax rates. However, a small number of countries tax their citizens on their worldwide income regardless of where they reside. , only the United States and
Eritrea Eritrea ( ; ti, ኤርትራ, Ertra, ; ar, إرتريا, ʾIritriyā), officially the State of Eritrea, is a country in the Horn of Africa region of Eastern Africa, with its capital and largest city at Asmara. It is bordered by Ethiopia ...
have such a practice, whilst Finland, France, Hungary, Italy and Spain apply it in limited circumstances. In cases such as the US, taxation cannot be avoided by simply transferring assets or moving abroad. The United States is unlike almost all other countries in that its citizens and permanent residents are subject to U.S. federal income tax on their worldwide income even if they reside temporarily or permanently outside the United States. U.S. citizens therefore cannot avoid U.S. taxes simply by emigrating from the U.S. According to ''
Forbes ''Forbes'' () is an American business magazine owned by Integrated Whale Media Investments and the Forbes family (publishers), Forbes family. Published eight times a year, it features articles on finance, industry, investing, and marketing ...
'' magazine some citizens choose to give up their
United States citizenship Citizenship of the United States is a citizenship, legal status that entails Americans with specific rights, duties, protections, and benefits in the United States. It serves as a foundation of fundamental rights derived from and protected by t ...
rather than be subject to the U.S. tax system; but U.S. citizens who reside (or spend long periods of time) outside the U.S. may be able to exclude some salaried income earned overseas (but not other types of income unless specified in a bilateral tax treaty) from income in computing the U.S. federal income tax. The 2015 limit on the amount that can be excluded is US$100,800. In addition, taxpayers can exclude or deduct certain foreign housing amounts. They may also be entitled to exclude from income the value of meals and lodging provided by their employer. Some American parents do not register their children's birth abroad with American authorities, because they do not want their children to be required to report all earnings to the IRS and pay American taxes for their entire lives, even if they never visit the United States.


Double taxation

Most countries impose taxes on income earned or gains realized within that country regardless of the country of residence of the person or firm. Most countries have entered into bilateral
double taxation Double taxation is the levying of tax by two or more jurisdictions on the same income (in the case of income taxes), asset (in the case of Wealth tax, capital taxes), or financial transaction (in the case of sales taxes). Double liability may be m ...
treaties with many other countries to avoid taxing nonresidents twice—once where the income is earned and again in the country of residence (and perhaps, for U.S. citizens, taxed yet again in the country of citizenship)—however, there are relatively few double-taxation treaties with countries regarded as tax havens. To avoid tax, it is usually not enough to simply move one's assets to a tax haven. One must also personally move to a tax haven (and, for U.S. citizens, renounce one's citizenship) to avoid tax.


Legal entities

Without changing country of residence (or, if a U.S. citizen, without giving up one's citizenship), personal taxation may be legally avoided by the creation of a separate
legal entity In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so o ...
to which one's property is donated. The separate legal entity is often a
company A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared ...
, trust, or foundation. These may also be located offshore, such as in the case of many
private foundation A private foundation is a tax-exempt organization not relying on broad public support and generally claiming to serve humanitarian purposes. The Bill & Melinda Gates Foundation is the largest private foundation in the U.S. with over $38 billion ...
s. Assets are transferred to the new company or trust so that gains may be realized, or income earned, within this legal entity rather than earned by the original owner. If assets are later transferred back to an individual, then
capital gains tax A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible ...
es would apply on all profits. Also
income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
would still be due on any
salary A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis. ...
or
dividend A dividend is a distribution of Profit (accounting), profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed ...
drawn from the legal entity. For a settlor (creator of a trust) to avoid tax there may be restrictions on the type, purpose and beneficiaries of the trust. For example, the settlor of the trust may not be allowed to be a
trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to t ...
or even a
beneficiary A beneficiary (also, in trust law, ''cestui que use'') in the broadest sense is a natural person or other legal entity who receives money or other employee benefit, benefits from a benefactor (law), benefactor. For example, the beneficiary of a lif ...
and may thus lose control of the assets transferred and/or may be unable to benefit from them.


Legal vagueness

Tax results depend on definitions of legal terms which are usually vague. For example, vagueness of the distinction between "business expenses" and "personal expenses" is of much concern for taxpayers and tax authorities. More generally, any term of tax law has a vague penumbra, and is a potential source of tax avoidance.


Tax shelters

Tax shelter Tax shelters are any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments. The methodology can vary depending on local and international taxation, internatio ...
s are investments that allow, and purport to allow, a reduction in one's income tax liability. Although things such as home ownership, pension plans, and Individual Retirement Accounts (IRAs) can be broadly considered "tax shelters", insofar as funds in them are not taxed, provided that they are held within the Individual Retirement Account for the required amount of time, the term "tax shelter" was originally used to describe primarily certain investments made in the form of limited partnerships, some of which were deemed by the U.S. Internal Revenue Service to be abusive. The Internal Revenue Service and the
United States Department of Justice The United States Department of Justice (DOJ), also known as the Justice Department, is a United States federal executive departments, federal executive department of the United States government tasked with the enforcement of federal law and a ...
have recently teamed up to crack down on abusive tax shelters. In 2003 the Senate's Permanent Subcommittee on Investigations held hearings about tax shelters which are entitled ''U.S. tax shelter industry: the role of accountants, lawyers, and financial professionals''. Many of these tax shelters were designed and provided by accountants at the large American accounting firms. Examples of U.S. tax shelters include: Foreign Leveraged Investment Program (FLIP) and Offshore Portfolio Investment Strategy (OPIS). Both were devised by partners at the accounting firm, KPMG. These tax shelters were also known as "basis shifts" or "defective redemptions." Prior to 1987, passive investors in certain limited partnerships (such as oil exploration or real estate investment ventures) were allowed to use the passive losses (if any) of the partnership (i.e., losses generated by partnership operations in which the investor took no material active part) to offset the investors' income, lowering the amount of income tax that otherwise would be owed by the investor. These partnerships could be structured so that an investor in a high tax bracket could obtain a net economic benefit from partnership-generated passive losses. In the
Tax Reform Act of 1986 The Tax Reform Act of 1986 (TRA) was passed by the 99th United States Congress and signed into law by President Ronald Reagan on October 22, 1986. The Tax Reform Act of 1986 was the top domestic priority of President Reagan's second term. The a ...
the U.S. Congress introduced the limitation (under ) on the deduction of passive losses and the use of passive activity tax credits. The 1986 Act also changed the "at risk" loss rules of . Coupled with the hobby loss rules (), the changes greatly reduced tax avoidance by taxpayers engaged in activities only to generate deductible losses.


