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International Taxation - Essay Example

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International Taxation

Essentially, this means that a multinational company with hundreds of companies worldwide is not regarded as a single economic entity but rather as an amalgam of independent tax paying companies1. There has been intense debate on whether it would be wise for the international taxation to be changed to allow for the holding company to pay the group’s consolidated tax. The proponents of this argument state that it would be much more convenient and efficient for consolidated tax returns as applicable to multinational companies. Anti-avoidance legislation Tax avoidance can be defined as the lawful measures that a firm may take in order to reduce their liability to payment of tax. It should be noted that tax avoidance is not illegal but its effect on the economy may be dire. The question of avoidance of tax has been of great contention considering the fact that the firms have a responsibility of being diligent in their dealings with the state. In order to mitigate the negative impacts of tax avoidance, governments have been in the forefront of enacting anti avoidance legislation that is aimed at sealing the loopholes that allow for tax avoidance. One of the strategies that governments have used is the adoption of general anti avoidance rule. The logic of this strategy is the fact that legislation has limits on the extent to which it may foresee all arrangements of taxpayers2. Therefore, a general anti avoidance rule may operate within existing laws or provide a caveat against general tax avoidance issues. In the United Kingdom, governments have implemented anti avoidance provisions that are targeted to deal with specific abuses of tax law. This is consistent with the legal view that legislation should be specific and outline the specific circumstances under which liability arises. There are scenarios whereby the anti avoidance laws are applied retrospectively in order to comprehensively account for previous abuse of the law. However, the United Kingdom courts require concrete proof of avoidance before a conviction can be upheld. In Parnington v The Attorney General3, the courts ruled that for the government to recover tax the prosecution must bring the subject to the letter of the law. It is not sufficient to have a case that is just backed by the spirit of the law. In the context of Canadian law, the courts lay emphasis on the substance of the legal arrangements in a given transaction rather than the economic outcome of the transactions. The interpretation of the Income Act 1976 is literal and the burden of proof of avoidance is upon the prosecution. The Revenue Canada department gave guidelines that expressly allowed the taxpayers to be subjected to minimum pay. However, cases of crafty tax planning grew exponentially leading to a major decline in the amount of revenue that the government collected. This led to the enactment of a general anti avoidance legislation that reinforced anti avoidance provisions in the Income Tax Act 1976 and the Goods and Services Act 19873. The essence of the rule was to distinguish from between abusive and legitimate tax avoidance measures. Australia has had a longstanding general anti avoidance rule over the years. The statutory provision in section 260 of the Income Tax Act of 1936 dictates that a contract that seeks to alter the liability for income tax is null and void. The application of the anti avoidance ...Show more
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Summary

International Taxation Name: Institution: Introduction The rapid globalization in the recent decades has given rise to a large number of multinational companies (MNCs) that have that have operations in several countries. The growth of international business has brought with it the challenges of harmonization of business strategies in the different geographical locations of operations…
International Taxation Essay
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