Question

For "Starbucks U.K. Tax Scandal"

Explain is tax evasion normal?

in 300 words

Answer 1

Q: For "Starbucks U.K. Tax Scandal". Explain is tax evasion normal?

A: Tax evasion is different from tax avoidance. Tax evasion is the deliberate non-payment of tax and it is illegal and criminal in nature. It is a clear case of cheating by a foreign company in a host country and its people of taxes which would have been used for developmental and public infrastructure activities. Tax evasion is the under-reporting of actual income, and manipulation of the accounts books also called 'cooking the books', it may also occur when a company shows losses instead of profits to completely evade payment of taxes.

Tax avoidance, on the other hand, is the use of legal means to limit or reduce the tax liability or burden by an individual or a company. Tax avoidance is not illegal and is allowed by a government like investing in certain government bonds, life savings schemes like a retirement fund, insurance policies, education, charity work / donations to registered NGOs, etc.

It was alleged by a Reuters investigation in that Starbucks had paid only GBP 8.6 million in taxes in UK corporation tax over the last 14 years and none in the last three years of the investigation as Starbucks claimed losses and not accounting profits in the UK inspite of having a sales of GBP 1.2 billion. Starbucks globally reported profits and do not show a country wise breakup of profits from its annual accounts statements from their global head quarters in the US so it is hard to audit and verify the losses claims in the UK by Starbucks. It was an allegation of tax avoidance and not tax evasion.

However, tax avoidance can also become illegal if the rules and procedures are being tweaked to gain an unfair or undue advantage which was not intended under the tax law and its provisions as tax savings measures. Tax avoidance can be showing losses to cover up profits and avoid taxes in entirety. So, in such cases it may be viewed as criminal.

Such a modus operandi is not surprising and has become common place by transnational corporations who have opaque corporate governance trends and patterns as being witnessed and so is becoming the new normal even if unethical and illegal.