Transfer mispricing

Fraudulent
transfer pricing In taxation and accounting, transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control. Because of the potential for cross-border controlled transactions to distort ...
, sometimes called ''transfer mispricing'', also known as ''transfer pricing manipulation'', refers to trade between related parties at prices meant to manipulate markets or to deceive tax authorities. For example, if company ''A'', a food grower in Africa, processes its produce through three
subsidiaries A subsidiary, subsidiary company or daughter company is a company (law), company owned or controlled by another company, which is called the parent company or holding company. Two or more subsidiaries that either belong to the same parent company ...
: ''X'' (in Africa), ''Y'' (in a
tax haven A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
, usually offshore financial centers) and ''Z'' (in the United States). Now, Company ''X'' sells its product to Company ''Y'' at an artificially low price, resulting in a low profit and a low tax for Company ''X'' based in Africa. Company ''Y'' then sells the product to Company ''Z'' at an artificially high price, almost as high as the retail price at which Company ''Z'' would sell the final product in the U.S.. Company ''Z'', as a result, would report a low profit and, therefore, a low tax. The
African Union The African Union (AU) is a continental union consisting of member states of the African Union, 55 member states located on the continent of Africa. The AU was announced in the Sirte Declaration in Sirte, Libya, on 9 September 1999, calling fo ...
reports estimates that about 30% of Sub-Saharan Africa's GDP has been moved to
tax haven A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
s. Solutions include corporate “country-by-country reporting” where corporations disclose activities in each country and thereby prohibit the use of tax havens where real economic activity occurs.


Tax avoiders

According to a 2022 study, 36% of the profits of multinational firms are shifted to tax havens. If the profits had been reallocated to their domestic source, "domestic profits would increase by about 20% in high-tax European Union countries, 10% in the United States, and 5% in developing countries, while they would fall by 55% in tax havens."


United Kingdom

HMRC HM Revenue and Customs (His Majesty's Revenue and Customs, or HMRC) is a non-ministerial government department, non-ministerial Departments of the United Kingdom Government, department of the His Majesty's Government, UK Government responsible fo ...
, the UK tax collection agency, estimated that the overall cost of tax avoidance in the UK in 2016-17 was £1.7 billion, of which £0.7 billion was loss of income tax, National Insurance contributions and Capital Gains Tax. The rest came from loss of Corporation Tax, VAT and other direct taxes. This compares to the wider tax gap (the difference between the amount of tax that should, in theory, be collected by HMRC, against what is actually collected) in that year of £33 billion. Figures published by the Tax Justice Network show that the UK had one of the lowest rates of tax losses due to profit shifting by multinational companies, with the fourth lowest rate out of 102 countries studied. According to the figures, the UK lost £1 billion from profit shifting, around 0.04% of its GDP, coming behind Botswana (0.02%), Ecuador (0.02%) and Sweden (0.004%).


