Free Essay

The Measures That Can Be Adopted to Prevent Tax Revenue Losses

In: Business and Management

Submitted By stevemc68
Words 1177
Pages 5
Topic 9

Question 4:

The measures that can be adopted to prevent tax revenue losses from multinational companies are as follows;

a) Thin Capitalisation Legislation is were a country prevents interest deduction if the ratio of debt to equity is in excess of a permitted amount. Some countries even limit the amount of debt that a subsidiary may borrow in relation to its equity base. When the interest exceeds the specified limits the interest paid from the excess debt is not tax deductible and can even be regarded as a dividend.
b) Controlled foreign company legislation prevents companies based in tax havens which are controlled by a non resident shareholder from retaining profits earned in that country so as to prevent the taxpayers country from collecting tax revenue from that profit. The legislation requires the taxpayers to include the profits which are attributable to the taxpayer even if the controlled foreign company pays a dividend or not.
c) Transfer pricing is were companies attempt to minimise tax by selectively allocating income and expenses between domestic and foreign entities, whereas transactions between entities are still required to be dealt in an arms length arrangement with transfer pricing this does not occur . Countries that have enacted anti-transfer pricing legislation recalculate the enterprises taxable profit using arms length pricing which is not recognised in the International Accounting Standards Section 27 Consolidated and Separate Financial Statements. Some of the methods used by countries are
• Comparable uncontrolled price method
• Resale price
• Cost plus method

Topic 10

Question 1:

(a) The tax implications for Bill Bates as he is working in Country B he would have withholding tax even though he is only a temporary resident of Country B. For this reason Bill Bates would be allowed to get an exemption or a credit for the tax that he has paid in that country which is covered under Articles 23A and 23B of the OECD Model Treaty. Even though bill is only there to see wether there is a market for Maixsoft’s products. At this stage Maxisoft would have tax liabilities with Country B as it has no establishment or residency in that country.

(b) There is a no correct answer for this question but each company must look at its individual needs and expectations and also the financial implications that either decision would make.

For small companies like Maxisoft the first thing that they should do is compare the advantages and disadvantages of the two options branch or subsidiary;

Advantages Disadvantages Lower tax rates More onerous account keeping
Limited Liability Withholding tax paid on dividends
Limited Disclosure Losses not available for offset
Better local image Change on ownership occurs on transfer of assets
Greater flexibility in timing of profit repatriation
Access to incentives
Easier to reorganise
Easier to justify charges between subsidiary and parent


Simpler to operate less onerous account keeping
No foreign capital or stamp taxes
Easy to transfer assets as no change of ownership
Losses can immediately offset against the head office profits
No withholding tax on profits when remitted back to head office Disadvantages Often higher tax rates
No Limited Liability
More disclosure to head office
Little flexibility for timing of profit repatriation
Less access for incentives
Not easy to reorganise foreign activities
Lower image and profile than a Subsidiary

Although at first it might seem that opening a subsidiary might be the best course of action for Maxisoft but we first must look at the how Maxisoft are going to operate in Country b and from there we can ascertain the best course of action for them to take.

As Maxisoft are intending to impart their product into Country B and then use an outlet there for them to sell their product. It would be more advantageous for them to open a branch in Country B for the initial stages of operations and when the business is operating at a profit it could be turned into a subsidiary in that way the company could take advantage of both aspects of operating in a foreign country. They could offset the losses from the start up of the foreign enterprise and when the company starts to turn a profit it can convert that operation into a subsidiary to benefit from the numerous advantages that a subsidiary can achieve. Topic 10

Question 3:

There are numerous methods that the manager director can take to reduce the overall worldwide tax rate of the group such as offshore holding Companies, Profit reduction techniques and Treaty shopping.

Benefits of an Offshore Holding Company are;
• Some jurisdictions which include the Netherlands, Switzerland and Luxemburg provide special tax privileges to holding companies such as 5% withholding taxes on dividends which can be beneficial to the parent company.
• Dividends from a foreign subsidiary can be collected in a foreign offshore holding company instead of going to the parent company.
• By utilising a foreign holding company a parent company can assign where and when to use foreign tax credits by placing all foreign subsidiaries under control of one foreign holding company.
• An offshore trading company can buy goods from one company and sell it a foreign subsidiary for a profit thus reducing the tax liability in higher taxing countries.

