How Would You Like To Pay Tax Like A USA Corporation
USA Corporation Tax Dodgers
These are companies listed on the top of Fortune 500 rankings and admired by professionals, investors and consumers all over the world. Their net profits are in billions of dollars, huge cash stashed in offshore accounts, and they are being subsidized by tax rebates from the USA Federal government.
The study of 280 fortune 500 companies identified,
• They have received about $223 billion in tax subsidies.
• Financial service companies (Banks) received the largest share of subsidy (17% or $37bn).
• Over the last three years 2008-2010, 50% of the tax subsidy was awarded to financial services, utilities, telecoms and oil, gas pipelines. more »
UBS Betrayed its Customers in Tax Case
Zurich based UBS the largest Swiss bank, acquired customers from all over the world, on the promise that their information would be protected and kept secret. The U.S. Justice Department filed a criminal case against UBS AG, that the bank conspired to defraud the U.S. by helping 17,000 Americans to evade taxes hiding money from the Internal Revenue Service.
To avoid prosecution, UBS broke the veil of Swiss bank secrecy to its loyal customers and admitted to the charges by U.S. Justice Department. UBS paid US$780 million, admitted helping tax evasion from 2000 to 2007 and handed over data on more than 250 U.S. clients. UBS later turned over information on additional 4,450 US account holders.
UBS signed an agreement with the prosecutors to end its cross-border business and co-operate with the U.S. government and identify the American account holders. With this agreement UBS avoided the prosecution and U.S. dropped the criminal case against UBS.
This agreement raises a serious question about the loyalty of corporations to its customers. Swiss banks are known for the protection of their customer’s information. If they fail to perform their duty to their customers, should the customers bring legal action against the corporation?
The Bank do not have the information if taxes were paid or not on the deposit of account holders. Out of 17,000 US account holder, I wonder how the bank decided to turn over selected account for tax evasion to the U.S. government.
Google’s Tangled Weave of Tax Strategy
Fantastic reporting by Bloomberg on Google’s income tax strategy.
New words to learn,
Income Shifting
Transfer Pricing
Double Irish
Dutch Sandwich
Advanced Price Agreement
US corporate income tax rate is 35%. Google’s foreign income tax rate is 2.4%. By shifting earning source from US to Ireland Google’s effective income tax rate is 2.4% on the foreign earnings portion of it revenue.
Is it Legal?
It is absolutely legal. It is approved and heartedly supported by US Congress. Any change to this tax strategy is opposed by US congress. In February, the Obama administration proposed measures to curb shifting profits offshore, part of a package intended to raise $12 billion a year over the coming decade. The Proposals haven’t advanced in Congress at all.
US treasury officials estimate the current policy change in Income Shifting and Transfer Pricing would raise $86.5 billion in new revenue over the next decade. But the policy change was opposed by Congress as they were lobbied by companies, i.e. General Electric Co., Johnson & Johnson, Starbucks Corp., according to federal disclosures compiled by Center for Responsive Politics.
From 2006 to 2009, US treasury lost about $60 billion in tax revenue due to this practice of Income Shifting by leading US companies.
Transfer Pricing Strategy is approved by IRS (Internal Revenue Service). IRS approved Google’s transfer pricing strategy for tax savings in 2006 after three years of negotiation. IRS gave its consent in a secret pact known as advanced pricing agreement. Under the agreement IRS approved the price of licensing of Google’s search and advertising technology and other intangible property for Europe, the Middle East and Africa.
Companies work for shareholders. It is management’s job, to give shareholder’s interest a priority. Larger profit and boosting share price is what shareholders prefer. The no. 1 way to boost earning is income tax strategy to pay less tax. Just by bringing down the effective tax rate from 35% to 2.4% Google boosted its earnings by $3.1 billion. It’s money in the pocket of shareholders. Google’s share price is $607. If Google had paid the $3.1 billion in tax, it share price would have been $100 less.
Simple, but Not so Simple Solution to this Tax Avoidance Strategy:
There is a very simple solution to make companies liable to pay fair share of their tax, like all American do.
Companies report earnings in their quarterly earnings report. All IRS need to do is make sure that the companies pay 35% tax on their pretax earning.
For Example, say Google reported $1.5 billion in pre tax earnings in the quarter. IRS needs to check, how much Google paid taxes on the pre tax earnings. At 35% corporate tax rate, Google should pay $525 million in corporate tax. If they paid any less than $525 million in tax, IRS just need to send them a bill for the difference and enforce the same kind of collection tactic they use on average American people for a tax avoidance and maybe put some of the executives in jail for tax avoidance strategy.
Google is doing nothing illegal. So, the Congress should first decide, if they will stand up to corporations and account them for their due share of income tax. Now that is not simple.
How to Face a CRA Audit?
Did you get a letter from Canada Revenue Agency (CRA), requesting supporting documents for your Income Tax Return? It does not say explicitly that you are being audited, but actually, your return has been selected for a random audit to see compliance with Canadian Tax Laws.
CRA usually have all the information regarding your income, in their database. Because by law, in Canada every company is required to send CRA a statement at the end of the year, of taxable payments they made to all employees and/or individuals.
Sometime, your income tax return may raise a audit flag for some information, or you just might be randomly selected for an audit. It should be a matter of concern for taxpayers, if you are selected for an audit. Because you don’t know, why you are being audited. After the audit, they may re assess your tax liability and send you a bill for additional taxes with fines and interest.
If your return is done correctly and you can provide all the supporting documents, usually there is nothing to worry about. Working with CRA auditors, I have personally found them to be friendly, courteous, knowledgeable and sympathetic to taxpayers.
If you want to face the CRA audit on your own, you sure can represent yourself to CRA. In that case, the auditor knows that you are not familiar with audit procedures and policies and probably you did your income tax return with off the shelf tax software. He already has advantage against you and can overwhelm you with complex questions about your tax return and in the end, send you a new tax bill.
It is always a prudent decision to work with an experienced, professional tax advisor when being audited. This decision can mean thousands of dollars savings for you and peace of mind. Consulting with a professional can be expensive, but your return on investment is many times of the money that you will spend for the advice.
A professional tax advisor who has handled audits in the past won’t be intimidated by the CRA auditors. Also, they are familiar with CRA’s audit proceeding and can answer correctly to CRA’s complex audit questions.
We have successfully represented our clients to CRA auditors and the peace of mind our clients experienced is priceless, knowing they are in good hands to deal with CRA
Canada Revenue Agency Income Tax: Tax Fraud Tax Payer Tax Rate
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Tax Audit, Here’s How it Works.
An interesting news about income tax audit came to my attention recently.
In Germany, a restaurant operator was flagged for tax audit, because his purchase of supplies did not match with the amount of revenue he was reporting.
The restaurant in a working class neighborhood of Saxony, makes larger than average schnitzels for its customers. Its giant schnitzel servings are very popular with his customers. He serves about 70 dishes a day of this lavish meal.
But according to Tax Auditors, they believe the restaurant sells 200 servings daily, based on the amount of
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