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Assignment on tax evasion and tax avoidance

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Added on  2019-12-03

Assignment on tax evasion and tax avoidance

   Added on 2019-12-03

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Assignment on tax evasion and tax avoidance_1
ACKNOWLEDGEMENT
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ABSTRACT
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TABLEOF CONTENTSCHAPTER 1: INTRODUCTION......................................................................................................................11.1Overview.....................................................................................................................................11.2Structure of the Research.............................................................................................................21.3Focus and Purpose of the Research..............................................................................................31.4Framework and Analysis.............................................................................................................41.5 Potential Significance........................................................................................................................5CHAPTER 2: LITERATURE REVIEW.............................................................................................................62.1 Introduction.......................................................................................................................................62.2 Tax Avoidance and Evasion..............................................................................................................62.3 Components of Tax Evasion and Avoidance.....................................................................................82.3.1 Dimensions of tax avoidance......................................................................................................82.3.2 Methods of Corporate Tax Avoidance........................................................................................92.4 Tax evasion and avoidance via global channels.................................................................................92.5 Tax evasion and Tax avoidance due to holding of assets overseas by private individuals...............122.6 The role of tax havens......................................................................................................................132.7 United Kingdom and Tax Evasion/Avoidance.................................................................................132.7.1European Union Savings Directive............................................................................................132.7.2 European Union and Tax Problems of UK...............................................................................142.8 Conclusion.......................................................................................................................................15CHAPTER – 3 RESEARCH METHODOLOGY..................................................................................................163.1 Introduction.....................................................................................................................................163.2 Research Aims & Objectives...........................................................................................................163.3 Research Philosophy and Approach................................................................................................173.5 Research Approach..........................................................................................................................183.6 Research Type.................................................................................................................................183.7 Data Collection................................................................................................................................183.8 Data Analysis...................................................................................................................................193.9 Validity and Reliability....................................................................................................................193.10 Research Limitations.....................................................................................................................203.11 Ethical considerations....................................................................................................................20
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All the information that has been collected has not been manipulated and present in its actual form....20CHAPTER – 4 DATA ANALYSIS AND FINDINGS..........................................................................................21CHAPTER – 5 CONCLUSION AND RECOMMENDATIONS..............................................................................22CHAPTER – 6 REFLECTIVE STATEMENT.....................................................................................................23REFERENCES..............................................................................................................................................24
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CHAPTER 1: INTRODUCTION1.1OverviewMajority of the economic analyses of taxation presuppose that tax liability can bedetermined and collected cost effectively. As a portrayal of reality this is blatantly incorrect. Forinstance, the Internal Revenue Service in the US approximates that 17% of the income taxliability is not paid. The statistics for countries like United Kingdom is even higher (Blankson,2005). The tax frameworks get distorted due to the prevalence of tax avoidance, evasion andadministrative costs. Evasion and avoidance are considered to be the limiting factors of revenuemobilization. Avoidance of tax is basically the legal exploitation of the tax rule for one’s ownadvantage, in order to mitigate the amount of payable tax through ways which are within thelawful boundaries whilst providing complete disclosure to the tax authorities regardingsubstantial information (Braithwaite, 2003). Tax avoidance means comprise of tax deductions,establishing a company overseas in low tax regions and changing the structure of business byincorporation. On the contrary, tax evasion is considered as the