How do big corporation avoid paying tax in Australia? Essay Example
Have realised the art of re-routing their funds to have their income nationless or not accounted for to any location in the world. Economist, multinational corporations are able to work around ‘loopholes’ in the Australian tax system by transferring income made in Australia to subsidiary companies in countries where the tax rates are lower. Companies are also able to move debts or expenses from other countries to Australian subsidiaries to get tax deductions. Well-known brands like Apple as reported by theETAX AccountantsThe controversy on tax laws in Australia has always been how well-known Corporations are able to not pay the right amount of tax or not paying any tax at all. According to
Companies can also manipulate grey areas in the tax codes by using techniques such as transfer pricing, treaty shopping and hybrid mismatches. Transfer pricing is a related party transaction between subsidiaries of a multinational company where they can freely charge each other rates and prices. Australia has various bilateral tax agreements with different countries worldwide which companies can exploit through treaty shopping by setting up an operation in a country where there is a favourable tax arrangement. For years, many forms of financial instruments have been created by top thinkers. As a result, companies can perform hybrid mismatches by claiming one financial instrument as a debt in Australia and an equity in other countries.
For ordinary Australians, it may sound dodgy or illegal but such tax avoidance schemes mentioned above are considered legal. Multinational corporations have complex corporate structures, to avoid paying a lot of money to countries like Australia where company tax rate is high; any loopholes that can be exploited in the taxation system will be used.
Just like any other business, multinationals and large corporations always have a need of acquiring even more resources. In most cases, these companies loose a substantial amount of their revenues to tax deductions thereby inhibiting their need to expand operations. It thus goes without saying that these companies should come up with ways of avoiding these tax deductions at all costs. As mentioned above, such instruments as transfer pricing could assist greatly to ensure that they retain a substantial level of revenues as retained earnings. This rather ingenious ways could help assist the company to invest their resources into short and long-term investments strategies that could result to even more income. In short, the ability of a multinational to cut down tax-related costs ensures that it thrives to greater heights in terms of revenue stream collections as well as redirecting retained income to other meaningful and profitable investments. It is thus suggested that companies continue to develop such ingenious ways as adopting legal treaty shopping, transfer pricing as hybrid matches in order to cut down on their tax commitments to the state. Certainly, companies should invest extensively in research and development activities that focus on exploiting loopholes that could emanate from weak tax systems in both Australia and those countries for which it enjoys tax agreement treaties. In such countries like Australia, the level of taxes is extremely higher hence it is resourceful to even create subsidiaries in countries where taxes are considered low and meaningful.
Might find these references helpful
here are 1,904 companies included in the ATO’s 2014-15 report. Of those, 678 – or 36% of the companies listed – had no tax payable.
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