Recently, the news about the US government proposing about lower the top corporate tax rate and make it up by using the lost from the reducing the tax break like the loopholes that business organization was trying to avoid the tax.
The reason for the government in doing this, is the effective corporate tax rates were decreasing annually. This brings the government’s notice.
This was not only happens on the US as well as in the UK. But, since the high corporation tax, the business organization was using different way to avoid tax. The most popular way for Multinational Corporation is restructuring the organization to reduce their tax amount. Normally, organization can restructure their organization based on three ways in avoiding tax- ownership, transaction and transfer pricing.
From the case of Nabors Industries, it could be found that, organization using the ownership method to restructure its company by moving their head office in to Bermuda. Nabors Industries was used to be an American corporation, while the high tax rate in the US, force the Nabors Industries move to the Bermuda, which is a zero tax rate country. The company was still trading their business in US (on shell). In the year 2005, the company announced generates $428.4 million in profit and based on that it ought to pay $86 million on tax, but the company only paid $30million in actual. And, this was the reason why so many corporations want to avoid tax. It simply means that, by reducing their tax cost, it creates more shareholder wealth.
However, every coin has two sides, the bright sight brings more dividend to the shareholder and makes the company become more profitable and competitive, while in the opposite side, it reduces the government income. The same reason is applying in US government in trying to rearrange their tax regulation to reduce that shell off game to improve their effective of corporate tax.
From my personal view, I think it is time for the government to take some measures to reduce this phenomenon. Firstly, it is unfair for the small organization, as the multinational company will make use of their advantage in avoiding tax, which may leads unfair competition. Additionally, this will also encourage the small organization using other methods to avoid their tax in order to compete with the large company and this would not good for the government. Furthermore, as the large multinational companies using this method, it will also bring a kind of wind to follow, which might also has huge negative impact for the government economic, especially in this recession period. However, it is true that it is difficult to measure the taxes for multinational company and different countries have their own regulations. As a result, US government need to consider more when they trying to rearrange its tax.
(Annual report of Nabors Industries, daily mail, CNN news
http://www.dailymail.co.uk/news/article-2057306/Thirty-biggest-U-S-companies-paid-zero-income-tax-years-despite-making-combined-profits-160billion.html
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