Profit Reduction Techniques can be used to transfer profits from one subsidiary or branch in a higher taxing country to a much lower taxing jurisdiction such as;
• Tax Treaty planning; Withholding taxes under double tax treaties can be reduced lower or even to nothing.
• Interest payments can be used to lower the tax payments in the required country i.e. If the home country needs to reduce its taxation obligation it can borrow funds and then use the funds to inject to a foreign subsidiary as share capital and vice versa.
• An offshore company can be set up in a jurisdiction that does not tax royalties or intangible assets such as trademarks, copyrights and franchising rights.
• Management fees can be payed by subsidiaries to offshore holding companies that have favourable taxation regimes.
• A property investment company in a suitable location may purchase properties and rent it back to the foreign subsidiaries therefore shifting the profits to a lower taxing jurisdiction. Treaty Shopping is where third country residents use double tax agreements to obtain the advantage of reduced tax rates in these countries and exploit them. One way of this happening is that a resident sets up a holding company in a low taxing country that has a double tax agreement where the product you gain revenue from or is licensed to. The income will flow to the holding company and would benefit from the double tax agreement and whichever section the third party has exploited the profits can then be delivered to the third party whilst leaving a small amount of profit in the holding company, but for this to happen the third parties country would need to have a double tax treaty with whichever country the holding company is based so as to ensure that a favourable tax condition was still established.

Similar Documents

Premium Essay

(a) the Tax Implications for Bill Bates as He Is Working in Country B He Would Have Withholding Tax Even Though He Is Only a Temporary Resident of Country B. for This Reason Bill Bates Would Be Allowed to Get an

...around the world are becoming increasingly sensitive to the loss of revenue resulting from multinational companies moving into other jurisdictions, most particularly tax havens, to lower their overall rates of tax, what are some of the measures that can be adopted to prevent such revenue loses? A tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate. This is another important technique where the multinational companies can reduce their tax liability. If a company wants to expand and conduct their business in the country where the tax rate is very low or no tax rate, then they can reduce their tax liability to zero or very minimal amount. Tax havens are an internal fight as tax jurisdiction is an integral part of sovereignty and with this in mind, we should consider the measures usually used by states in order to prevent the use of tax havens: general avoidance provisions, the establishment of foreign exchange control and mandatory withholding of tax on transfers abroad, the creation of provisions against base companies, specifically by attributing income earned by such companies to the resident partners who control them, as well as the introduction of legislative giving powers to the tax authorities to adjust taxable profit by reason of special relations with another taxpayers. Tax havens make it more expensive for developing countries to......

Words: 700 - Pages: 3

Free Essay

Why Do Some Individuals Consider Tax Deferred to Be Taxes Saved? Is Their Reasoning Logical?

...spare few hours for this and post me the answers na aku…….. These are the questions…….? Question 1 Why do some individuals consider tax deferred to be taxes saved? Is their reasoning logical? (4 marks) Question 2 Mr. Karma is an employee of XYZ ltd. He draws salary @Nu.20,000 p.m during the year 2010-2011. He occupies residential house at Thimphu. Its rent is Nu.6000 p.m. He is offered three alternatives by the employer: 1) The company pays the rent direct to the landlord, the tenancy being between the company and the landlord. 2) The company pays house rent allowance to karma @Nu.5750 p.m and karma pays rent of Nu.6000 p.m to the landlord-the tenancy being between karma and the landlord. 3) The company neither offers karma the house accommodation, nor the rent allowance. Karma pays rent of Nu.6000 p.m for the accommodation occupied by him. He requests you to advise him as to which option would minimize his tax liabilities and maximize the cash inflow after tax. (5 marks) Question 3 Governments around the world are becoming increasingly sensitive to the loss of revenue resulting from multinational companies moving into other jurisdictions, most particularly tax havens, to lower their overall rates of tax. What are some of the measures that can be adopted to prevent such revenue losses? (5 marks) Question 4 Maxisoft is a private company incorporated, managed and controlled in country A and...

Words: 492 - Pages: 2

Premium Essay


.... 218 TAX AND INVESTMENT POLICYMAKING: A PROPOSAL FOR GREATER COHERENCE Tax avoidance practices by MNEs lead to loss of revenue for governments in both host and home countries of investors and to basic issues of fairness in the distribution of tax revenues between jurisdictions that must be addressed. In tackling tax avoidance, it is important to take into account the overall contribution to government revenues by MNEs and the existing tax base, as well as new productive investments by MNEs and the future tax base. The degree to which MNEs engage in tax avoidance varies by industry and home country (among other factors), but tax avoidance practices are widespread. They cause significant tax revenue losses worldwide – in both host and home countries of international investors. Not only do they cause economic and financial damage to countries, they also raise a basic issue of fairness. In almost all cases, the shift in profits through the use of offshore investment hubs does not reflect actual business operations (i.e. the profits reported and taxes paid in a jurisdiction are disproportionate to the activities that take place there). The shifting of profits between jurisdictions results in an unfair distribution of tax revenues between jurisdictions. The practice is especially unfair to developing countries that face certain tax related challenges. • Limited tax collection capabilities. Accurately identifying tax planning practices requires an analysis of global operations......

