Blog 7: The Relationship between MNCs and society

Public expectation

One of the tax system objectives is to achieve social goals.

Society is an important stakeholder of MNCs. It provides resources for MNCs to run their business, e.g. workers, technology, land and as well as clients. People think that MNCs have corporate social responsibility. They should consider the interests of society when running the business.

Morality vs legality

Paying tax is a channel for MNCs to contribute the society and fulfil public expectation. The amount of tax is magnificent and it should be used to run public services. However, MNCs try all means to reduce tax and the ways they used is controversial, e.g. using the advantages of overseas tax haven to maximize their profits. Tax avoidance seems to be an unethical practice.

Honesty vs legality

Some MNCs would attempt to bribe government officers to enjoy tax benefit. This foster the culture of overseas bribery. Governments become corrupted. Undermining democracy and the rule of law, the cost is borne by the whole country. China, Brazil and Mexico are some hotbeds of corruption.

Blog 6: Exploring relationship between Globalization and cash flow(liquidity)

So what is globalization in general?
The definition found from the internet about globalization mentions: "The worldwide movement toward economic, financial, trade, and communications integration." In facts, the term of globalization implies an interconnection between the overseas corporations with the free transfer of capital, goods, services. Under globalization, positive effects put on cross boarder transfer and trading as the soften of trade barriers with the rapid growth of globalization. The following video can help us know clearer about globalization.

Honestly, economic globalization do give a lot of benefits to different countries which lead to the rapid rise of multinational corporations(MNCs) in recent years. The numerous benefits illustrated below:

1.  It improves communication flow

This can ensure the transferring of important and advantageous information within organizations and people. With the enhance of advanced technology, it helper to save a lot of time on trading and exchange of goods or properties. Which means the MNCs can therefore get more profits under globalization.

2. Economic benefits is encouraged

The term of globalization emphasis on "de-localization", where corporations can easily make transfer or business across distance. Therefore the function of investors can performed in different nations and earn large profits in between.

3. Better transport

Under globalization, countries and corporations will make more efforts to improve their transport and infrastructures quality, in order to attract more MNCs and investors to invest in their places.

The above points are benefits that economic globalization brought, but they are not the major effects to the economic world. The major advantage is it increase liquidity.

4. Liquidity or cash flow is encouraged

With the emphasis on free trade under globalization, it increases the cash flow. Which the capital is redistributed to the more potential parties and result in higher degree of liquidity. "Globalization therefore provides investors the privilege of only taking the financial risks they want to." 

With the better liquidity and the redistribution of capital, the number of MNCs increase faster where the profits made by MNCs become greater. Nevertheless, the taxed income increase in scale as well. This can also help to explain why more and more MNCs choose to evade their tax and transfer their capitals to the tax haven with lower tax rates. The enhancement of liquidity under globalization is the major cause to the growing of tax evasion incidence in current years.

Blog 5: How do people and MNCs evaded tax and ways to combat

The methods of tax evasion 


(personal)
1. When people fill in the form of income tax, they will lower the income and increase the expenses.

2. In the entrance tax, people will deliberately fill in untrue content (including the classification of goods, quantity, amount, date, name of the consignor, etc.).

3. False donations. Some countries can through donation to reduce the tax paid. Then people will use fake donation document to do tax evasion.


(Company)
1. Buy invoices, real tax evasion. Overstatement of expenditures.

2. Conceal income.

3. A false declaration of the trading in order to avoid high land tax.

4. Transfer pricing

5. Related party transactions

Here are some examples of crackdown on tax evasion

1. Obama called on Congress to combat tax recovery of shell corporation 

President Obama (6 May 2016) urged Congress to help combat shell corporation that engaged in financial crime because "Panama file" recently declassified highlighted tax evasion and money laundering around the world occur.


2. EU finance minister had a agreement on company tax evasion

- Combating international companies use excess debt financing to reduce the tax provisions.

-Because enterprises using this method will be transferred to the national debt interest can be deductible taxes.

-This agreement will be work in 2019 January

[Video] Crackdown on tax evasion

Blog 4: Influence of Panama Papers in Hong Kong

Panama Papers were the leaked huge stack of confidential documents which were revealed by International Consortium of Investigative Journalists (ICIJ) in 2016. It contains detailed information on 214,000 offshore companies in a total of 11.5 million leaked documents processed in the law firm since 1970s. It exposed the hidden overseas assets of politicians and elites all over the world. After a comprehensive analysis by ICIJ, the company has nearly one third of the business from its offices in Hong Kong and China. It means China was the company's largest market while the office in Hong Kong was the busiest business of the company.

