Assignment on Taxation Law (Solved)

Running head: TAXATION LAW 1
Taxation Law
Name
Institution

TAXATION LAW 2
TAXATION LAW
Introduction
There is a perception that the corporate tax revenues of many countries are lost due to the
international tax planning. Big companies that have branches in parts of the world should
therefore developed suitable profit shifting strategies and policies that can improve the
performance of the Google tax in order to provide favorable treatment to the companies and the
general population (Kaminsky, Angell & Evora, 2018).
Two major techniques used to identify more profit in areas of low tax jurisdiction are use
of transfer pricing and increased leveraging, predominantly of intangible assets for example
technological advances, drug formulas, and trademarks. In order to shift profits by use of
leveraging, companies will have to discover their debt in countries of low tax jurisdiction. The
method involves both United State firms tracing their debt in US rather than participating in
foreign parents of United State (Hoffman & Tan, 2015).
The Google tax code is made up of general provision that help in limiting interest
deductions, prevent deductions that is more than 50% of the total income before, depreciation,
interest, as well as other deductions (Balakrishnan, Blouin & Guay, 2018).
The second technique of profit is by transfer pricing techniques that help in the
determination of price linked to transfer of assets and goods (Akamah, Hope & Thomas, 2018).
Google tax prevent the tax avoidance by imposing penalty on large organizations that are
fond of shifting income in foreign countries through certain corporate structures and transactions.
Under the law of the UKDPT, A total of twenty five percent tax is levied on profits that should
be taxed and reported in the United State, but were later shifted to other countries. Under the

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Australian law, a penalty of 120% of essential taxes is levied on profits that should be reported in
the country (Australia) but were shifted to other countries.
Google tax will benefits business owners, specifically those who are operating an online
start up business and small business who are using Google and Facebook for marketing
promotion and advertising, then the Google tax will be the best strategy to be used in promoting
the small business (Schippers & Verhaeren, 2018).
There are various ways in which companies may shift profits to where there is lower tax
jurisdiction from areas where they are generated the profit. The strategies that the companies can
include the following:
Treaty shopping
These are agreements that exist between different nations to alleviate the intensity of
double taxation. Before the enactment of the tax treaties, when the investments was made in
foreign nations, both the nations that act as the source of income and the nation which provided
the capital would entirely tax profits. The intention of the tax treaties was to reduce trade barriers
by jointly reducing the necessary taxes of the residents of one country to that of the other nation.
The provision of treaties may differ greatly but most of them depend on the convention of the
model.
To reduce the payment of tax, companies can trace profits through various countries to
obtain advantage of a particular conditions of tax treaties that are being used in those countries, a
strategy that are in use is called treaty shopping. Treaty shopping is the firm’s practice not
entitle to the advantages of a tax treaty in a particular nation to get these benefits through
artificially creating operations in a different third nation by use of special purpose vehicle or
conduit entities. The conduit tax of the entity residence that are found in the treaty nations, it

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seek for the advantages of the tax treaty regardless of the individuals who will receive benefit
from that particular income, they should not receive any benefits. All laws, both the international
and domestic, have been obeyed thus this practice cannot be regarded as the tax evasion.
Companies use treaties, which are put in place to remove double taxation, by legal means to get a
single taxation (Thompson, 2016).
The easiest way a company can acquire benefits of a particular tax treaty even if you are
not a resident of the treaty nation is through direct conduit strategy by using SPE. Special
purpose strategies such as Shell companies, holding companies and financing subsidies share
similar features: They employ few employees as well as having little by way of production or
operation, they are legal companies with each and every one with its residency, all their
liabilities and assets are foreign investments and they are controlled and owned by nonresident
(Callaghan, 2015).
To provide illustration of the conduit strategy, let use an example where a company that
is located in country A obtains the income of the business from Country B that does not possess
any tax treaty with the other country mentioned as A. (Bokulich et.al, 2018). The company could
form conduit firm in another country known as C which benefits as a result of the tax treaties
with B and A. Profits would flow from B-C and from C-A with benefits of lower or no
withholding tax. The net outcome is that country B will get smaller amount of tax, country (C)
which is the conduit country will get higher tax revenue and the Company will settle less tax
compare to when income was transmitted directly from B-A. In this illustration it is true that
country C should make use of conduit firms, to the disadvantage of country B ( Grace, Kivell &
Laugesen, 2015).