1.Discuss the overlaps and distinctions among tax planning, tax avoidance, and tax evasion, with particular reference (but not limited) to Xynas (2011). (500 words excluding bibliography).
Answer: When it comes to tax laws with regard to specific laws, Australia takes its legislation very seriously. They have a proper set of laws for their systems of taxation and they understand the implication of each of the issues that could up with regard to the different types of economic tools.
It is the duty of every government to make sure that they provide a certain number of provisons to its citizens, workers and tax payers so that they do not feel like they giving all their money away.
It is true that up to some extent, the government allows all tax payers to mitigate their amount of tax with the help of tools such as rebates, allowances, exemptions, deductions and various other tools. These are all within the confines of law and help the company minimize its tax liability in an optimal manner, immeasurably so because of the amount of money they are able to save (Farhi, 2020).Tax planning is thus essential for every company where they can arrange for a detailed analysis of their experiment current financial and positions and all their future goals with a dash of tax saving perspective.
When a company or a tax payers can completely avoid the liability of paying tax though some measures it is known was tax evasion. This happens when a citizen tries to reduce their tax liability by using more than the available tax deductions provided under the law by the government. Numerous ways in which this can be done is the overuse of tax deductions, exemptions, or underreporting one’s income. Misrepresentation or wilful omission of wealth is also a way of evading taxes. In some contexts finding ways to mitigate their tax payments might not too incorrect but it cannot be good for the economic health of the company in the long run if everyone does it. by refusing to put back the money in the government in thr form of taxes, one is essentially depriving somebody less advantaged of the same, and slowing down the country’s progress.
There are numerous ways in which the taxation system can be designed to better the economy and the society as whole (Xynas , 2018 )What comes into play is the way the policy makers review the economy. For instance, the government came up with the idea for increasing the GST on sugary foods and fizzy drink as a measure to combat against increasing nationwide obesity by using taxation as a social engineering tool.
Tax avoidance is a way in which a tax payers finds loopholes in the taxation systems legally and completely evades their responsibility towards the government. In most situations they are not reprimanded as it is still not illegal if they follow certain rules and use some clever tricks. It uses the shortcomings of the tax law where it makes use of all the provisions but it is in no way moral. But some companies find a way to make the argument that informed tax avoidance by giving some lawful excuse that seeks to minimize the liability in shirt run. Even though it is legal it renders the actual tax law as defunct. This technique is usually used by tax advisors to instruct the tax payers because it will directly benefit them. The financial affairs are deliberately and purposefully adjusted in a way that the citizen can get out of the whole tax paying responsibility(Xynas, 2018).
With regard to Xynas and Australian law, Australia actually uses taxation as a social engineering tool to create a sense of accountability among its citizens. The taxes are needed to serve the community therefore there needs to be sense of awareness and commitment to the taxation laws. The ultimate objective is to influence human consumption and behaviour as such that they become more responsible towards the area around them.
2. Explain and evaluate the concept of transfer pricing and how it relates to the above quotes. You should address the issues including (but not limited to) the social, political, financial and ethical implications on business and broader society.
Transfer pricing refers to the price that one company charges the subsidiary part or affiliate of the same company. This is the prices that one division asks the other division for the goods and services provided. This usually happens in a group of companies that is very large and they want to reallocate their funds so as to not pay the government in full. This can help that particular group of company to reduce their tax liability in the short term but this is not morally right for the country and its tax system in the long term and has several implications in various contexts (Killian, 2019).
The study of transfer pricing can be extremely useful when it comes to avoidance of complication during tax audits. Their needs to be a legal framework that highlights the ethical importance of paying taxes. Education regarding such ethics must be made mandatory. To understand the redistribution of wealth is the only way big businesses will grasp the concept of income equality. The fact that provisions are provided with the legal framework by the government of every country shows how much they are trying to help their businesses. it then becomes the responsibility of the company and the tax payer to not hide too many things or try to evade taxes that will eventually help the country and the economy at large (McLaren, 2017).
To make sure that all of the transfer comes with thin the legal provision provided by the government the group of companies must ensure that they have a proper data analysis and research where they come to know the proper pricing of good and services in not just their country but also other countries so as to determine accurate transfer prices. The autonomy of various divisions in a company and the organisational structure paly a very important role. Similarly, they must allocate the appropriate income portion to correct entities and pay taxes accordingly. Conducting all these procedure without actual tax documentation is not legal. This is extremely crucial for risk prevention. They basically transfer their income to low tax jurisdictions to escape the liability altogether .
But the moral implications of evading this transfer payments or payment of taxes is not something advisable for the overall economic health of a country. A taxpayer wanting to mitigate their tax payment amount is understandable but what they must understand is the moral implication of this process. The trickle-down effect where the big companies on getting richer can help their smaller counterparts in the society by paying taxes is real and there exists proper systems around big companies with huge amounts of income so as to ensure that consumer culture is positively influenced. The implementation of any taxation law is supposed to maximise the social welfare for all aspect in every sense. But in this case if it used for provisionally allowed but morally incorrect transfer of price it will only lead to social impoverishment (Rossing, 2017).