1. Hong Kong Was Mossack Fonseca's Busiest Office

Over a nearly four-decade span, Mossack Fonseca worked with more intermediaries – banks, law firms and others– in Hong Kong than in any other jurisdiction. As of the end of 2015, 29 percent of the companies the law firm was collecting fees for had been incorporated through offices in Hong Kong and China. Hong Kong’s tax authority did not immediately respond to a request for comment; A person answering the phone number for media at China’s tax authority hung up when asked for comment.

2. A Number of Chinese Nationals Figure in the Reports

Chinese individuals and companies alarmed by a falling Yuan and a crackdown on corruption have been on an increased push to move more of their money outside of the country. A number of prominent Chinese – including the brother-in-law of President Xi Jinping — were named in the leaked documents as directors or shareholders of offshore companies, according to reports. Chinese law doesn’t bar citizens from investing in offshore firms, but the reports could increase cynicism about anti-corruption efforts.

3. Asia’s Biggest Property Developer Is Also in the Leaks

In 2012, Hong Kong-listed Sun Hung Kai Properties Ltd. allegedly asked Mossack Fonseca to dissolve a British Virgin Islands shell company controlled by an executive who had recently been arrested as part of a bribery investigation, according to a report in the British newspaper The Guardian. Sun Hung Kai allegedly told Mossack Fonseca that the shell company had no purpose, according to The Guardian.

The executive, Thomas Chan, was sentenced to six years in prison in 2014 for acting as a bribery middleman between one of the property developer’s top leaders, Thomas Kwok, and a senior Hong Kong official.  In that trial, Mr. Kwok was also found guilty of conspiracy connected with bribery and sentenced to five years.

4. China Laws Help Drive Hong Kong Offshore Activity

One of the reasons there are so many firms in Hong Kong involved in setting up offshore trusts and companies is because of Chinese citizens’ lack of trust in the country’s laws and courts, said Jason Sharman, an offshore tax jurisdiction expert and professor at Australia’s Griffith University.

Wealthy individuals who own property via an offshore company could be doing so for legitimate reasons of privacy and security, or to skirt China’s notoriously stiff restrictions on capital leaving the country, for example.

Meanwhile, businesses may establish offshore holding companies due to Chinese rules restricting foreign ownership in certain industries. Chinese technology giant Alibaba Group Holding Ltd., which went public in New York in 2014 in a record-beating $25 billion offering, is incorporated in the Cayman Islands, for instance.

5. The Impact in Hong Kong Is Still Unclear

Although, Hong Kong is not an offshore tax haven and does not allow anonymously held companies, the city has an independent legal system, loose regulations and free capital flows, which makes it a key base for firms and individuals that register companies in offshore tax havens.

Hong Kong has a large number of firms offering professional services that help clients open and manage their offshore companies. Professional and commercial support services is one of the four pillars of Hong Kong’s economy, depends greatly on these offshore tax havens.

That is why a decline in the business of offshore tax havens may have a serious impact on Hong Kong.

While the reports have had reverberations in some other countries, such as Iceland, the impact in Hong Kong, if any, remains to be seen.

Some Hong Kong officials have emphasized that Hong Kong is a well-regulated financial center and dismissed concerns about money laundering, according to local press reports.

As far as the risk of reputational harm, academics and consultants stress there are many legitimate reasons to establish offshore entities, and that Hong Kong doesn’t appear to have a bigger problem with potential corruption than other major global financial centers.

Blog 3: Some famous examples of tax evasion

According to previous blog entry, usually people will evade their tax by hiding their assets or transfer their untaxed income in "tax heaven" . This incidence has obviously become more serious in recent years as more and more multinationals or famous people are discovered to evade their tax under the media supervision. The following two recent tax evasion examples which cause a global sensation:

1. Lionel Messi is convicted to commit tax evasion fraud (6.7.2016)

Lionel Messi is a Argentine professional football player who plays for Spanish club Barcelona and he is always considered to be the best footballer in recent years. He has developed a positive image all over the years. However Messi and his father are discovered that they hide assets in different countries e.g. Belize, Britain, Switzerland, Uruguay for evading tax within 2007 to 2009. The total amount of tax evaded is 4.2 million euro and the income is mainly paid by endorsing brand products. Messi is sentenced by the court to imprisonment for 21 months and paid fines on 6th July 2016. But hopefully he has been given a probation and therefore he doesn't have to go to jail at last. 