Large companies accused of tax avoidance

In 2008 it was reported by
Private Eye ''Private Eye'' is a British fortnightly satire, satirical and current affairs (news format), current affairs news magazine, founded in 1961. It is published in London and has been edited by Ian Hislop since 1986. The publication is widely r ...
that
Tesco Tesco plc () is a British Multinational corporation, multinational groceries and general merchandise retailer headquartered in Welwyn Garden City, England. In 2011 it was the third-largest retailer in the world measured by gross revenues an ...
utilized offshore holding companies in Luxembourg and partnership agreements to reduce corporation tax liability by up to £50 million a year. Another scheme previously identified by Private Eye involved depositing £1 billion in a Swiss partnership, and then loaning out that money to overseas Tesco stores, so that profit can be transferred indirectly through interest payments. This scheme is reported to remain in operation and is estimated to be costing the UK exchequer up to £20 million a year in corporation tax. In 2011,
ActionAid ActionAid is an international non-governmental organization whose stated primary aim is to work against poverty and injustice worldwide. ActionAid is a federation of 45 country offices that works with communities, often via local partner organis ...
reported that 25% of the FTSE 100 companies avoided taxation by locating their subsidiaries in tax havens. This increased to 98% when using the stricter US Congress definition of tax haven and
bank secrecy Banking secrecy, alternately known as financial privacy, banking discretion, or bank safety,Guex (2000), p. 240 is a Non-disclosure agreement, conditional agreement between a bank and its clients that all foregoing activities remain Economic secu ...
jurisdictions. In 2016, it was reported in the ''
Private Eye ''Private Eye'' is a British fortnightly satire, satirical and current affairs (news format), current affairs news magazine, founded in 1961. It is published in London and has been edited by Ian Hislop since 1986. The publication is widely r ...
'' current affairs magazine that four out of the FTSE top 10 companies paid no corporation tax at all. Tax avoidance by corporations came to national attention in 2012, when MPs singled out
Google Google LLC () is an American Multinational corporation, multinational technology company focusing on Search Engine, search engine technology, online advertising, cloud computing, software, computer software, quantum computing, e-commerce, ar ...
, Amazon.com and
Starbucks Starbucks Corporation is an American multinational List of coffeehouse chains, chain of coffeehouses and Starbucks Reserve, roastery reserves headquartered in Seattle, Seattle, Washington. It is the List of coffeehouse chains, world's larges ...
for criticism. Following accusations that the three companies were diverting hundreds of millions of pounds in UK profits to secretive tax havens, there was widespread outrage across the UK, followed by boycotts of products by Google, Amazon.com and Starbucks. Following the boycotts and damage to brand image, Starbucks promised to move its tax base from the Netherlands to London and to pay
HMRC HM Revenue and Customs (His Majesty's Revenue and Customs, or HMRC) is a non-ministerial government department, non-ministerial Departments of the United Kingdom Government, department of the His Majesty's Government, UK Government responsible fo ...
£20million, but executives from Amazon.com and Google defended their tax avoidance as being within the law. Google has remained the subject of criticism in the UK regarding their use of the '
Double Irish The Double Irish arrangement was a base erosion and profit shifting (BEPS) corporate tax avoidance tool used mostly by United States multinationals since the late 1980s to avoid corporate taxation on non-U.S. profits. It was the largest tax ...
', Dutch Sandwich and Bermuda Black Hole tax avoidance schemes. Similarly, Amazon remains the subject of criticism across the UK and EU for its tax avoidance. In October 2017, the EU ordered Amazon to repay €250 million in illegal state aid to Luxembourg following a 'sweetheart deal' between Luxembourg and Amazon.com enabling the American company to artificially reduce its tax bill.
PayPal PayPal Holdings, Inc. is an American multinational financial technology company operating an online payments system in the majority of countries that support E-commerce payment system, online money transfers, and serves as an electronic altern ...
,
EBay eBay Inc. ( ) is an American multinational e-commerce company based in San Jose, California, that facilitates consumer-to-consumer and business-to-consumer sales through its website. eBay was founded by Pierre Omidyar in 1995 and becam ...
,
Microsoft Microsoft Corporation is an American multinational corporation, multinational technology company, technology corporation producing Software, computer software, consumer electronics, personal computers, and related services headquartered at th ...
,
Twitter Twitter is an online social media and social networking service owned and operated by American company Twitter, Inc., on which users post and interact with 280-character-long messages known as "tweets". Registered users can post, like, and ...
and
Facebook Facebook is an online social media and social networking service owned by American company Meta Platforms. Founded in 2004 by Mark Zuckerberg with fellow Harvard College students and roommates Eduardo Saverin, Andrew McCollum, Dusti ...
have also been found to be using the
Double Irish The Double Irish arrangement was a base erosion and profit shifting (BEPS) corporate tax avoidance tool used mostly by United States multinationals since the late 1980s to avoid corporate taxation on non-U.S. profits. It was the largest tax ...
and Dutch Sandwich schemes. Up to 1,000 individuals in the same year were also discovered to be using K2 to avoid tax. Other UK active corporations mentioned in relation to tax avoidance in 2015, particularly the Double Irish, Dutch Sandwich and Bermuda Black Hole: * Technology:
Apple An apple is an edible fruit produced by an apple tree (''Malus domestica''). Apple fruit tree, trees are agriculture, cultivated worldwide and are the most widely grown species in the genus ''Malus''. The tree originated in Central Asia, wh ...
,
Microsoft Microsoft Corporation is an American multinational corporation, multinational technology company, technology corporation producing Software, computer software, consumer electronics, personal computers, and related services headquartered at th ...
,
PayPal PayPal Holdings, Inc. is an American multinational financial technology company operating an online payments system in the majority of countries that support E-commerce payment system, online money transfers, and serves as an electronic altern ...
,
EBay eBay Inc. ( ) is an American multinational e-commerce company based in San Jose, California, that facilitates consumer-to-consumer and business-to-consumer sales through its website. eBay was founded by Pierre Omidyar in 1995 and becam ...
,
Intel Intel Corporation is an American multinational corporation and technology company headquartered in Santa Clara, California, Santa Clara, California. It is the world's largest semiconductor chip manufacturer by revenue, and is one of the devel ...
,
Yahoo! Yahoo! (, styled yahoo''!'' in its logo) is an American web services provider. It is headquartered in Sunnyvale, California and operated by the namesake company Yahoo Inc., which is 90% owned by investment funds managed by Apollo Global M ...
,
Facebook Facebook is an online social media and social networking service owned by American company Meta Platforms. Founded in 2004 by Mark Zuckerberg with fellow Harvard College students and roommates Eduardo Saverin, Andrew McCollum, Dusti ...
,
Uber Uber Technologies, Inc. (Uber), based in San Francisco, provides mobility as a service, Ridesharing company, ride-hailing (allowing users to book a car and driver to transport them in a way similar to a taxi), food delivery (Uber Eats an ...
,
Netflix Netflix, Inc. is an American video on demand#Subscription models, subscription video on-demand Over-the-top media service, over-the-top Streaming media, streaming service and production company based in Los Gatos, California. Founded in 1997 b ...
,
Hewlett-Packard The Hewlett-Packard Company, commonly shortened to Hewlett-Packard ( ) or HP, was an American multinational information technology company headquartered in Palo Alto, California. HP developed and provided a wide variety of hardware components ...
, IBM and
Twitter Twitter is an online social media and social networking service owned and operated by American company Twitter, Inc., on which users post and interact with 280-character-long messages known as "tweets". Registered users can post, like, and ...
* Retail: Boots (who moved their registered office to a Swiss letterbox),
Kellogg's The Kellogg Company, doing business as Kellogg's, is an American multinational food manufacturing company headquartered in Battle Creek, Michigan, United States. Kellogg's produces cereal and convenience foods, including crackers and to ...
, and
TopShop TOPSHOP (originally Top Shop) is a British fashion brand for women's clothing, shoes and accessories. It was part of the Arcadia Group, controlled by Sir Philip Green, but went into administration in late 2020 before being purchased by ASOS (r ...
* Football clubs:
Manchester United Manchester () is a city in Greater Manchester, England. It had a population of 552,000 in 2021. It is bordered by the Cheshire Plain to the south, the Pennines to the north and east, and the neighbouring city of City of Salford, Salford to ...
,
Birmingham City Birmingham City Football Club is a professional association football, football club based in Birmingham, England. Formed in 1875 as Small Heath Alliance, it was renamed Small Heath in 1888, Birmingham in 1905, and Birmingham City in 1943. Sin ...
,
Coventry City Coventry City Football Club is a professional association football club based in Coventry, West Midlands (county), West Midlands, England. The team currently compete in the EFL Championship, Championship, the second tier of the English footbal ...
and Cheltenham Town. * News:
Daily Mail The ''Daily Mail'' is a British daily middle-market tabloid newspaper and news websitePeter Wilb"Paul Dacre of the Daily Mail: The man who hates liberal Britain", ''New Statesman'', 19 December 2013 (online version: 2 January 2014) publis ...
Other corporations mentioned in relation to tax avoidance in later years have been
Vodafone Vodafone Group Public limited company, plc () is a British Multinational corporation, multinational Telephone company, telecommunications company. Its registered office and Headquarters, global headquarters are in Newbury, Berkshire, England. It ...
,
AstraZeneca AstraZeneca plc () is a British-Swedish multinational pharmaceutical industry, pharmaceutical and biotechnology company with its headquarters at the Cambridge Biomedical Campus in Cambridge, England. It has a portfolio of products for major d ...
,
SABMiller SABMiller plc was a South African multinational brewing and beverage company headquartered in Woking, England England is a Countries of the United Kingdom, country that is part of the United Kingdom. It shares land borders with Wales ...
,
GlaxoSmithKline GSK plc, formerly GlaxoSmithKline plc, is a British Multinational corporation, multinational pharmaceutical and biotechnology company with global headquarters in London, England. Established in 2000 by a Mergers and acquisitions, merger of Gl ...
and
British American Tobacco British American Tobacco plc (BAT) is a British multinational company that manufactures and sells cigarettes, tobacco and other nicotine products. The company, established in 1902, is headquartered in London, England. As of 2019, it is the large ...
. Tax avoidance has not always related to corporation tax. A number of companies including
Tesco Tesco plc () is a British Multinational corporation, multinational groceries and general merchandise retailer headquartered in Welwyn Garden City, England. In 2011 it was the third-largest retailer in the world measured by gross revenues an ...
,
Sainsbury's J Sainsbury plc, trading as Sainsbury's, is the second largest chain of supermarkets in the United Kingdom, with a 14.6% share of UK supermarket sales. Founded in 1869 by John James Sainsbury with a shop in Drury Lane, London, the company wa ...
,
WH Smith WHSmith (also written WH Smith, and known colloquially as Smith's and formerly as W. H. Smith & Son) is a British retailer, headquartered in Swindon, England, which operates a chain of high street, railway station, airport, port, hospital and m ...
, Boots and
Marks and Spencer Marks and Spencer Group plc (commonly abbreviated to M&S and colloquially known as Marks's or Marks & Sparks) is a major British multinational retailer with headquarters in Paddington Paddington is an List of areas of London, area within ...
used a scheme to avoid
VAT A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end ...
by forcing customers paying by card to unknowingly pay a 2.5% 'card transaction fee', though the total charged to the customer remained the same. Such schemes came to light after
HMRC HM Revenue and Customs (His Majesty's Revenue and Customs, or HMRC) is a non-ministerial government department, non-ministerial Departments of the United Kingdom Government, department of the His Majesty's Government, UK Government responsible fo ...
litigated against
Debenhams Debenhams plc was a British department store chain operating in the United Kingdom, Denmark and the Republic of Ireland. It was founded in 1778 as a single store in London and grew to 178 locations across those countries, also owning the Danish ...
over the scheme during 2005. Africa lost at least $50 million in taxes. This is more than the amount of foreign development aid. European companies operating in Africa are not all that different from the actions of US companies such as Google, Apple and Amazon do not pay enough taxes because of tax avoidance. According to the Independent Commission for International Corporate Tax Reform (ICRICT), the ‘GAFA’ (Google, Apple, Facebook and Amazon) belong to the worst tax offenders worldwide. In 2018, Amazon was not charged any corporate taxes in the US for two years in a row, despite its doubling profits. Other multinationals, such as Apple for example, also exploit fiscal loopholes, diverting profits from high tax countries into others with lower corporate tax rates. As these large Internet companies disproportionally profit from the COVID-19 crisis, and the US federal government no longer participates in international corporate taxation agreements, single countries and trading zones are urged to implement fair taxation schemes for these Internet giants.


