Efrelyn C.

David Taxation2 M/W/F 8:00-10:00

BSAC 4 10/04/2013

THE TAX FREE TOUR

The documentary tackles about the highly specialized field of corporate tax avoidance. The term
tax avoidance is used to refer to legitimate but maybe aggressive use of things such as financial
instruments and other arrangements to obtain a tax result not intended, or anticipated by, the
government. The use of overseas tax havens is one example stated by in the documentary. The tax
havens specifically referred in the documentary are those countries in which no or low taxes, lack of
effective exchange of information, lack of transparency, and no requirement of substantial activity. And
to differentiate tax avoidance from tax evasion, tax evasion which is then refers to a situation where a
company tries to reduce tax liability by falsely suppressing income or inflating expenditure, recording
fictitious transactions, etc., evasion is fundamentally considered illegal.

I found it astonishing that there are many US corporations which use overseas tax havens to
avoid paying tax in the US. Some of them include better known corporations such as; Apple, Google,
AT&T, Walt Disney, Wells Fargo, and even companies that promote themselves as socially responsible,
like Starbucks and Amazon.

Apple, scrutinized as one of the worst delinquents, pays only 1.9% of their annual income in
corporate tax. Apple should be liable to the standard 35% corporate tax rate. The secret lies in diverting
nearly all their income to a subsidiary in Ireland (which has one of the lowest corporate tax rates and is
acknowledge as a tax haven) after first passing all their royalty income through a Netherlands
subsidiary (the Dutch charge virtually no tax on intellectual property revenue, another tax haven) and a
company listed in Virgin Islands (also a tax haven) and back to Ireland. In the accounting trade, this is
known as a Double Irish with a Dutch sandwich.

Mentioning about the Netherlands, roughly 100 of the worlds largest companies have
subsidiaries in Netherlands stated in the documentary, owing to their low taxes on royalties from
intellectual property. Walmart has six Dutch companies, even though they dont have a single store
there. Starbucks also diverts all their royalty income there. Because they have a trademark on
frappuccino, they declare a certain percentage of the price as a royalty (and pay no tax on it).

Regarding the Starbucks bucks company, as shown in the latter part of the documentary, a
British Select Committee is questioning a Starbucks executive on his claim that their British coffee caf
have incurring losses for fifteen years in a row. Then after asking why they dont shut the stores down,
the British Select Committee gets him to admit they avoid $1.6 million pounds in corporate taxes by
diverting their British income to the Netherlands. The Starbucks executive wont tell the British Select
Committee how much tax they pay the Dutch government. Allegedly they have a secret agreement not
to disclose the amount. Then she sternly reminds him of the free public services Starbucks makes use of
in the UK, at the expense of other taxpayers.
Other company like the Amazon avoids corporate tax by diverting a extensive portion of their
income to Luxemburg. Google shelters their profits in Bermuda. Other favored corporate tax havens
include the Cayman Islands, Singapore, Hong Kong, the UAE, Cyprus, Mauritius and Kenya
Avoiding tax by bending the rules of the tax system is not illegal, but it is seen by many as
operating within the letter rather than the spirit of the law. Countries set out in laws how their taxes
should apply; businesses are expected to pay their taxes due under the law. The issue falls into the
realm of ethics because businesses have a choice about their approach to interpreting the law and
hence paying taxes. Whilst remaining legal in all it does, where a business draws its ethical line regarding
how to interpret the tax laws and arrange its affairs, is subject to a good deal of discretion. This can
extend to where it pays its taxes.

Tax avoidance has been branded by some as an immoral and unethical practice that
undermines the integrity of the tax system.

To end my summary, though there a lot of good and insightful ideas mentioned in the
documentary, one of which really promoted my interest and had given me a deep realization of things,
let us ponder on the last statement of one of the interviewees, in which he said We are greedy, were
greedy people, and we are in a battle of each other and our governments to survive, to make money, if
your business is making money you will bloody go out and fight, your competitors, tax man, the
government, to get your own way..