Tax Shaming and the Issues Regarding Corporate Tax and Tax Avoidance

TAX SHAMING
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Introduction
Companies must pay the taxes they owe to the government by the law. It is an obligation which is enshrined in the laws of the land in the United States and other countries, and it attracts severe penalties for non-compliance. Companies try to pay as little tax as possible to maximize their net profits after tax. Any company resort to instituting tax plans that enable the company to pay as little tax as possible in any jurisdiction. Lately, there has been public outcry locally and internationally with people calling to boycott some companies which pay very low taxes by taking advantage of the taxation law`s loopholes. Amazon, Google, Apple Inc are the companies with the highest market capitalization in the country, and they have billions in revenue, but they pay comparatively very low taxes to the US government. These companies are owned and headquartered on paper by subsidiary companies in foreign tax haven countries where they have negotiated very low corporate tax rates and only pay very little taxes to their home country. Tax shaming these companies affects the values of their brand in some cases has prompted them to revisit their tax plans to pay higher taxes. For example, Starbucks reviewed its tax plan in the UK after it was shamed and the public boycotted its stores while flocking its competitors CITATION Rob15 \l 1033 (Davies, 2015).
Difference Between Tax Avoidance and Tax Evasion
Tax avoidance is structuring a company’s tax plan to reduce its tax liability. It is a completely legal practice which businesses take advantage of to minimize the taxes they pay. In the case of Google, Amazon, Apple, Starbucks and other companies, their tax plans are structured to lessen their tax rates in the United States. The common methods of avoiding taxes are by using legal tax loopholes such as tax deferral plans, taking advantage of tax credits, tax deductions, etc. There is nothing illegal about tax avoidance.
On the other hand, tax evasion is illegal. When companies or businesses fail to declare income, report more expenses than they should, fail to pay taxes owed, understating tax amounts owed, etc, then they are evading tax. The businesses and companies are using illegal processes to reduce their tax burden, and they can be sued for their actions. Concisely, the main difference between tax evasion and avoidance is the legality of the means to lessen the tax burden CITATION Jea18 \l 1033 (Murray, 2018). In one case, it is legal according to the tax system while on the other hand; it is illegal.
Why and How Companies Avoid Taxes
Most companies and businesses try to maximize their profit margins. Tax is one of the highest ‘expense’ businesses, and companies incur in its operations. Thus, the best approach to increase profits is to reduce expenses. The companies find loopholes in the tax code which can enable it to reduce its tax burdens to increase its profitability. One of the common ways in which the companies reduce taxes is by offshore tax shelters. Offshore tax sheltering is ‘shifting profits to foreign subsidiaries in countries with lower tax rates.’ the company pays taxes by the ‘friendly’ tax codes of the foreign countries in which the subsidiary is based.
Other companies provide for high depreciation rates for its assets. The accelerated depreciation approach is like ‘kicking the ball down the road,’ and the companies/businesses can do it indefinitely. By increasing the provision for taxes, the companies can reduce the ‘profits’ before taxation and thus pay lower taxes.
Some companies negotiate for lower tax rates and or tax breaks to invest in certain areas. The big companies ‘bully’ states and countries to be given special provisions to set up plants, factories, offices in their territory. Recently, Amazon management was courted by many states and foreign countries to invest in its territory CITATION Noa17 \l 1033 (Maggor, 2017). Amazon was ‘auctioning’ bids to states to build a new headquarters complex in its territory. The states were competing by giving competitive tax breaks to the company if it agrees to build the new headquarters in its territory. There are many other approaches companies take to avoid paying taxes, according to the tax code.
Moral and Ethical Implications of Corporate Tax Avoidance
Relatively, smaller businesses pay higher taxes than the big corporations. The big corporations have invested in finding tax experts who help them to exploit tax loopholes and minimize its tax burdens. By comparing the percentage of taxes pai...