Transfer Pricing and Off-shore Tax Haven Usage

Public service depends heavily on taxes but there is a contradiction in western legislation toward tax havens for more than a century that affects both rich and poor nations alike(Shah, (2009).   Individual and companies have to pay taxes.  However, by employing creative solicitors and accountants, some multinational companies and wealthiest people afford to escape paying taxes (Shah,(2009).  

Companies such as Enron, Newscorp, Elan, Exxon, Northern & Shell Group, Portland Investment, Microsoft, General Motors and others have used tax havens to reduce or eliminate their tax bills.   As a result, in the 2002 the UK government lost extra revenue of £85 billion.  If it was collected, it would have been funded schools, hospitals, pensions, public transport and social infrastructure.  

The UK government is unable to tackle this problem, claiming that there is insufficient fund to invest in public service (Mitchell et al. 2002).  However, the government could tax billions of pounds that escape in offshore tax havens by adopt a progressive taxation policies and tax the rich more.  As stated by the United Nations (1998)

 “The common denominator in money-laundering and a variety of financial crimes is the enabling machinery that has been created in the financial havens and offshore centres”.

Why would companies avoid paying taxes?  Tax avoidance is one way in which companies have been utilising to maximise shareholders funds.  Therefore, multinational companies are placed to exploit tax havens and hide the true profits.  For example, According to Mathiason (2007) Jersey has increasingly been used by Swiss bankers to help their clients avoid the withholding tax levied on Swiss corporate dividends.  Around $78bn of so-called Swiss fiduciary deposits were moved from their banks to Jersey.

Reference

Shah, A. (2009) Tax Avoidance. Available at: http://www.globalissues. org/article /54/tax-havens-undermining-democracy. (Accessed:13 April 2011

United Nations Office for Drug Control and Crime Prevention, (1998)

Financial Havens, Banking Secrecy and Money Laundering, Vienna, United Nations.

Mathiason, N. (2007) Jersey is $491bn tax haven: 4 November 2007  Availabel at: http://www.guardian.co.uk/business/2007/nov/04/4tory (Accessed:  15 April 2011)

Mitchell, A., Sikka, P., Christensen, J., Morris, P. and Filling, S. (2002)

No Accounting for Tax Havens:  Shedding light on darker practices Working for an Open and Democratic Society