General anti-avoidance rule

Since the late 1990s,
New Labour New Labour was a period in the History of the Labour Party (UK), history of the British Labour Party (UK), Labour Party from the mid to late 1990s until 2010 under the leadership of Tony Blair and Gordon Brown. The name dates from a conferenc ...
consulted on a "general anti-avoidance rule" (GAAR) for taxation, before deciding against the idea. By 2003, public interest in a GAAR surged as evidence of the scale of tax avoidance used by individuals in the
financial Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of Production (economics), production, Distribution (economics), distribution, and Consumption (economics) ...
and other sectors became apparent, though in its 2004 Budget the Labour Government announced a new "disclosure regime" as an alternative, whereby tax avoidance schemes would be required to be disclosed to the revenue departments. In December 2010, the new Coalition government commissioned a report which would consider whether there should be a general anti-avoidance rule for the UK, which recommended that the UK should introduce such a rule, which was introduced in 2013. The rule prevents the reduction of tax by legal arrangements, where those arrangements are put in place purely to reduce tax, and would not otherwise be regarded as a reasonable course of action. Following the
Panama Papers The Panama Papers ( es, Papeles de Panamá) are 11.5 million leaked documents (or 2.6 terabytes of data) that were published beginning on April 3, 2016. The papers detail financial and attorney–client information for more than 214,488 ...
leak in 2016, ''
Private Eye ''Private Eye'' is a British fortnightly satire, satirical and current affairs (news format), current affairs news magazine, founded in 1961. It is published in London and has been edited by Ian Hislop since 1986. The publication is widely r ...
'', ''
The Guardian ''The Guardian'' is a British daily newspaper. It was founded in 1821 as ''The Manchester Guardian'', and changed its name in 1959. Along with its sister papers ''The Observer'' and ''The Guardian Weekly'', ''The Guardian'' is part of the Gu ...
'' and other British media outlets noted that Edward Troup, who became executive chair of
HM Revenue and Customs HM Revenue and Customs (His Majesty's Revenue and Customs, or HMRC) is a non-ministerial government department, non-ministerial Departments of the United Kingdom Government, department of the His Majesty's Government, UK Government responsible fo ...
, had worked with
Simmons & Simmons Simmons & Simmons is a British law firm. About half of its staff are in the London office, in CityPoint, off Moorgate. It has branch offices in some countries in Europe, the Middle East and Asia. It has been mentioned in the ''Financial Times'' ...
in 2004 representing corporate tax havens and opposed the GAAR in 1998.


Public sector appointments

In January 2012 a review of the tax arrangements of people engaged on public sector appointments was undertaken, in order to "ascertain the extent of arrangements which could allow public sector appointees to minimise their tax payments" and make recommendations accordingly.Cabinet Office
Procurement Policy Note – Tax Arrangements of Public Appointees - Action Note 07/12 24 August 2012
accessed 8 February 2021
The review was published on 23 May 2012, advising that: *the most senior staff in public sector appointments should be on the payroll, unless there are exceptional temporary circumstances; *through their contracting, departments must be able to seek formal assurance from contractors with off payroll arrangements lasting more than six months and costing over £220 per day that income tax and national insurance obligations were being met. Departments were advised to terminate a contract if that assurance was not provided; *implementation would be monitored carefully with financial sanctions for departments which did not comply.


Historical tax avoidance


=Window tax

= One historic example of tax avoidance still evident today was the payment of
window tax Window tax was a property tax based on the number of windows in a house. It was a significant social, cultural, and architectural force in England, France, and Ireland during the 18th and 19th centuries. To tax avoidance, avoid the tax, some hous ...
. It was introduced in
England and Wales England and Wales () is one of the three legal jurisdictions of the United Kingdom. It covers the constituent countries England and Wales and was formed by the Laws in Wales Acts 1535 and 1542. The substantive law of the jurisdiction is Engli ...
in 1696 with the aim of imposing tax on the relative prosperity of individuals without the controversy of introducing an
income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
. The bigger the house, the more windows it was likely to have, and the more tax the occupants would pay. Nevertheless, the tax was unpopular, because it was seen by some as a "tax on light" (allegedly leading to the phrase daylight robbery) and led property owners to block up windows to avoid it. The tax was repealed in 1851.


=Deliberate roof destruction

= Other historic examples of tax avoidance were the deliberate destructions of roofs in Scotland to avoid substantial
property tax A property tax or millage rate is an ad valorem tax on the value of a property.In the OECD classification scheme, tax on property includes "taxes on immovable property or Wealth tax, net wealth, taxes on the change of ownership of property thr ...
es. The roof of Slains Castle was removed in 1925, and the building has deteriorated since. The owners of
Fetteresso Castle Fetteresso Castle is a 14th-century tower house, rebuilt in 1761 as a Scottish Gothic style Palladian manor, with clear evidence of prehistoric use of the site. It is situated immediately west of the town of Stonehaven in Kincardineshire, slightl ...
(now restored) deliberately destroyed their roof after
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the World War II by country, vast majority of the world's countries—including all of the great power ...
in protest at the new taxes.