Words: 2089 - Pages: 9

Premium Essay

Conservatism in Accounting

...Introduction Accounting conservatism is traditionally defined by the adage “anticipate no profit, but anticipate all losses” (e.g., Bliss, 1924). Anticipating profits means recognizing profits before there is a verifiable legal claim to the revenues generating those profits. Conservatism does not imply that all revenue cash flows should be received before profits are recognized. Thus the issue is one of verifiability. In the empirical literature the adage is interpreted as representing “the accountant’s tendency to require a higher degree of verification to recognize good news as gains than to recognize bad news as losses” (Basu, 1997, p. 7). Conservatism is the asymmetry in the verification requirements for gains and losses. This interpretation allows for degrees of conservatism: the greater the difference in degree of verification required for gains versus losses, the greater the conservatism. It is this interpretation of conservatism that is adopted in this paper. An important consequence of conservatism’s asymmetric treatment of gains and losses is the persistent understatement of net asset values. Capital market regulators, standard-setters and academics criticize conservatism because this understatement in the current period can lead to overstatement of earnings in future periods by causing an understatement of future expenses. For example, Accounting Research Bulletin 2 (AICPA, 1939) states: “conservatism in the balance sheet is of dubious value if......

Words: 5452 - Pages: 22

Premium Essay


...higher depreciation charges in the early years and lower charges in later periods. Termed accelerated because these methods allow for higher early depreciation changes than the straight-line method allows. Also called decreasing-charge methods. Generally, companies use one of two decreasing-charge methods: sum-of-the-years'-digits or declining-balance. account sales A report, prepared by the consignee for the consignor, that shows the merchandise received, merchandise sold, expenses chargeable to the consignment, and the cash remitted. Account, 68 A systematic arrangement that shows the effect of transactions and other events on a specific element (asset, liability, and so on). Companies keep a separate account for each asset, liability, revenue, and expense, and for capital (stockholders' equity). accounting cycle, 73 Standard set of accounting procedures to record transactions and prepare financial statements. accounting information system, 68 A system that collects and processes transaction data and then disseminates the financial information to interested parties. Accounting information systems vary widely from one business to another, depending on the nature of the business and its transactions, the size of the company, the volume of data to be handled, and the informational demands. accounting policies The specific accounting principles and methods a company currently uses and considers most appropriate to present fairly its financial statements Accounting......

Words: 30281 - Pages: 122

Free Essay

Internal Controls and Fraud Prevention in Non-Profit Organization

...INTERNAL CONTROLS AND FRAUD PREVENTION IN NON-PROFIT ORGANIZATION WRITTEN BY DAVID SANNI Designed to provide information on key areas that can strengthen the internal control system of VI-MID-ISLAND SERVICE (VIMS) Submitted To VANESSA OLTMAN Faculty of Management Vancouver Island University Nanaimo, BC, Canada (Nov/15/2012) Table of Content 1.0 INTRODUCTION 3 2.0 NATURE OF FRAUD IN CANADIAN NON PROFIT ORGANIZATION 3 2.1 TYPE OF FRAUD IN NON PROFIT ORGANIZATIONS 3 2.2 PERPETRATORS OF FRAUD IN NON PROFIT ORGANIZATION 4 2.3 IMPACT OF FRAUD TO NON PROFIT ORGANIZATION 4 3.0 COMPREHENSIVE APROACHE TO REDUCE FRAUD 5 3.1 UNDERSTANDING INTERNAL CONTROL 5 3.2 BENEFIT OF INTERNAL CONTROL 5 3.3 LIMITATIONS OF INTERNAL CONTROL 6 3.4 CONTROL MEARSURES IN PREVENTING FRAUD 6 3.5 SUMMARY AND CONCLUSION……………………….………………….8 4.0 REFERENCE…… ……………………………………………………………9 1.0 INTRODUCTION The Canadian non profit sector has one of the largest populations in the world, accounting for over 7% GDP and creating 2 million full time jobs for Canadians. Further discoveries was made that 78% Canadians donates money to non profit Organization irrespective of all walks of life and income bracket. These donations are received to address core......

