Question

AVOIDING PAYING TAXES—CHEATING THE GOVERNMENT

Very few people talk about wanting to pay taxes—for most citizens in most countries it is a natural inclination to avoid paying taxes, particularly when people object to the way the government spends the tax dollars on activities and programs which are contrary to the personal beliefs of individual citizens. Yet most students reading this textbook, and in a college or university course in Canada where this course is being taught, are the beneficiary of tax dollars in the context of how the government collects personal income tax and corporate tax and uses that money to subsidize educational costs—costs such as the building, the salary of the professor, the transportation system that gets you to class etc.

Sometimes national and regional governments operate in areas where there are not enough medium and large-sized companies paying corporate tax—therefore the government has a difficult time obtaining tax revenue to provide educational and health care services to the citizens. When the government does not have the means to collect enough taxes it has to make choices and often one of the primary ways governments cut costs is to cut education funding—meaning cuts to the number of teachers and cuts to facilities, technology, and other things necessary for students to obtain an education.

Recently (in 2012 and 2013), a number of leading American IT companies, such as Apple and Google, have been harshly criticized for using various strategies to avoid paying taxes in the United States, for example by outsourcing, offshoring, and listing income under foreign subsidiaries. The irony of the situation is bitter since both Apple and Google produce products and services that make it easier for students to carry out their studies, yet by avoiding paying millions in tax, these actions deprive the government of tax dollars that could be used to fund education.

Tax avoidance is not limited to the United States. In May 2013, The Economist magazine²¹ reported that “Google came under fire from British politicians, one of whom publicly accused the Internet giant of using unethical methods to avoid paying its fair share of tax.” In the United States, the Senate's Permanent Subcommittee on Investigations reported that “between 2009 and 2012 Apple avoided paying tax in America on at least $74 billion of profits by setting up subsidiaries in Ireland that had no purpose other than to ensure these profits were shielded from tax.”

Questions

1. Tax avoidance has been a hot topic in the United States, has it become a topic in Canada as well? Research some news stories to see if you can find some Canadian companies criticized for avoiding Canadian taxes.

2. The national government in Canada is now making more stringent efforts to collect tax from companies paying late, or not paying the full amount. Searching online, can you find out what the government is doing to recover money owed?

Also, many studies of unethical behaviour in a business setting have concluded that business people sometimes do not realize they are behaving unethically, primarily because they simply fail to ask, “Is this decision or action ethical?”²⁰ Instead, they apply a straightforward business evaluation to what they perceive to be a business decision, forgetting that the decision may also have an important ethical dimension.

Answer 1

1. Tax avoidance costs the world's economies billions of dollar every year. In absolute terms,the united states experiences the highest annual corporate tax losses of any country by far with an estimated $189 billion unaccounted for every year.That is about 1.13% of GDP. After U.S, China and Japan are the countries that records substantial losses.

The tax avoidance issues are rising in Canada too.Large data leaks like Panama papers in 2016 and Paradise papers in 2017 have shed light on just how widespread the problem is.These revelations were an eye opener for the government of Canada. More recent news dated Jan 31 ,2018 reported that 'The Canadian company behind the Mongolian mine has avoided half a billion dollars in taxes '. A Canada mining company, Turquoise Hill Resources, operating in one of the world's biggest copper deposits has avoided more than half a billion dollars in Canadian tax over the last seven years,according to the report. This alarming trend must be reversed, and government can help by undertaking reforms to simplify the tax system.

2. The Canada Revenue Agency (CRA) says it is still auditing taxpayers tied to Panama papers and other recent tax avoidance cases and it would be too soon to tell how much money could be collected from them. Though CRA has reported on collections related to offshore projects in the past four to seven years after the projects started. For example is a leak of banking records from HSBC in Geneva that led to more than $60 million collected by CRA and Revenue Quebec. The CRA has increased the number of actions by:

* Monitoring tax avoidance trends ,for example CRA now reviews 100% of all tax shelters.

* Ensuring timely communications to CRA auditors so they are kept updated about tax avoidance strategies people are using.

* Consulting the Department of Finance on legislative changes related to abusive tax avoidance strategies that are being used.

* The CRA is also gaining easier access to information on Canadian's overseas bank accounts for recovery.

* Canada continues to be a member of the expanded Joint International Taskforce on shared Intelligence and Collaboration (JITSIC)

* The CRA has been automatically accessing all international Electronic Funds Transfers (EFTs) of more than $10,000 entering or leaving the country.