efforts made by individualpeople, trusts, companies and other institutions to escape the payment of taxes by resorting toillegal methods. It normally entails deliberate misrepresentation or concealment by taxpayers ofmaterial facts of their actual state of affairs (Chen, 2003). Existing empirical researches on loss of tax revenue because of tax evasion and taxavoidance in UK differentiate between a domestic element and a global element. Tax evasion isincluded in the domestic element as it takes place because of national shadow economy. Theglobal component involves profit shifting by organizations and overseas holdings of assets thatare financial in nature by individuals (Christensen and Murphy, 2004). Tax avoidance might beconsidered as the immoral escaping of an individual’s duty towards the community or simply theright of every national to employ all the rightful ways of avoiding to pay too much tax. On theother hand, tax evasion is referred to as a crime in every nation. Hence, the differentiating featureof evasion is unlawfulness. In practicality there exist many grey areas wherein the line ofdistinction is not very apparent (Cowell, 2007). Avoidance and evasion of tax by multinational companies through trade mispricing andthe investments of people held overseas is also a raging issue. This issue of evasion andavoidance entailing overseas financial centers and tax havens is presently very high on politicalagenda in developed nations (Dyreng, Hanlon and Maydew, 2008). Attempts at quantifying the1
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tax gaps caused by such offshore activities are however often overestimated. Majority of theprevailing researches state that tax revenue losses of developed nations because of globalactivities take place through two mediums: the first one is corporate profit shifting activities andtrade price distortions while the second medium is present because of overseas holdings of localcitizens (James, 2009). Both these activities cut down the tax collected by developed nations likeUK, USA and etc. Tax base for business taxation is reduced by the former one while tax base forpersonal income is reduced by the latter one. The Federal government loses both corporate andindividual income tax revenue from the shifting of incomes and profits to tax havens (Orviskaand Hudson, 2003). It is quite difficult to make an approximation of such type of revenue lossesbut some researchers have proposed that the yearly cost of overseas tax evasions might roughlybe about $100 billion. International avoidance of tax mainly arises from rich investors from bigmultinational companies. It can reflect both illegal and legal actions (Parker, 2003). Tax havens affect revenue mobilization of other nations in a number of ways. To bespecific, they are the receivers of income moved out of high tax controls in both developing anddeveloped countries. Furthermore, they may also induce other nations to curtail their taxes i.e.they might increase the tax competition (Rego, 2010). It is claimed that 60% of the internationaltrade is routed through the tax havens. Studies have confirmed that when there are changes in taxbrackets or structures, individuals might change their spending basket. However, at the sametime, they might also ask their accountants to effect a series of actions which does not changestheir spending basket directly and apparently (Slemrod, 2002). The current research report looks into the issue of tax evasion, tax avoidance and shiftingof profits by multinational corporations. The study delves into the legality and illegality of theabove mentioned issues. The research will seek to identify the reasons behind shifting of profitsand why it is not considered illegal. In addition to this, it also aims at determining the reasonsbehind evasion of tax (Wenzel, 2007). 1.2Structure of the ResearchThe present research progresses in a sequential pattern as all the sections are connectedand interdependent i.e. only on the completion of a particular chapter, can the next section beaddressed. The structure of the current research is as follows:2
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Chapter 1: Introduction – This chapter gives a brief account of the topic under consideration.Moreover, a short synopsis of the framework analysis, focus and purpose of the research and thepotential significance of the study is also contained in this chapter.Chapter 2: Literature Review – The review of the literature section of the report includes thealready available pieces of work done by different authors on this subject or related to it. Itspeaks in volume about the different literary works on tax avoidance, tax evasion, profit shiftingand tax havens. Various books, academic journals and online reference materials have been gonethrough to compile this chapter. The significance of this section is very much as it assists theresearcher in comprehending the perspectives of other researcher and determining the gaps intheir work.Chapter 3: Research Methodology – This chapter presents the various research methodologieswhich have been deployed for the accumulation of information and its analysis. It includes theresearch questions, aims and objectives, data collation method, technique of data analysis,research approach, limitations of the study and the ethical issues. Chapter 4: Data Analysis & Analysis – The data collected by either primary or secondarysources is evaluated in this division of the study. This primarily involves the evaluation offindings so that inferences can be obtained.Chapter 5: Conclusions– This is the last and concluding chapter of the research. It includes theconclusions drawn from the findings of the research.1.3Focus and Purpose of the ResearchFocusThe main focus area of the study is tax evasion and tax avoidance in UK. Manymultinational corporations and wealthy individuals try to avoid paying too much tax by shiftingtheir profits to tax havens. Though evasion of tax is considered a crime yet, there are rules in theUK legislation which allow this behavior (Slemrod, 2007). Avoidance of tax is legal yet there isno clarity as to what comes under tax avoidance. Similarly, shifting of profits to low taxjurisdictions is also not legally permitted in UK yet companies and wealthy investors are doing itto avoid payment of too much tax. The current research thus focuses on identifying why evasionand avoidance of tax is not illegal.3
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