Words: 2777 - Pages: 12

Premium Essay

Review of Other Comprehensive Income

...Executive Summary The purpose of this report is to outline the history, current requirements and potential issues regarding the presentation of Other Comprehensive Income (OCI) for Australian reporting entities. Historically, there has been a long standing debate on what items should be included in income, operating income (dirty surplus) or an all-inclusive income (clean surplus). Dirty surplus accounting excludes all items not related to the current operations of the firm and is generally based upon by past firm transactions. The all-inclusive method recognises both operating income as well as revaluation increments (gains and losses) of net assets as part of income (clean surplus) (Hodgson, 2014). The all-inclusive income method was adopted by the Financial Accounting Standards Board (FASB) in 1997 and subsequently the International Accounting Standards Board (IASB), leading to ‘comprehensive income’ reporting. Comprehensive Income (CI) is the sum of Profit or Loss (P&L) and OCI. OCI comprises of items of income and expense not recognised in profit or loss as required or permitted by AASB (AASB, 2014) Recent Amendments permit P&L and OCI to be presented in as a single statement or in separate statements with the P&L section first. In the past, the FASB permitted a third alternative to recognize OCI in statement of equity (FASB, 1997), (AASB, 2011). Items within OCI also need to be grouped together, on the basis of whether they will eventually be ‘recycled’ to the......

Words: 1893 - Pages: 8

Premium Essay


...GROUPON, INC. FORM Report) 10-Q (Quarterly Filed 11/09/12 for the Period Ending 09/30/12 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 600 WEST CHICAGO AVENUE, SUITE 830 CHICAGO, IL 60610 (312) 604-5515 0001490281 GRPN 7311 - Advertising Agencies Retail (Catalog & Mail Order) Services 12/31 © Copyright 2012, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2012 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission file number: 1-353335 Groupon, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 27-0903295 (I.R.S. Employer Identification No.) 600 West Chicago Avenue, Suite 620 Chicago, Illinois (Address of principal executive offices) 60654 (Zip Code) 312-676-5773 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such......

Words: 43845 - Pages: 176

Premium Essay

C Corporations and S Corporations

...Businesses fall under one of two federal tax systems: Taxation of both the entity itself (on the income it earns) and the owners (on dividends or other profit participation the owners receive from the business). This system applies to the business S-corporation-called the "C-corporation" (C-corp) for reasons we'll see shortly-and the system of taxing first the corporation and then its owners is called the "corporate double tax." "Pass through" taxation. The entity (called a "flow-through" entity) is not taxed but its owners are each taxed (more or less) on their proportionate shares of the entity's income. The leading forms of pass through entity (further explained below) are: Partnerships, of various types. "S-corporations" (S-corps), as distinguished from C-corps. Limited liability companies (LLCs). A sole proprietorship such as John Doe Plumbing or Marcus Welby, M.D. is also considered a pass through entity even though no "organization" may be involved. The first major consideration (in this case, a tax consideration) in choosing the form of doing business is whether to choose an entity (such as a C-corp) that has two levels of tax on income or a pass through entity that has only one level (directly on the owners). Losses are directly deductible by pass through owners while C-corp losses are deducted only against profits (past or future) and don't pass through to owners. The major business consideration (as opposed to tax consideration) in choosing the form of business is...

Words: 3563 - Pages: 15

Free Essay


...Management’s Discussion and Analysis Supplemental Information Statement of Management’s Responsibility for Financial Information 133 Independent Auditors’ Report of Registered Public Accounting Firm 134 Report of Independent Registered Public Accounting Firm 135 Consolidated Financial Statements 140 Notes to Consolidated Financial Statements Resources and Directories 202 Glossary of Financial Terms 204 Where to Find More Information IBC Shareholder Information now it gets interesting Financial Snapshot Reported 1 Adjusted 1,2 As at or for the year ended October 31 2015 2014 2015 2014 19,389 18,223 19,391 18,223 liabilities3 (CCPB) (p 41) 1 1,254 1,505 1,254 1,505 Revenue, net of CCPB (p 38) 18,135 8 16,718 18,137 16,718 612 561 612 561 12,182 10,921 11,819 10,761 4,405 4,333 4,681 4,453 6.57 6.41 7.00 6.59 12.5% 14.0% 13.3% 14.4% (3.0)% (2.7)% (1.3)% (1.6)% 10.7% 10.1% 10.7% 0 % 10.1% 2,104 2,016 2,108 2,020 U.S. P&C (p 51) 827...