United States

The term tax avoidance indicates a situation in which a taxpayer legally minimizes the amount of his income tax owed. This circumstance occurs by declaring as many deductions and credits as permitted or prioritizing investments with tax advantages. An IRS report indicates that, in 2009, 1,470 individuals earning more than $1,000,000 annually faced a net tax liability of zero or less. Also, in 1998 alone, a total of 94 corporations faced a net liability of less than half the full 35% corporate tax rate and the corporations Lyondell Chemical,
Texaco Texaco, Inc. ("The Texas Company") is an American Petroleum, oil brand owned and operated by Chevron Corporation. Its flagship product is its Gasoline, fuel "Texaco with Techron". It also owned the Havoline motor oil brand. Texaco was an Indepe ...
,
Chevron Chevron (often relating to V-shaped patterns) may refer to: Science and technology * Chevron (aerospace), sawtooth patterns on some jet engines * Chevron (anatomy), a bone * ''Eulithis testata'', a moth * Chevron (geology), a fold in rock lay ...
,
CSX CSX Transportation , known colloquially as simply CSX, is a Class I freight railroad operating in the Eastern United States The Eastern United States, commonly referred to as the American East, Eastern America, or simply the East, is the ...
, Tosco,
PepsiCo PepsiCo, Inc. is an American multinational food, snack, and beverage corporation headquartered in Harrison, New York, in the hamlet of Purchase. PepsiCo's business encompasses all aspects of the food and beverage market. It oversees the man ...
, Owens & Minor,
Pfizer Pfizer Inc. ( ) is an American multinational pharmaceutical and biotechnology corporation headquartered on 42nd Street in Manhattan, New York City. The company was established in 1849 in New York by two German entrepreneurs, Charles Pfi ...
,
JP Morgan JPMorgan Chase & Co. is an American multinational investment bank Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, ...
, Saks, Goodyear,
Ryder Ryder System, Inc., commonly known as Ryder, is an American transportation and logistics company. It is especially known for its fleet of commercial rental trucks. Ryder specializes in fleet management, supply chain management, and transp ...
,
Enron Enron Corporation was an American Energy development, energy, Commodity, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relativ ...
,
Colgate-Palmolive Colgate-Palmolive Company is an American multinational corporation, multinational consumer products company headquartered on Park Avenue in Midtown Manhattan, New York City. The company specializes in the production, distribution, and provisio ...
,
Worldcom MCI, Inc. (subsequently Worldcom and MCI WorldCom) was a telecommunication Telecommunication is the transmission of information by various types of technologies over wire, radio, Optical system, optical, or other Electromagnetism, elect ...
, Eaton,
Weyerhaeuser Weyerhaeuser () is an American Forest, timberland company which owns nearly of timberlands in the U.S., and manages an additional of timberlands under long-term licenses in Canada. The company also manufactures wood products. It operates as a ...
,
General Motors The General Motors Company (GM) is an American Multinational corporation, multinational Automotive industry, automotive manufacturing company headquartered in Detroit, Michigan, United States. It is the largest automaker in the United States and ...
, El Paso Energy, Westpoint Stevens, MedPartners,
Phillips Petroleum Phillips Petroleum Company was an American oil company incorporated in 1917 that expanded into petroleum refining, marketing and transportation, natural gas gathering and the chemicals sectors. It was Phillips Petroleum that first found oil in th ...
, McKesson and
Northrop Grumman Northrop Grumman Corporation is an American Multinational corporation, multinational Aerospace manufacturer, aerospace and Arms industry, defense technology company. With 90,000 employees and an annual revenue in excess of $30 billion, it is one ...
all had net negative tax liabilities. Additionally, this phenomenon was widely documented regarding
General Electric General Electric Company (GE) is an American multinational conglomerate founded in 1892, and incorporated in New York state and headquartered in Boston Boston (), officially the City of Boston, is the capital city, state capital a ...
in early 2011. Furthermore, a
Government Accountability Office The U.S. Government Accountability Office (GAO) is a legislative branch government agency that provides auditing, evaluation, evaluative, and investigative services for the United States Congress. It is the supreme audit institution of the fede ...
study found that, from 1998 to 2005, 55 percent of United States companies paid no federal income taxes during at least one year in a seven-year period it studied. A review in 2011 by
Citizens for Tax Justice Citizens for Tax Justice (CTJ) is a Washington, D.C.-based think tank and advocacy group founded in 1979 focusing on tax policies and their impact. CTJ's work focuses primarily on federal tax policy, but also analyzes state and local tax policie ...
and the Institute on Taxation and Economic Policy of companies in the Fortune 500 profitable every year from 2008 through 2010 stated these companies paid an average tax rate of 18.5% and that 30 of these companies actually had a
negative income tax In economics, a negative income tax (NIT) is a system which reverses the direction in which tax is paid for incomes below a certain level; in other words, earners above that level pay money to the state while earners below it receive money, as ...
due. In 2012,
Hewlett-Packard The Hewlett-Packard Company, commonly shortened to Hewlett-Packard ( ) or HP, was an American multinational information technology company headquartered in Palo Alto, California. HP developed and provided a wide variety of hardware components ...
lost a lawsuit with the IRS over a "foreign tax credit generator" which was engineered by a division of AIG.
Al Jazeera Al Jazeera ( ar, الجزيرة, translit-std=DIN, translit=al-jazīrah, , "The Island") is a state-owned Arabic-language international radio and TV broadcaster of Qatar. It is based in Doha and operated by the media conglomerate Al Jaz ...
also wrote in 2012 that "Rich individuals and their families have as much as $32 trillion of hidden financial assets in offshore tax havens, representing up to $280bn in lost income tax revenues ... John Christensen of the
Tax Justice Network The Tax Justice Network (or TJN) is an advocacy group consisting of a coalition of researchers and activists with a shared concern about tax avoidance, tax competition, and tax havens. Empirical results The TJN has reported on the OECD Base er ...
told Al Jazeera that he was shocked by 'the sheer scale of the figures'. ... 'We're talking about very big, well-known brands –
HSBC HSBC Holdings plc is a British multinational corporation, multinational universal bank and financial services holding company. It is the largest bank in Europe by total assets ahead of BNP Paribas, with US$2.953 trillion as of December 2021. In ...
,
Citigroup Citigroup Inc. or Citi (Style (visual arts), stylized as citi) is an American multinational investment banking, investment bank and financial services corporation headquartered in New York City. The company was formed by the merger of banking ...
,
Bank of America The Bank of America Corporation (often abbreviated BofA or BoA) is an American multinational investment banking, investment bank and financial services holding company headquartered at the Bank of America Corporate Center in Charlotte, North ...
,
UBS UBS Group AG is a multinational Investment banking, investment bank and financial services company founded and based in Switzerland. Co-headquartered in the cities of Zürich and Basel, it maintains a presence in all major financial centres ...
,
