Tax avoidance

Tax avoidance means the corporations using the tax law to gain a tax advantage to reduce tax liabilities. It is merely another term for tax reduction. As usual, the businesses will minimize a tax bill but avoid deliberate deception. However, it is considered as contrast to the spirit of law. So, using ways not predicted by the law, tax avoidance will relate to the exploitation of loopholes and gaps in tax and legislation. In general, avoidance is regarded as actions within the law.

One of the most common schemes of tax avoidance is transfer pricing where all goods and services are shifting within a network of subsidiaries of the same multinational company, but different jurisdiction. The primary benefit of transfer price is multinational corporations will move their profits to tax havens in order to avoid tax in some developed countries. Tax Havens are countries where the tax is either very low, or zero. Follow that, the vast profits of these companies usually are reported in tax havens such as Switzerland, Luxembourg, Cayman Islands and Ireland. However, if the company moving to a tax haven, it will requires a lot of planning, research, and overcoming various problems.    

Facebook is a typical example regarding tax avoidance in UK, specifically in transfer pricing. According to the Guardian, this company reported lower sales figures than predicted and Facebook also sets up its European headquarters are based in Ireland in order to obtain the advantage from lowered tax incentives for corporations. Besides, Facebook provided information about its U.K. revenue approximately $32 million, however according to estimation of analysts, profit that the firm actually made around $280 million. And follow the arrangement between Facebook and Ireland, the social network was able to paid taxes only 11 percent of its total U.K. sales. On the other hand, the reason for setting its headquarters in Ireland that Facebook reported the Guardian and the public is due to good local recruitment.

In this case, Facebook can gain many benefits when implementing transfer pricing. Firstly, regarding internally of this corporation, it can reduce significant amount of tax for them which leads to increase profitability. Another positive note is the new transfer pricing system will bring a resource of motivation. Facebook have a chance to implement new strategies on their business operations and transactions. Base on   organizational structure of each subsidiary, acquisition method, the way to invest or different policies about taxation in different countries, they can give suitable and flexible planning for a whole corporation.  However, although tax avoidance is legal but it is considered as immoral under ethical view. The press and the public detected misconduct of Facebook and it will affect the reputation of the company. Tax contributions are considered as an indicator about the concern of any company with society and environment around them. So, the strategy about tax avoidance of Facebook can make bad image with public and lose the trust of customers. The consequence is to decrease the number of users as well as profits also going down.