Words: 148279 - Pages: 594

Premium Essay

Report - Greek Sovereign Debt Crisis

............................................................................ 8 1|Page Greek Sovereign Debt Crisis 1. Introduction The economy of Greece is the 45th largest in the world with a nominal gross domestic product (GDP) of $238 billion per annum. It is also the 51st largest in the world by purchasing power parity at $286 billion per annum. As of 2013, Greece is the thirteenth-largest economy in the 28-member European Union. Greece is classified as an advanced, high-income economy, and was a founding member of the Organisation for Economic Co-operation and Development (OECD) and the Organization of the Black Sea Economic Cooperation (BSEC). The country joined what is now the European Union in 1981. In 2001 Greece adopted the euro as its currency, replacing the Greek drachma at an exchange rate of 340.75 drachmae per euro. Greece is a member of the International Monetary...

Words: 2375 - Pages: 10

Premium Essay

National Business Agenda

...2008) CONTENTS |Introduction ……………………………………………………………………………. |3 | |1. Institutional reform …………………………………………………………….. |4 | |2. The introduction of European definitions of small businesses ……………………………………………………………………………... | | | |5 | |3. Regulatory reform ………………………………………………………………... |6 | |4. The improvement of the tax regime …………………………………….. |7 | |5. Reform of the licensing system ……………………………………………. |10 | |6. Improvement of property registration system …………………….. |12 | |7. The creation of an effective information system ………………. |13 | |8. Reform of the system of various approvals and construction permits…………………………………………………………… | | |...

Words: 7623 - Pages: 31

Premium Essay

Werwqerqwerewq Rweq Rweq

...VMWARE, INC. FORMReport) 10-K (Annual Filed 02/28/11 for the Period Ending 12/31/10 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 3401 HILLVIEW AVENUE PALO ALTO, CA 94304 (650) 427-5000 0001124610 VMW 7372 - Prepackaged Software Software & Programming Technology 12/31 © Copyright 2011, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One)  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2010 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from to Commission File Number 001-33622 VMWARE, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 3401 Hillview Avenue Palo Alto, CA (Address of principal executive offices) (650) 427-5000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Class A Common Stock, par value $0.01 New York Stock Exchange Securities registered pursuant to section 12(g) of the Act: None Indicate by a check mark if the registrant is a well-known seasoned...

Words: 78298 - Pages: 314

Premium Essay

Global Recession and Bangladesh

...out the distressed banks or to boost their economies have failed to stop the rot. Bangladesh is apparently immune from the crisis, its economy not being very tightly linked with the rest of the world. It has been enjoying a relatively healthy growth of exports, industrial activity and remittances. Yet, a prolonged recession in the rich countries may cause a slowdown in exports, inflows of remittances, foreign aid and FDI, thereby hurting GDP growth. IMF has said that GDP growth in Bangladesh this year will be lower – 5.5% instead of the officially projected 6.5%, if the global recession lingers. Bangladesh policy makers will need to stay alert to the possibility of the economy being hit by the global slump and adopt appropriate mitigating measures.] Introduction The United States economy is now experiencing a severe credit crunch (falling availability of credit), which is the most serious financial crisis since the Great Depression of the 1930s. The crisis that originated from plunging house prices and stock price declines in the US has already spread to Europe and Asia, and is expected to be global soon. Many economists, including IMF experts, believe that the US economy has entered a recession that might be...

Words: 6686 - Pages: 27

Premium Essay

Pepsico 2009

...provide a great workplace for our associates. Additionally, we will respect, support and invest in the local communities where we operate, by hiring local people, creating products designed for local tastes and partnering with local farmers, governments and community groups. Because a healthier future for all people and our planet means a more successful future for PepsiCo. This is our promise. PerFormance To all our investors… It’s a promise to strive to deliver superior, sustainable financial performance.* Our GOals and COmmitments toP line: • Grow international revenues at two times real global GdP growth rate. • Grow savory snack and liquid refreshment beverage market share in the top 20 markets. • Sustain or improve brand equity scores for Pepsico’s 19 billion-dollar brands in top 10 markets. • rank among the top two suppliers in customer (retail partner) surveys where third-party measures exist. bottom line: • continue to expand division operating margins. • increase cash flow in proportion to net income growth over three-year windows. • deliver total shareholder returns in the top quartile of our industry group. corPorate Governance and valueS: • utilize a robust corporate Governance structure to consistently score in the top quartile of corporate Governance metrics. • ensure our Pepsico value commitment to deliver sustained...

Words: 53842 - Pages: 216