Advanced Taxation Finance Act

Question: Discuss about the Advanced Taxation for Finance Act . Answer: Introduction The following assignment presents a structure and brief operation of the taxation system in United Kingdom along with the concept of international taxation system. Payment of taxation system in UK involves three different levels of government i.e. central government, national governments and local government. Companies are required to pay taxes to the government as per specified under the Finance Act which involves international taxation (Egger et al. 2015). The document also contains the critical evaluation on the tax avoidance as per the international taxation system considering the current provisions of Finance Act. The assignment also considers a discussion on handling the tax avoidance based on the international agenda as well as among the world leaders and the organization of Economic Co-operation and Development in recent years. The territorial economy is facing tax avoidance since several recent years by organizations as well as individuals. Tax avoidance act is followed by the assessees or tax payers to reduce or avoid the payment of tax amount using the legal provisions under the tax act. It is different from tax evasion which involves illegal techniques to avoid taxability. However, the act of tax avoidance is increasing at high rate in the current years it is important to keep a check and handle such activities (Sackman et al. 2015). Discussion The taxation system in United Kingdom is considered to have a longest code across the world since the year 2009. Act of Finance contains all the legal provisions and regulations for the measurement and payment of tax amount by the individuals and corporations in the form of local and international taxation. It has been observed that the largest revenue collection by the government of UK is collections from individual taxpayers followed by national insurance, value added taxation and tax from corporations (Ohemeng and Owusu 2015). The Corporation Tax Act 2010 regulates the determination and payment of tax by the organizations including listed companies and foreign enterprise having branch offices in UK. The companies are required to compute the tax liabilities by considering trading profits, profits on sale of investments or assets or any other income including the payment of international taxation. If the company is involved in manufacturing or trading of products and services, they are required to pay duties and taxes covering under the provisions of international taxation system. Federal Law of United States of America considers tax evasion as an illegal attempt by the taxpayer to evade the tax payment, which may result in fines and imprisonment as punishment. As per the taxation system of US, citizens are required to report illicit profits as income while filing the income tax returns. Australian Taxation Office conducted investigation for tax evasion on more than 800 Australian resident taxpayers. Although the act of tax evasion is undertaken by legal means, most of the taxpayers are taking undue advantage to evade the payment of tax. Considering the acts of tax evasion, New Zealand taxation system plans to introduce foreign trust registry and enforcement agencies on local tax regulation to investigate the activities of tax evasion. It is observed that the country has been facing the tax regime since long time and therefore it becomes essential to review the tax evading acts to safeguard the government revenues by way of tax payment. However, the tax authorities and government are encountering issues with respect to the tax avoidance activity involving by the corporations to minimize the tax liability. Although the act of tax avoidance is legal and opted by companies within the scope of tax provisions and frameworks, yet it is necessary for the government to tackle the same. According to Armstrong et al. (2015), 11.5 million of files and data collectively called as Panama Papers that reveals the high scale of tax avoidance acts around the globe. In view of the recent survey, it has been noticed that many companies are taking undue advantage of the provisions on tax liability relaxations. The taxation system of UK includes the tax liability on the companies for payment of dividends to the investors along with the payment of tax under profits and other income. For instance, the company is liable to pay 30% tax on gross dividend paid to its investors. However, the companies are allowed to claim deduction for such pa yments against the companys tax bill as a result of tax credit that was reduced to 10%. Besides, it has been argued that as the tax avoidance is legal, it does not affect the legality of the provisions and regulations of taxation system. Gallemore and Labro (2015) explained that the avoidance of tax is followed by the assessees within the purview of rules and frameworks laid under the Finance Act. Many tax- payers forms and establish subsidiaries or entities in offshore authority to get the tax haven benefits. As contained in the Finance Act, Tax Haven is a territory or area where rates of income tax or other inheritance tax is levied either at lower rates or at nil rates. On the contrary, Christensen et al. (2015) stated that the companies are taking undue advantage of the tax avoidance facility provided by the government that affects the economic growth of UK and affects its Gross Domestic Product. Therefore, it is essential to prevent the tax avoidance following by the companies across the globe to maintain the countrys economic growth and infrastructure. The government of UK has taken steps to clamp down the tax avoidance by introducing several penalties and charges to the taxpayers for the tax evasion steps. Considering the international taxation system of UK, with the largest networks across the world and