Tax Avoidance in UK Industries: GAAR, BEPS, and Government Response

This report delves into the multifaceted issue of tax avoidance within the United Kingdom, exploring its various dimensions and implications. It begins by defining tax avoidance, differentiating it from tax evasion, and illustrating common practices employed by individuals and corporations. The report then analyzes the evolving attitudes of the UK public toward tax avoidance, citing survey data and highlighting the increasing scrutiny faced by those perceived to be minimizing their tax obligations. A significant portion of the report is dedicated to the General Anti-Avoidance Rule (GAAR) and its compulsory nature in the UK, explaining its role in combating tax avoidance strategies. Furthermore, the report examines Base Erosion and Profit Shifting (BEPS), discussing how multinational corporations shift profits to reduce their tax burden, and the international governmental reactions to counter this practice. The report concludes by emphasizing the importance of GAAR and BEPS in ensuring fair taxation and addressing the challenges posed by tax avoidance in the UK.

ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
In the aspect of companies, this is important to pay taxation on time and as accordance of
net income. In the recent time period, it has been seen that companies are ignoring to pay actual
amount of tax (Rossi, Lipsey and Henry, 2018). The project report covers about tax avoidance in
the context of industries of United Kingdom. As well as about importance of general anti
avoidance rule (GAAR) in order to overcome from the issues which arises lower tax payment to
country. Further, part of report consists about Base Erosion Profit Shifting and impact of global
governance communities on it.
MAIN BODY
Meaning of tax avoidance :
Taxes are involuntary fees levied on individual as well as corporations and it is enforced through
government entity of every nation (Hashimzade and Epifantseva, 2017). In simple term, tax is
amount of money paid by individual to government so that it will use for public services. There
are several type of taxes such as income tax, corporate tax, sales, property, tariff and estate tax.
Explanation of these are as follows :- Income tax – It is amount deducted by government from
individual earning filed to the federal government.
Corporate tax – It is some percent of corporate profit which government of every nation take as
tax for funding federal programs.
Sales tax – This type of tax charge on definite products and services.
Property tax – This tax based on the value of land as well as property assets.
Tariff – It is the tax rate which impose on imported goods with the aim of strengthening internal
businesses.
Estate tax – It is rate which applied to the fair market value of property at duration of death.
There are several type of taxes which individual have to pay at different level. But some
people use legal methods to modify there financial situation for lowering the amount of income
tax owned. Such practices are known as tax avoidance as well it is accomplished by claiming
permissible deduction and credits. In addition to this tax avoidance is different from tax evasion
because it is an illegal activity in that individual or entity deliberately avoids paying actual tax
liability. In simple term, within tax evasion person under report their income with the motive to

avoid taxes. There are numerous taxpayers who use some form of tax avoidance practices it may
seem negative but really isn't. Although, tax avoidance is legal way which utilise by people as
well as other entities for minimising their tax liability.
For instance, person who contribute to employers-sponsored retirement plan with pre-tax
funds are using tax avoidance (Helminen, 2017). Because within this tax will paid of amount at
the time of withdrawn in retirement and it is generally less then the amount particular person will
owe. Thus, such retirement plan allow individual to save tax faster. There are both type of people
who are engage in tax avoidance as well as tax evasion but in these there is only one difference
of legal as well as illegal practices. As it has been discussed that by implementing legal practices
tax will be avoid but through tax evasion tax has been not paid which is illegal.
Evaluation of changes in UK attitudes for avoidance of tax :
Survey of UK adults on behalf of Christian Aid, on attitude towards tax avoidance has
been analysed that almost 9 in 10 which means 89% of population are believing that tax
avoidance is not correct even it is played in legal manner (CHRISTIAN AID – TAX
AVOIDANCE NOVEMBER, 2017). In addition to this, 85% people think that it is much easy
for large scale organisation within United Kingdom to avoid amount of tax which they have to
pay. Furthermore, 25% which means one out of four at present boycotting products as well as
services of company because they are not paying fair tax share.
According to the view point of david Jones it has been determine that attitude of wealthy
client is getting change towards tax because they are seeking advice that related to tax bill
reduction as much as possible (Mumford, 2017). Within current extensive national survey it has
been summarised that 80% public surveyed believe that other people are dodging tax. Thus,
attitude of people towards tax avoidance is not positive because they are saying that most of
wealthy people are not paying tax they are avoiding it is legal manner. As they are saying that, in
legal manner also tax avoidance is not correct because it is affecting lives of other people. In
addition to this, St Albans is named as the town which have highest number of people admit that
they are not paying tax within United Kingdom. There were 24 disclosuers over 100,000
population who are not paying tax in last year St Albans. By carrying out research firm found
that England and Wales saw 11 disclosures per 100,000 people on average last year, with a total
of approximately 6,380 disclosures made (St Albans named UK’s top tax avoidance town, 2019).