Credit Suisse Credit Suisse Group AG is a global Investment banking, investment bank and financial services firm founded and based in Switzerland. Headquartered in Zürich, it maintains offices in all Financial centre, major financial centers around the w ...
... and they do it knowing fully well that their clients, more often than not, are evading and avoiding taxes.' Much of this activity, Christensen added, was illegal." As a result of the tax sheltering, the government responded with Treasury Department Circular 230. In 2010, the
Health Care and Education Reconciliation Act of 2010 The Health Care and Education Reconciliation Act of 2010 (, ) is a law that was enacted by the 111th United States Congress The 111th United States Congress was a List of United States Congresses, meeting of the United States C ...
codified the "economic substance" rule of '' Gregory v. Helvering'' (1935). The US
Public Interest Research Group Public Interest Research Groups (PIRGs) are a federation of U.S. and Canadian non-profit organization A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, not-for-profit organization, or nonprofi ...
said in 2014 that the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
government loses roughly $184 billion per year due to corporations such as Pfizer, Microsoft and Citigroup using offshore tax havens to avoid paying US taxes. According to PIRG: *
Pfizer Pfizer Inc. ( ) is an American multinational pharmaceutical and biotechnology corporation headquartered on 42nd Street in Manhattan, New York City. The company was established in 1849 in New York by two German entrepreneurs, Charles Pfi ...
paid no US income taxes 2010–2012, despite earning $43 billion. The corporation received more than $2 billion in federal tax refunds. In 2013, Pfizer operated 128 subsidiaries in tax havens and had $69 billion offshore which could not be collected by the
Internal Revenue Service The Internal Revenue Service (IRS) is the revenue service for the Federal government of the United States, United States federal government, which is responsible for collecting Taxation in the United States, U.S. federal taxes and administerin ...
(IRS); *
Microsoft Microsoft Corporation is an American multinational corporation, multinational technology company, technology corporation producing Software, computer software, consumer electronics, personal computers, and related services headquartered at th ...
maintains five tax haven subsidiaries and held $76.4 billion overseas in 2013, thus saving the corporation $24.4 billion in taxes; *
Citigroup Citigroup Inc. or Citi (Style (visual arts), stylized as citi) is an American multinational investment banking, investment bank and financial services corporation headquartered in New York City. The company was formed by the merger of banking ...
maintained 21 subsidiaries in tax haven countries in 2013, and kept $43.8 billion in offshore jurisdictions, thus saving the corporation an additional $11.7 billion in taxes. According to an analysis by the Institute on Taxation and Economic Policy, global companies in the US are paying an effective tax rate of about negative 9 percent per annum. An investigation by
ProPublica ProPublica (), legally Pro Publica, Inc., is a nonprofit organization A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entit ...
published in 2021 based on leaked IRS documents revealed techniques by which billionaires accumulated massive wealth while paying lower rates than middle-income people, or no tax, or in some cases getting paid refundable childcare tax credits. These include: * Instead of a salary taxed at the 37% top rate, accepting stock, which is taxed at the 20%
capital gains Capital gain is an economic concept defined as the profit Profit may refer to: Business and law * Profit (accounting) Profit, in accounting, is an income distributed to the ownership , owner in a Profit (economics) , profitable mar ...
rate. * Avoid paying tax on capital gains with the "buy, borrow, die" technique: ** Buy or earn capital assets like stocks and real estate, and then never sell because assets do not count as income until sold. ** Using capital assets as collateral to borrow spending money at interest rates considerably lower than the tax rate; loans are not taxed as income. ** Holding capital assets until after death, when a " step-up in basis" zeroes out the accumulated gains and allows heirs to not pay any capital gains tax. * Avoid the
estate tax An inheritance tax is a tax paid by a person who inherits money or property of a person who has died, whereas an estate tax is a levy on the Estate (law), estate (money and property) of a person who has died. International tax law distinguishes ...
by moving money into
trusts A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law In law, common law (also known as judicial precedent, ...
or charitable foundations before death * Offset
dividend A dividend is a distribution of Profit (accounting), profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed ...
income with the interest paid on loans, or relying on increasing stock prices instead of a dividend * Offset income with "paper" losses in business operations * Offset income with charitable contributions Tax avoidance, albeit legal, is subjected to civil penalties findable in the IRC § 6651 (a)(2); §6665(a)(1); §6665(b)(1); §6662. There are four main types of penalties: * Due date and extensions of time to file and pay: occurs when the taxpayer fails to present his tax declaration or pay his tax income on the expected time. * Penalty for failure to file a timely return: is a monetary sanction imposed by the IRS when the taxpayer fails to meet the deadline to file his return. It consists of an increased rate of 5% and not over 25% for every month - or part of it- of payment delay upon the original tax import. If the return was filed with a delay of more than 60 days, the minimum penalty is $435 (for tax returns that had to be filed in 2020) or 100% of the tax required. * Penalty for failure to timely pay taxes: this penalty is calculated on how long overdue taxes remain unpaid. It consists of an increased rate of 0.5% of the unpaid tax for every month or part of a month in which remains, so that is applied on the total amount of the due tax, and this addiction cannot exceed, in any case, the 25% of the total amount of the unpaid taxes. * Penalty for failure to pay estimated taxes: in the American tax system, the taxpayer has to pay his tax liability upon his annual earnings or income with estimated tax payments. Whether these estimated tax payments are assumed insufficient by the IRS, in this instance, the taxpayer will be subjected to a penalty for the failure to pay the estimated tax. The taxpayer can avoid this penalty if the amount due by the taxpayer is less than $1,000 or if it was already paid, with the withholds and estimated tax system, at least 90% of the current year's tax or 100% of the previous year's tax. * Accuracy-related penalties: these sanctions are applied when it can be acknowledged the negligence or disregard of the return's rules, or when there is a substantial understatement (of 10% or $1,000 or 5% or $5,000 for the taxpayers who use section 199 A) of the taxpayer's income. This penalty can be avoided if the taxpayer was in bona fide or can reasonably demonstrate the reasons for failure. In addition, there are more situations in which the IRS does not impose the penalties discussed above. Instead, they are the so-called reasonable cause exception to the failure to file or pay taxes and consist of: # fire, natural disaster, or other calamities # Inability, unrelated to the taxpayer, to obtain the documents necessary for the declaration # Death, serious illness, incapacity, or unavoidable absence of the taxpayer or a close family member # Any other reason useful to demonstrate that the taxpayer used the diligence and the prudence ordinarily necessary to fulfill federal tax obligations but could not perform his duties for reasons not dependable on him.