including more than 100 countries. The taxation policies as per the Finance Act have been amended to reduce the interest withholding taxes and royalties to benefit the taxpayer companies. Yet, companies or assesses are taking steps to avoid the tax liabilities that are illegal within the regulations of taxation system. Even though the tax evasion consists of legal activities, it affects the government revenue using the financial instruments. Payment of tax is a social responsibility that the individuals should company with as it provides impact on the daily lives of the society. Companies and individuals should be fair and socially responsible in paying the tax liability to the government. Tax avoidance is considered to be unethical practice as the integrity of the fair taxation system. Hence, taxpayers should not follow the practice of tax evasions because it constitutes damage to the society and government revenue collections. Being an internationally competitive territory, it is significant for UK to have its taxation system adequately clear for the enterprises to be able to perceive with clarity. Apparently, the taxation system in the country has become unstable because of significant changes in the provisions (Peyer and Vermaelen 2016). Therefore, the companies and other taxpayers are facing issues with respect to the benefits of tax avoidance to mitigate the tax liability. Some of these issues are discussed as under: One of the major tax evasion issues in UK taxation system is additional cost of tax encountered by the assessees. It occurs because the application of tax avoidance provision in a legal manner is critical and complicated. Therefore, the companies often need to hire tax professionals to provide assistance on legal matters (Hanlon, Maydew and Thornock 2015). Another issue that is faced by the companies to follow tax avoidance provisions is encountering the mistakes in adopting the appropriate provisions and their application in accounting information. It lacks the transparency in presenting and measuring the tax amounts with necessary adjustments. In case of Starbucks, it has been identified that the company paid corporation tax at 8.1 million in 2015 but faced the criticism for lack of translucence in payment of tax amount with fairness (DeBacker, Heim and Tran 2015). Increase of tax avoidance applications by the companies lead to experience illegal activities to get the maximum benefit with respect to the amount of tax liability. Companies like Google and Amazon experienced criticism for avoiding tax payments on sales revenue of around 395 million and 3.35 billion respectively. Reportedly, the companies merely paid a corporate tax amounted to 6 million and 1.8 million respectively (Russett 2015). Therefore, tax avoidance schemes followed by the several taxpayers are not in accordance to fair practice with the provisions of Corporation Act in UK. Accordingly, the government and tax authorities take steps to mitigate the risk of tax avoidance as well as to follow the provisions with fair practice. Recognized commissions plans and conducted measures for global clamp down for the purpose of tax avoidance in reaction to the issue of Panama Papers (Kane 2015). The commissions created the registers for providing the benefits to the taxpayers as well as the government to identify the actual tax liability. In order to tackle the tax avoidance government also takes steps by amending the related provisions more stringently and clearly. There has been imposition of interest and penalties by the government with respect to the illegal acts of application of tax provisions. Since many companies take the advantage of forming small companies and subsidiaries in the offshore areas where tax rates are almost negligible, government has restricted the entries in certain ways. For instance, a company is not allowed to create more than one subsidiary in the tax haven territory. Similarly, if a subsidiary company, one or more, having a turnover more than the limits specified under the corporation tax act, the respective holding company is required to pay such tax (Genschel and Rixen 2015). As provided by Beer and Loeprick (2015), companies are avoiding to pay taxes because of imposition of high tax rates by the government. Such huge amount of tax liabilities hampers the companys profitability, net income and capital employment amounts. Consequently, the assessees consider tax avoidance feature within the purview of provisions and frameworks. Hence, it cannot be said that that companies are following illegal practice to minimize their tax liabilities. In context to the avoidance of tax, international taxation system is affected on a larger scale, which requires the study of tax provisions of other countries. Any company involved in manufacturing and dealing in export- import business has to follow the taxation criteria of such foreign countries. Additionally, the companies providing services abroad and generating incomes in foreign currency, then they fall under the liability of tax provisions of that country. In such case, companies are liable to pay taxes as per the provisions of the related country that might be higher in comparison to that in the home country. Therefore, companies often follow the provisions of tax avoidance to minimize the tax liabilities (Dermine 2016). Mis-utilization of tax avoidance sometimes arises due to lack of proper knowledge and appropriate selection of relevant provision. As international taxation vary between the countries it leads to double taxation liability on the companies which means taxation of same income in two different countries. Therefore, to mitigate the double taxation companies apply the provisions to avoid double taxation, which is considered to be legal. Government in context to taxation system takes step to create transparent and clear provisions