2. Former Suisse banker helps U.S. citizens to evade taxes and was sentenced to imprisonment for 5 years (28.6.2016)

Michele Bergantino is a Italians who work for a Suisse bank. He is discovered to help a U.S. citizens to transfer his assets to Suisse and avoid paying tax within 2002 to 2009, over 150 million euro amount of tax is affected.

3. The US inland revenue department check whether Facebook has evaded taxes (8.7.2016)

Reports by the Sunday Times said that over the next three years, the company was planning to pay out some 280 million euro in share bonuses to staff. Which means Facebook actually reduced their amount of net profit on which originally would have to pay corporation tax. A huge amount the company has vowed to register through UK would be offset and its tax bill substantially reduced. 

Blog 2: Learning more about "Tax haven" and Countries with high rate of tax evasion

What is Tax haven?

A tax haven is a jurisdiction where particular taxes, such as an inheritance tax or income tax, are levied at a low rate or not at all. It may also refer to a state, country, or territory which maintains a system of financial secrecy, which enables foreign individuals to hide assets or income to avoid or reduce taxes in the home jurisdiction.

Earnings from income generated from real estate (i.e. by renting property owned in an offshore jurisdiction) can also be eliminated in this way. If taxes (if any) are paid in the tax haven jurisdiction, companies can avoid taxes in their home jurisdiction because the tax had already been paid in the lower tax rate jurisdiction.

[News]US, Not Panama, in Top 10 Tax Havens for Evaders

The United States is among the top 10 countries with the least financial transparency, making it a perfect tax haven for those unsavory characters looking to launder and hide their ill-gotten cash.

The recent huge leak of documents from the Panamanian law firm Mossack Fonseca has revealed how tax havens are used to hide wealth and has focused the world's attention on the Central American nation. 

Important: Can you afford to Retire? The top 10 nations for financial secrecy according to The Tax Justice Network:

   Switzerland

    Hong Kong

    USA

    Singapore

    The Cayman Islands

    Luxembourg

    Lebanon

    Germany

    Bahrain

    United Arab Emirates

Read more: BBC: US, Not Panama, a Top 10 Tax Haven 

Individuals or corporate entities may establish shell subsidiaries or move themselves to areas with reduced or no taxation levels relative to typical international taxation. This creates a situation of tax competition among jurisdictions. Different jurisdictions may be havens for different types of taxes, and for different categories of people or companies.^[3] Sovereign jurisdictions or self-governing territories under international law have the power to enact tax laws affecting their territories, unless limited by previous international treaties.

[Video] Tax Havens 101: the High Cost of Going Offshore

What are offshore tax havens? 

Who uses them? 

How do they work? 

Let's find out in this video!

Blog 1: Introduction To Tax Evasion, The difference between "Tax evasion" and "Tax avoidance"

Tax evasion is the illegal evasion of taxes by individuals, corporations, and trusts. Tax evasion often includes taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts actually earned, or overstating deductions.

Tax evasion applies to both the illegal nonpayment as well as the illegal underpayment of taxes. Even if a taxpayer fails to submit appropriate tax forms, the International Revenue Service (IRS) can still determine if taxes were owed based on the information required to be sent in by third parties, such as W-2 information from a person’s employer or 1099s. Generally, a person is not considered to be guilty of tax evasion unless the failure to pay is deemed intentional.

Tax evasion does not equal to tax avoidance. Tax avoidance is the use of legal means to modify an individual's financial situation in order to lower the amount of income tax owed. This can include efforts such as charitable giving to an approved entity or the investment of income into tax deferred mechanism, such as an individual retirement account (IRA). In the case of an IRA, taxes on the invested funds are not paid until the funds, and any applicable interest payments, have been withdrawn.

Comparison of tax avoidance and tax evasion
From http://www.qwealthreport.com/tax-avoidance-is-not-tax-evasion-but-try-telling-politicians/