Public opinion

Tax avoidance may be considered to be the dodging of one's duties to society, or alternatively the right of every citizen to structure one's affairs in a manner allowed by law, to pay no more tax than what is required. Attitudes vary from approval through neutrality to outright hostility. Attitudes may vary depending on the steps taken in the avoidance scheme, or the perceived unfairness of the tax being avoided. In 2008, the charity Christian Aid published a report, ''Death and taxes: the true toll of tax dodging'', which criticised tax exiles and tax avoidance by some of the world's largest companies, linking
tax evasion Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trust (property), trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities ...
to the deaths of millions of children in developing countries. However the research behind these calculations has been questioned in a 2009 paper prepared for the UK
Department for International Development The Department for International Development (DFID) was a Departments of the Government of the United Kingdom, department of Government of the United Kingdom, HM Government responsible for administering foreign aid from 1997 to 2020. The goal of ...
. According to the ''Financial Times'' there is a growing trend for charities to prioritise tax avoidance as a key campaigning issue, with policy makers across the world considering changes to make tax avoidance more difficult. In 2010, tax avoidance became a hot-button issue in the UK. An organisation,
UK Uncut UK Uncut was a network of United Kingdom-based Protest, protest groups established in October 2010 to protest against cuts to public services and tax avoidance in the UK. Various sources have described the group as Left-wing politics, left-win ...
, began to encourage people to protest at local high-street shops that were thought to be avoiding tax, such as
Vodafone Vodafone Group Public limited company, plc () is a British Multinational corporation, multinational Telephone company, telecommunications company. Its registered office and Headquarters, global headquarters are in Newbury, Berkshire, England. It ...
,
Topshop TOPSHOP (originally Top Shop) is a British fashion brand for women's clothing, shoes and accessories. It was part of the Arcadia Group, controlled by Sir Philip Green, but went into administration in late 2020 before being purchased by ASOS (r ...
and the
Arcadia Group Arcadia Group Ltd (formerly Arcadia Group plc and, until 1998, Burton Group plc) was a British Multinational corporation, multinational retailing company headquartered in London, England. It was best known for being the previous parent company ...
. In 2012, during the
Occupy movement The Occupy movement was an international populist Social movement, socio-political movement that expressed opposition to Social equality, social and economic inequality and to the perceived lack of "real democracy" around the world. It aimed prim ...
in the United States, tax avoidance for the 99% was proposed as a protest tool. Prem Sikka, Professor of Accounting at the Essex Business School (University of Essex) and scientific advisor of the
Tax Justice Network The Tax Justice Network (or TJN) is an advocacy group consisting of a coalition of researchers and activists with a shared concern about tax avoidance, tax competition, and tax havens. Empirical results The TJN has reported on the OECD Base er ...
pointed to a discrepancy between the
Corporate Social Responsibility Corporate social responsibility (CSR) is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethica ...
claims of multinational companies and “their internal dynamics aimed at maximising their profits through things like tax avoidance”. He wrote in an article commenting the Lux Leaks publications: “Big corporations and accountancy firms are engaged in organised hypocrisy.”


Fair Tax Mark

As a response to public opinion regarding tax avoidance, the Fair Tax Mark was established in the UK during 2014 as an independent certification scheme to identify and recognise companies which pay taxes "in accordance with the spirit of all tax laws" and not to use options, allowances, or reliefs, or undertake specific transactions, "that are contrary to the spirit of the law". The Mark is operated by a not-for-profit community benefit society, the Fair Tax Foundation. Awardees of this mark include The Co-op, SSE,
Go-Ahead Group The Go-Ahead Group plc is a passenger transport company based in Newcastle upon Tyne, England, with operations in the United Kingdom, Ireland, Singapore, Norway and Germany. Formerly listed on the London Stock Exchange, in 2022 it was purchased ...
, Ecology Building Society, Lush Cosmetics, Richer Sounds,
Scottish Water Scottish Water is a statutory corporation that provides water and sanitary sewer, sewerage services across Scotland. It is accountable to the public through the Scottish Government. Operations Scottish Water provides drinking water to 2.46 mill ...
,
United Utilities United Utilities Group plc (UU), the United Kingdom's largest listed water company, was founded in 1995 as a result of the merger of North West Water and NORWEB. The group manages the regulated water and waste water network in North West England ...
,
Marshalls Marshalls is an American chain of off-price department stores owned by TJX Companies. Marshalls has over 1,000 American stores, including larger stores named Marshalls Mega Store, covering 42 states and Puerto Rico, and 61 stores in Canada. ...
, several large regional co-operatives (
East of England The East of England is one of the nine official regions of England. This region was created in 1994 and was adopted for statistics purposes from 1999. It includes the ceremonial counties of Bedfordshire, Cambridgeshire, Essex, Hertfordshire, ...
, Midcounties, Scotmid) and The Phone Co-op.


Government and judicial response

Tax avoidance reduces government revenue, so governments with a stricter anti-avoidance stance seek to prevent tax avoidance or keep it within limits. The obvious way to do this is to frame tax rules so that there is a smaller scope for avoidance. In practice this has not always been achievable and has led to an ongoing battle between governments amending legislation and
tax advisor A tax advisor or tax consultant is a person with advanced training and knowledge of tax law. The services of a tax advisor are usually retained in order to minimize taxation while remaining compliant with the law in complicated financial situations. ...
s finding new scope/loopholes for tax avoidance in the amended rules. To allow prompter response to tax avoidance schemes, the US Tax Disclosure Regulations (2003) require prompter and fuller disclosure than previously required, a tactic which was applied in the UK in 2004. Some countries such as Canada, Australia, United Kingdom and New Zealand have introduced a statutory General Anti-Avoidance Rule (or General Anti-Abuse Rule, GAAR). Canada also uses Foreign Accrual Property Income rules to obviate certain types of tax avoidance. In the United Kingdom many provisions of the tax legislation (known as "anti-avoidance" provisions) apply to prevent tax avoidance where the main object (or purpose), or one of the main objects (or purposes), of a transaction is to enable tax advantages to be obtained. In the United States, the
Internal Revenue Service The Internal Revenue Service (IRS) is the revenue service for the Federal government of the United States, United States federal government, which is responsible for collecting Taxation in the United States, U.S. federal taxes and administerin ...
distinguishes some schemes as "abusive" and therefore illegal. The
Alternative Minimum Tax The alternative minimum tax (AMT) is a tax imposed by the United States federal government The federal government of the United States (U.S. federal government or U.S. government) is the Federation#Federal governments, national governme ...
was developed to reduce the impact of certain tax avoidance schemes. Furthermore, while tax avoidance is in principle legal, if the IRS in its sole judgment determines that tax avoidance is the 'principal purpose' for an expatriation attempt, 'covered expat' status will be applied to the requester, thereby forcing an expatriation tax on worldwide assets to be paid as a condition of expatriation. The IRS presumes a principal purpose of tax avoidance if a taxpayer requesting expatriation has a net worth of $622,000 or more, or has had more than $124,000 in average annual net income tax over the 5 tax years ending before the date of expatriation.