for fair collection of taxable amount (Alldridge 2015). Therefore, in order to generate fair trade practices and collection of tax revenues, government amends the provisions of finance act by imposing restrictions on transferring of money, mode of transfer of payments and creation of new companies. For instance, an assessee is not allowed to transfer the amount of money in cash mode if it exceeds the specified limit (say 2,000). Payment made in cash mode gives the payer and receiver a chance to avoid accounting records and eventually avoid the amount in computation of taxable income. Therefore, in order to minimize the risk of tax avoidance the system of tax act have been amended to restrict the payments in cash mode (Contractor 2016). Further, in context to the international taxation system, a transaction should be according to the arms length price or at fair price whichever is evident. Many companies undertake the transactions at low price and displays lower amount of profits in the books of accounts to avoid the tax liability (Buckley et al. 2015). However, as per the provisions of taxations such trading is restricted and has to be done at the arms length price to generate and disclose the correct profit in the books of accounts. In the same way, transactions in case of transfer pricing, that takes place between the related companies, have to be conducted at prevailing market price to disclose the correct and fair profitability. For instance, in the case of Vodafone in the year 2010, one of its stores was shut due to the controversy in tax payment of around 6 billion. It is important to have a better understanding on tax avoidance by the companies to apply the provisions in correct and fair manner. It should be correctly disclosed in the books o accounts and financial reports for the use of shareholders, creditors, government and other stakeholders. Companies are required to follow the ethics and due diligence for ascertaining the taxable amount to maintain the benchmark of business standards. Although companies who earn large amount of turnover often try to lower their corporate tax bills but that should be completely by legitimate means (Jaafar and Thornton 2015). In case, the companies follow tax evasion systems to minimize the tax bills by following black box pacts where the trading takes place in personal manner instead of commercial, then the same shall not be accepted. Therefore, it is important to clamp down the tax avoidance practice with respect to the local and international taxation system. Fair payment of taxes is essential to improve the countrys economy as well as GDP in context to the financial position and infrastructure. Additionally, government take steps to prevent the misuse of tax avoidance provisions by creating limitations, penalties and fines on the corporate as a means of punishment (Edwards, Schwab and Shevlin 2015). At the same time, international taxation system also plays important role though the government and companies have to face several difficulties in following the systems correctly. Companies often adopt plans and tricks on international tax system to avoid the tax liability by taking deduction on several transactions and charges in countries with high taxes. Companies also try to take the opportunities by exploiting the mismatch tax provisions in different countries. Another aspect that companies follow is treaty shopping that is used to disclose income in such a way that reduces the taxable amount (Hahn 2015). The government and tax system committees create arrangements to take measures on resolving the issues related to the tax evasion and misuse of tax avoidance provision. Contribution on various techniques to be planned by the government and approach to integrate the tax system within the companies. The professionals as tax consultant are required to provide their duties by maintaining the ethical issues and code of conduct by following the provisions in correct manner to maintain the transparent taxation system (Edwards, Schwab and Shevlin 2015). Conclusion In view of the above discussion, it can be concluded that the taxation system is critical and complex for appropriate application of provisions and regulations. According to the Corporation Tax Act 2010 in United Kingdom, limited companies whether listed or not including foreign companies need to pay tax on incomes and gains. In case of small companies with the maximum profit income of 300,000 are required to pay tax at the rate of 20% whereas if the amount of profits exceeds 300,000 then the tax rate becomes 21%. All the companies are required to file the annual accounts with the government and tax committee within nine months from the date of closing of financial year. These are certain norms imposed by the government to maintain the fair practice for generating tax liability amount and its respective payment. As the government experience huge tax avoidance and tax evasion issues with respect to local and international taxation system, it is important to regulate restrictions and limitations on the nature of trading. In order to provide benefits and relaxations on determining the tax liability, government has allowed certain deductions and claims towards the companies. However, undue advantage and misuse of exemption provision have given rise in tax evasion process. Such process includes shifting of profit to the tax haven jurisdiction, transfer of money in cash using different names and purpose and dealing the transaction at personal level. Therefore, the government needs to tackle the tax avoidance as a high priority to mitigate the risk of tax evasions. As the act of tax evasion results in loss of revenue collection to the government, it is essential to impose limitations on the processes of trading, transfer and collection of money. 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