Corporate Tax Avoidance and Global Economic Development

 

A Seminar organised by

The International Trade & Law Institute

at the UK House of Commons

17 January 2005
 
 
 

 

 

Speaker: Professor Prem Sikka

University of Essex, UK.

 

 

Address for correspondence:

 

Prem Sikka

Department of Accounting Finance and Management

University of Essex

Colchester

Essex CO4 3SQ, UK.

 

E-mail: prems@essex.ac.uk

AABA website: http://visar.csustan.edu/aaba/aaba.htm

 

Tax Avoidance and Global Economic Development

Corporate managers have spent the last century developing tools for avoiding regulation and taxation. They brag that acts of tax avoidance are part of corporate productivity. For them, each dollar of tax not paid because of their machinations is the added value they bring to a company. Tax avoidance is a profit center. Avoidance of regulation and supervision is an equally high priority. Corporate contributions and the personal contributions of senior corporate managers have funded anti-regulatory think tanks and anti-regulatory scholarship. Political contributions have turned theory into reality”.

Source:http://www.dfw.com/mld/startelegram/news/columnists/molly_ivins/7466513.htm; 11 December 2003.

Power of Corporations

TAX AVOIDANCE INDUSTRY

“KPMG has devoted substantial resources to, and obtained significant fees from, developing, marketing, and implementing potentially abusive and illegal tax shelters that U.S. taxpayers might otherwise have been unable, unlikely or unwilling to employ, costing the Treasury billions of dollars in lost tax revenues.

Source: US Senate Committee on Governmental Affairs.

“ranks of lawyers, accountants, and financial consultants have abused the law and their own professional ethics simply for the sake of huge sums of money to be made helping their clients evade taxes”.

Source: US Senator Joe Lieberman to US Senate Committee

 Partner of a major UK firm said that

“No matter what legislation is in place, the accountants and lawyers will find a way around it. Rules are rules, but rules are meant to be broken”

 

Source: The Guardian, 18 March 2004. 

AMOUNTS COLLECTED IN UK INCOME AND CORPORATE TAXES

 

YEAR             INCOME TAXES         CORPORATE TAXES                                 £ millions                        £ millions

 

1989-90                     48,801                           21,495

1995-96                     68,061                           23,570

2000-01                   105,177                           32,421

2001-02                   107,944                           32,048

2002-03                   109,507                           29,320

2003-04                   113,968                           28,115

 

Source:http://www.inlandrevenue.gov.uk/stats/tax_receipts/table1-2.pdf (Inland Revenue website)


EXAMPLES OF TRANSFER PRICES ACTUALLY USED

ABNORMALLY HIGH U.S. IMPORT PRICE

 

Multiple Vitamins            China                    $ 1,868.77/kg

Plastic Buckets                Czech                             $    972.98/unit

Fence Posts                    Canada                  $ 1,853.50/meter

Wood Moldings              Bolivia                  $1,124.17/meter

Toilet/Facial Tissue         China                    $ 4,121.81/kg

Briefs and Panties            Hungary                $   739.25/doz

Dishtowels of Cotton      Pakistan                $   153.72/unit

Other Made-Up Articles  Arab Em               $   106.73/unit

Ceramic Tiles                  Italy                      $ 4,480.00/sqmtr

Rubies – Cut, Not Set     Burma                   $38,192.30/carat

Bolts – Iron or Steel        France                   $  3,067.17/kg

Threaded Nuts                Belgium                 $ 2,426.70/kg

Tweezers – Base Metal    Japan                    $ 4,896.00/unit

Lawnmower Blades         Australia                $ 2,326.75/unit

Razors                            UK                        $   113.20/unit

Air Pumps                      Malaysia                $ 5,000.00/unit

Camshafts/Crankshafts    Saudi Arabia          $15,200.00/unit

Telephone Sets               Japan                    $ 2,728.00/unit

Blank Magnetic Disks      Denmark               $    164.19/unit

Smoke Detectors (Batt)   Germany               $ 3,500.00/unit

Industrial Hand Trucks    Spain                    $ 3,800.86/unit

Hypodermic Syringes      Switzerland            $    142.78/unit

 

Source: Pak, S.J., and Zdanowicz, J.S., (2002). An Estimate Of 2001 Lost U.S. Federal Income Tax Revenues Due To Over-Invoiced Imports And Under-Invoiced Exports, Working paper, Pennsylvania State University, 30 October 2002.

 

 
 

 

ABNORMALLY PRICED US EXPORT PRICES

 

Bovine Animals - Live                         Mexico        $    20.65/unit

Multiple Vitamins                                Finland        $      1.34/kg

Dynamite                                            Canada        $      1.24/kg

Radial Tires – Bus/Truck                    UK              $    11.74/unit

Diamonds – Not Industrial                  India            $   13.45/carat

Toilets - Bowls with Tanks                 Hong Kong  $     1.75/unit

Aluminum Ladders                             Japan           $     4.40/unit

Fork-Lifts, Self Propelled                   Jamaica        $   384.14/unit Industrial Robots                                                          Ireland         $  324.37/unit

Bulldozers – Self-Propelled                 Colombia     $1,741.92/unit

Automatic Teller Machines                  France         $    97.00/unit

Trash Compactors                             UK              $    54.82/unit

Video Monitors - Color                      Pakistan       $   21.90/unit

Video Projectors – Color                    Brazil           $   33.95/unit

Road Tractors – For Semi-Trailers     Nigeria         $3,750.00/unit

Truck Caps                                        Mexico        $   10.77/unit

Cameras – SLR, 35mm                      Colombia     $     7.44/unit

Clinical Thermometers                        Germany      $       .06/unit

Wrist Watches (Precious Metal cases) Colombia     $     8.68/unit

Missile and Rocket Launchers             Israel           $    52.03/unit

Prefabricated Buildings                       Trinidad       $      1.20/unit

Seats – For Motor Vehicles                Belgium       $      1.66/unit

 

Source: Pak, S.J., and Zdanowicz, J.S., (2002). An Estimate Of 2001 Lost U.S. Federal Income Tax Revenues Due To Over-Invoiced Imports And Under-Invoiced Exports, Working paper, Pennsylvania State University, 30 October 2002.



CONSEQUENCES OF LOST TAX REVENUES

TAX AVOIDANCE AND COMPETITION