Tuesday, June 4, 2019

Is tax avoidance actually a cloak for tax evasion?

FT Alphaville investigates tax avoidance and shows how a significant share of what is packaged as tax avoidance is actually tax evasion. The author, Nicholas Shaxson, writes,
Germany collected €64.5bn in extra tax revenue from large multinationals over five years, as a result of audits to get taxpayers to pay the right amount, and a total of €83bn from all corporations... about half of this, or €39.8bn, was down to corporate income taxes... And who knows how much more should have been, but didn't, get caught by the auditors? What's happening here is that taxpayers, in this case corporations, tried to claim these billions for themselves but official audits found them to have transgressed the law in doing so. To label this stuff 'legal' is plainly wrong... A full 50 per cent of tax audits, according to the OECD, led to tax adjustments in 2015. That was higher for large companies -- and with the in-depth comprehensive audits, around 80 per cent resulted in adjustments. In other words, in half of the corporate tax audits, companies were found to have filed incorrect tax returns. In every country, the audits resulted in additional taxes being due, suggesting that companies were systematically trying to underpay: to get away with more than what was legally allowed. Unlawfully trying to obtain money that wasn't theirs...
For large taxpayers (Table 2 in the PDF) 57 and 58 per cent of audits led to tax adjustments in 2014 and 2015 respectively. And for transfer pricing audits, the figure was 58 per cent in 2015. The audit adjustments added up to an average of 10.7 per cent of total corporate income tax revenues (Table 5) though in some countries it was much larger. In Brazil, for example, an average of 45 per cent of corporate income (CIT) tax revenues stemmed from audit adjustments in 2014 and 2015, while in Italy the figures were 63 per cent and 49 per cent respectively. Finally, when it comes to comprehensive audits - more in-depth and penetrating than routine audits - Table 4 shows that the rate for audits which provoked tax adjustments in 2014 and 2015 was, respectively, 79 and 83 per cent... Overall, the patten is clear: multinationals routinely try to get away with (potentially unlawfully) dodging billions in tax they should, by law, be paying to contribute to schools, hospitals, tax courts and other public services.
A pointer for policy makers in India. Interestingly, the data is not available for India. What are the results of tax audits in India? Do tax authorities here do tax audits on multinationals and large Indian corporates, if so how? Is there any mechanism to target such audits (and thereby avoid the mistakes of the tax terrorism episodes), if they are being done?

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