Thus, most of the wealthy people are saving there tax bill in both manner by tax avoidance as
well as tax evasion. From there point of view these both are good whereas, those people who are
not wealthy not in the favour of tax avoidance. Because by this government is not able to get
funds which they can invest in public services.
The reason for which there is increased in public scrutiny regards to tax avoidance is
different. Some common reasons are as such as making delay in the aspect of filling the I-T
(income tax) return, for non disclosure of income, for not declaring investments which are done
on the name of spouse (Hillary, 2017). So these are some major reasons. In broad manner if
income tax return is not filed on the given deadline then individuals receive the notice from the
government of nation in which they are living. This overall cause as increase in public scrutiny
because due to this act, government will be entitled to assess the reason for which payment is not
done by public. Apart from it, another reason of increasing in public investigation is non
disclosure of income. In other words when individual will not publish actual data of their source
of income and pay lower amount of tax then government assess the financial information in
order to check actual source of income. As well as for finding those transactions which are
hidden by individual. Along with any person make huge amount of investment on the behalf of
spouse then it becomes essential to disclose the amount that earned on investment. In the case
when individual does not disclose the record of additional return that has been earned on any
hidden information then government investigates the sources of income. Thus, these are some
common reasons for which public scrutiny is increasing effectively.
Extent to which GAAR is compulsory in the United Kingdom :
General anti avoidance rules (GAAR) – This can be defined as a kind of tool that is
related with assessment of tax planning of business entities that are entered into the aim of tax
avoidance (Navarro, Parada and Schwarz, 2016). Basically, the main purpose of these rules is to
evaluate those aspects of transactions in which companies avoid or neglect the payment of
taxation to government. In many countries, this is being implemented in order to keep an extra
sight of eye on those companies which avoid to make payment of tax. At global level, most of
the developing countries are applying this tool so that total amount of taxation can be increase
for development of various kind of aspects. Same as the context of United Kingdom, this is
important for their companies as well as for government to assure that total derived tax amount is
as accordance of revenues.

In the aspect of United Kingdom this is necessary to implement General anti avoidance
rules. This is so because by help of this tool, the government of United Kingdom can become
able to find out those companies who are reducing their total tax payable amount by making
some manipulation of financial data. In addition, most of the countries have articulated that
GAAR is necessary for companies as well as for development of nation. In the recent time
period, this has been find out that mos of the organisations of United Kingdom are making
efforts in order to achieve tax advantage (Haslehner and Raingeard de la Blétière, 2018). Due to
this government of UK is not getting enough amount of taxation at the end of accounting year. In
this aspect, the HMRC published different conceptual frameworks that helped a lot to
government communities in order to implement these rules on those companies who are
performing those activities that leads to tax advantage to them. By help of these rules, tax
agencies can find variation in total tax revenues year by year and as accordance of it they
enforces those companies who are paying tax lower as compare to previous years. These General
anti avoidance rules, are adopted on a wide platform in countries like Australia, USA and many
more. The reason of implementation of these rules is issue of taxation payment by business
entities in these nations (Ginevra, 2017). Same as in the aspect of United Kingdom, their
government is essentially needed to implement these rules in order to raise total tax revenues that
can help in development of different aspects. Otherwise in the absence of applying these General
anti avoidance rules aspects, it can become difficult for United Kingdom to find out business
entities who are avoiding taxations. So overall as per the above discussion this can be stated that
in order to get efficient tax revenues from the companies as accordance of total revenues, it is
important for government of United Kingdom to implement General anti avoidance rules in
taxation frameworks.
About Base Erosion Profit Shifting and international government's reaction on encounter it :
Base Erosion Profit Shifting – The term BEPS, can be defined as a kind of strategy which
is being used by multinationals in order to shift profit sharing through higher tax jurisdictions to
low tax jurisdictions (Bauer, Macnaughton and Sen, 2015). Basically, the BEPS focuses on gaps
in international taxation of business entities which avoid tax burden in their own nation by
transmigrate intangibles to low tax jurisdictions. The OECD (Organisation for Economic
Cooperation and Development) evolved about 15 action items in order to find the main areas in
which business entities are shifting their profits. As well as these actions items are useful for