When we speak of this in political or social context, the obvious class consciousness comes into place because inherently the system is flawed even though it is designed with welfare in mind. Whether it is tax evasion or transfer pricing, what we see is clear instance of power play where taxpayers with that kind of leverage simply choose to not pay their tax. Financial acumen is important, but so is the presence of moral fibre. When a system of taxation is created, the expected effect is that of strengthening of the sections that need most help
If we were to analyse the sole purpose of economic analysis it would point towards movement of money. Cash flow, transference of funds buying and selling of goods and services, these activities are pivotal in ensuring that the economy keeps moving. All the movement of money that takes place around the world is in exchange for a good or service. The best thing an individual can do is find what they love to do, create a value around it that can utilized by others earn money for it and then spend that money by pouring it back into the government. Thus, government spending individual expenditure and consumerism is important to keep the momentum of the money in the economy. Inherently transfer pricing stall the money from going to someone who can actually benefit from them.
Creation of facilities like Medicare or other social welfare amenities may prove harmful to the rich person but these are the things that can truly help us elevate the society. When the rich or big companies try to evade this, they create further complications for the society.
The government does not place any social obligation on the very rich this regard, but different stages of economy bring in different demands from its citizens. Expansion of production possibilities is just as necessary as military training because the free flow of money due to consumption of goods and services is the basic structure of an economy and the more dynamic it is the better (Blouin , 2018).
In every situation of a financial year, there are certain lee ways through which a company can ensure that some amount of money is saved. Sometimes this is the sole purpose of hiring a tax advisor. But what we must remember is that the company who abuse this provision are simply rejecting their share of social responsibility. By the virtue of all the wealth they are accumulating by exploiting the poor, they are not making the price of labour expensive and through transfer pricing they are ensuring that they get to keep their share of profits forever. This is harmful in every sense. And it doesn’t benefit the economy or the under privileged members anyway (Xynas, 2018).
Money as medium of exchange is supposed to benefit society, though alterations must be made in order to create equal opportunities for the lesser privileged, but the very rich must realize their responsibility up to some extent.
Every lesson in economics talks about the importance of wealth distribution. We all know that the concentration of capital with any sole entity leads to stagnation and the prevention of capital flow and can have adverse effects depending on the phase of the economy. It is ensuring that nobody gets to benefit from this simply out of the very rich tax payers greed as no new wealth is created (Killian 2019).
Labour should be mad expensive in an ideal society so that the poor have more spending power. This will ensure that only the rich do not continue to stay rich and that the money keeps on moving, successfully impacting consumer behaviour.
Policy makers know that the taxation laws can influence human behaviour patterns and ways of spending by altering their tax treatment. It aims to combine the three pillars in this approach- law, ethics and economics to create a comprehensive network that awakens a sense of empathy and responsibility that ensure the growth of the economy in truest sense.
Though the judgement of its efficiency can only take place over a period of time, an ideal system of taxation requires that the government continues to comprehensively analyse how they are affecting the economic behaviour of the country. They have to measure the extent and purpose of their tax laws for members of each income bracket. This requires objectivity yet a little more attention for the lesser privileged. The social utilities of consumption should be beneficial for all and the ethical side of this is heavily reliant on this principle alone when it comes to taxation.
If one were to look at things myopically for an entire economy in the most inherent sense, this movement and this momentum of the capital flow is the only way that an economy can thrive. Thereby rendering situation of wealth accumulation and hoarding as completely harmful for the growth of the economy. This is where the education and awareness for the citizens and tax payers comes handy. To know the extent of economics knowledge and knowledge of trade is the first step.
Xynas, L., 2018. Taxation as A Social Engineering Tool (no. Ph. D). Deakin University.
Farhi, E. and Gabaix, X., 2020. Optimal taxation with behavioral agents. American Economic Review, 110(1), pp.298-336.
McLaren, J., 2017. The economic development of northern Australia: A critical review of the taxation benefits and incentives both past and present and the potential taxation options for the future. J. Australasian Tax Tchrs. Ass'n, 12, p.1.
Alstadsæter, A., Johannesen, N. and Zucman, G., 2019. Tax evasion and inequality. American Economic Review, 109(6), pp.2073-2103.
Besley, T., Jensen, A. and Persson, T., 2019. Norms, enforcement, and tax evasion (No. w25575). National Bureau of Economic Research.
Cobham, A., 2005. Tax evasion, tax avoidance and development finance. Queen Elizabeth House, Série documents de travail, 129, pp.1-20.
Kirchler, E., Maciejovsky, B. and Schneider, F., 2003. Everyday representations of tax avoidance, tax evasion, and tax flight: Do legal differences matter?. Journal of Economic Psychology, 24(4), pp.535-553.
Blouin, J.L., Robinson, L.A. and Seidman, J.K., 2018. Conflicting transfer pricing incentives and the role of coordination. Contemporary Accounting Research, 35(1), pp.87-116.
Dutta, S. and Reichelstein, S., 2020. Capacity Rights and Full-Cost Transfer Pricing. Management Science.
Rossing, C.P., Cools, M. and Rohde, C., 2017. International transfer pricing in multinational enterprises. Journal of Accounting Education, 39, pp.55-67.
Killian, S. and O’Regan, P., 2019. Taxation and Social Enterprise: Constraint or Incentive for the Common Good. Journal of Social Entrepreneurship, 10(1), pp.1-18.
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