United Kingdom

In the UK, judicial doctrines to prevent tax avoidance began in '' IRC v Ramsay'' (1981) which decided that where a transaction has pre-arranged artificial steps that serve no commercial purpose other than to save tax, the proper approach is to tax the effect of the transaction as a whole. This is known as the Ramsay principle and this case was followed by '' Furniss v. Dawson'' (1984) which extended the Ramsay principle. This approach has been rejected in most Commonwealth jurisdictions even in those where UK cases are generally regarded as persuasive. After two decades, there have been numerous decisions, with inconsistent approaches, and both the Revenue authorities and professional advisors remain quite unable to predict outcomes. For this reason this approach can be seen as a failure or at best only partly successful. In the judiciary, different judges have taken different attitudes. As a generalisation, for example, judges in the United Kingdom before the 1970s regarded tax avoidance with neutrality; but nowadays they may regard aggressive tax avoidance with increasing hostility. In the UK in 2004, the Labour government announced that it would use retrospective legislation to counteract some tax avoidance schemes, and it has subsequently done so on a few occasions, notably BN66. Initiatives announced in 2010 suggest an increasing willingness on the part of HMRC to use retrospective action to counter avoidance schemes, even when no warning has been given. The UK Government has pushed the initiative led by the
Organisation for Economic Co-operation and Development The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate ...
(OECD) on base erosion and profit shifting. In the 2015 Autumn Statement, Chancellor
George Osborne George Gideon Oliver Osborne (born Gideon Oliver Osborne; 23 May 1971) is a former British politician and newspaper editor who served as Chancellor of the Exchequer from 2010 to 2016 and as First Secretary of State from 2015 to 2016 in the P ...
announced that £800m would be spent on tackling tax avoidance in order to recover £5 billion a year by 2019–20. In addition, large companies will now have to publish their UK tax strategies and any large businesses that persistently engage in aggressive tax planning will be subject to special measures. With these policies, Osborne has claimed to be at the forefront of combating tax avoidance. However, he has been criticised over his perceived inaction on enacting policies set forth by the OECD to combat tax avoidance. In April 2015, the Chancellor George Osborne announced a tax on diverted profits, quickly nicknamed the "Google Tax" by the press, designed to discourage large companies moving profits out of the UK to avoid tax. In 2016, Google agreed to pay back £130m of tax dating back to 2005 to HMRC, which said it was the "full tax due in law". However, this amount of tax has been criticised by Labour, with ex Labour leader
Jeremy Corbyn Jeremy Bernard Corbyn (; born 26 May 1949) is a British politician who served as Leader of the Opposition (United Kingdom), Leader of the Opposition and Leader of the Labour Party (UK), Leader of the Labour Party from 2015 to 2020. On the pol ...
saying that the rate of tax paid by Google only amounted to 3%. Former Liberal Democrat Business Secretary
Vince Cable Sir John Vincent Cable (born 9 May 1943) is a British politician who was Leader of the Liberal Democrats from 2017 to 2019. He was Member of Parliament (United Kingdom), Member of Parliament (MP) for Twickenham (UK Parliament constituency), Twic ...
also said Google had "got off very, very lightly", and Osborne "made a fool of himself" by hailing the deal as a victory. Although claiming that it was "absurd" to lay blame onto Google for tax avoidance, saying that
EU member states The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are located primarily in Europe, Europe. The union has a total area of ...
should " ompetewith each other to offer firms the lowest corporate tax rates", Conservative MP
Boris Johnson Alexander Boris de Pfeffel Johnson (; born 19 June 1964) is a British politician, writer and journalist who served as Prime Minister of the United Kingdom and Leader of the Conservative Party (UK), Leader of the Conservative Party from 20 ...
said it was a "good thing" for corporations to pay more tax. However, Johnson said he did not want tax rates to go up or for European Union countries to do this in unison.


See also

* Fair Tax Town movement * '' Gregory v. Helvering'' * Criticism of Apple Inc.#Tax practices * Criticism of Google#Tax avoidance * Corruption in Finland#Tax avoidance General: *
Base erosion and profit shifting Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinational companies, multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions or no-tax locations where there is ...
*
Capital flight Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence or as the result of a political event such as regime change or economic globalization. Such events could be an increas ...
*
Gaming the system Gaming the system (also rigging, abusing, cheating, milking, playing, working, or breaking the system, or gaming or bending the rules) can be defined as using the rules and procedures meant to protect a system to, instead, manipulate the system ...
* Irish Section 110 SPVs * List of foundations established in Vaduz *
Tax noncompliance Tax noncompliance (informally tax avoision) is a range of activities that are unfavorable to a government's tax system. This may include tax avoidance, which is tax reduction by legal means, and tax evasion which is the criminal non-payment of tax ...
*
Luxembourg Leaks Luxembourg Leaks (sometimes shortened to Lux Leaks or LuxLeaks) is the name of a financial scandal revealed in November 2014 by a journalistic investigation conducted by the International Consortium of Investigative Journalists. It is based on ...
*
Swiss Leaks Swiss Leaks (or SwissLeaks) is the name of a journalistic investigation, released in February 2015, of a giant tax evasion scheme allegedly operated with the knowledge and encouragement of the British multinational bank HSBC via its Swiss subsi ...
* Singapore Sling (tax avoidance) *
Panama Papers The Panama Papers ( es, Papeles de Panamá) are 11.5 million leaked documents (or 2.6 terabytes of data) that were published beginning on April 3, 2016. The papers detail financial and attorney–client information for more than 214,488 ...
*
Paradise Papers The Paradise Papers are a set of over 13.4 million confidential electronic documents relating to offshore investment Offshore investment is the keeping of money in a jurisdiction other than one's country of residence. Offshore jurisdi ...
* Conduit and Sink OFCs


Further reading

*
Emmanuel Saez Emmanuel Saez (born November 26, 1972) is a French, naturalized American economist An economist is a professional and practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and a ...
and
Gabriel Zucman Gabriel Zucman (born 30 October 1986) is a French economist An economist is a professional and practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and conce ...
. 2019. ''The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay''. W.W. Norton.


References


External links

*
Fact File: Tax Avoidance
''
The Independent ''The Independent'' is a British online newspaper. It was established in 1986 as a national morning printed paper. Nicknamed the ''Indy'', it began as a broadsheet and changed to Tabloid (newspaper format), tabloid format in 2003. The last p ...
'' {{Authority control Tax terms