sorting the issues which are arising due to shifting of profit and ways through which these can be
sorted. In the context of United Kingdom, this is crucial to implement this strategy so that their
taxation agencies can find out those small and large companies who not shifting their profits so
that amount of tax can be reduced and profits can be achieved. Eventually, most of the business
entities shift their profits from higher level to lower level so that individual profitability can be
raise.
As above stated that most of the companies of United Kingdom are avoiding taxation
policies which is resulting as lose of total sources of funds as well as development is also
effecting (Cordewener, 2017). In addition, by implementation of this Base Erosion Profit
Shifting by companies this can be drawback for government of United Kingdom because they
will not aware to know about those companies who are shifting their total amount of profitability
so that their taxation amount reduce. Basically, as per the taxation rules this is stated that if
companies' income is lower then rate of tax also low and they will pay a minimum amount of tax
to their government. For this purpose the business entities try to manipulate the amount of total
profit that leads to decreased amount of taxation. Thus, this important for government of United
Kingdom that they should find those companies who are applying the Base Erosion Profit
Shifting model in order to decrease total value of taxation.
For international government, the term Base Erosion Profit Shifting is needed to be
counter in less time period (Crivelli, Mooij and Keen, 2016). This is so because by countering it,
they can become able from this framework to know about different nations taxation policy. As
well as about those business entities who are not paying taxation amount on time. There are
different kind of ways through which the international government community can address those
countries wherein, business entities are trying to shift their profitability for purpose of saving
from additional taxation. In this aspect it is important to know that international government can
not encounter this model on individual basis, they will need support of particular country's
government in which companies are shifting their profits. Thus, it is important to encounter this
model by national and international government so hat fraud business entities can be traced
easily and actions can be taken immediately.

CONCLUSION
On the basis of above project report, this has been articulated that payment of actual
taxation by companies is necessary for development of nation in which they are operating. In the
recent time period, companies are avoiding to pay actual taxation as accordance of actual
generated revenues. Due to this governments are facing a vital range of issues such as lack of
sources of funds for development. In the aspect of United Kingdom, their business entities are
not paying taxation to their government. In this case, it is important for them to implement
General anti avoidance rules so that their business entities can become able to pay actual taxation
amount. The project report concludes about role of General anti avoidance rules in the aspect of
tax avoidance case as well as about its impact on nations' development.
The further part of project report concludes about Base Erosion Profit Shifting (BEPS)
model and its concept in order to shift profits. This model is aligned with the business entities of
United kingdom. In the project report, impact of this model on the taxation income for
government is mentioned. In addition, the role of international government in the aspect of
overcoming from issues due to Base Erosion Profit Shifting (BEPS) and ways to encounter from
it.

REFERENCES
Books and journals :
Hashimzade, N. and Epifantseva, Y. eds., 2017. The Routledge companion to tax avoidance
research. Routledge.
Helminen, M., 2017. The international tax law concept of dividend. Kluwer Law International
BV.
Mumford, A., 2017. Taxing culture: towards a theory of tax collection law. Routledge.
Hillary, R., 2017. Small and medium-sized enterprises and the environment: business
imperatives. Routledge.
Rossi, P .H., Lipsey, M.W. and Henry, G .T., 2018. Evaluation: A systematic approach. Sage
publications.
Navarro, A., Parada, L. and Schwarz, P., 2016. The proposal for an EU Anti-avoidance
Directive: some preliminary thoughts. EC Tax Review. 25(3). pp.117-131.
Haslehner and Raingeard de la Blétière, E., 2018. General Anti-Avoidance Rules in EU Law
(EU Report IFA Congress 2018). Cahiers de droit fiscal international, Volume 103A,
pp.55-85.
Bauer, A .M., Macnaughton, A. and Sen, A., 2015. Income splitting and anti-avoidance
legislation: evidence from the Canadian “kiddie tax”. International Tax and Public
Finance. 22(6). pp.909-931.
Cordewener, A., 2017. Anti-Abuse Measures in the Area of Direct Taxation: Towards
Converging Standards under Treaty Freedoms and EU Directives?. EC Tax Review.
26(2). pp.60-66.
Crivelli, E., De Mooij, R. and Keen, M., 2016. Base erosion, profit shifting and developing
countries. FinanzArchiv: Public Finance Analysis. 72(3). pp.268-301.
Ginevra, G., 2017. The EU Anti-Tax Avoidance Directive and the Base Erosion and Profit
Shifting (BEPS) Action Plan: necessity and adequacy of the measures at EU
level. Intertax. 45(2). pp.120-137.
Online
CHRISTIAN AID – TAX AVOIDANCE NOVEMBER, 2017.[Online].Available
through<https://www.comresglobal.com/polls/christian-aid-tax-avoidance-november-
2017/>
St Albans named UK’s top tax avoidance town, 2019.[Online].Available
through<https://economia.icaew.com/news/february-2019/st-albans-named-top-tax-
avoidance-town>