Organizing Tax Avoidance in Large

Corporations Nubia Evertsson

Post-doctoral researcher Department of Criminology

Content

1. Definition

2. Crimes of globalization

3. Methods of tax avoidance

4. What do we know about tax avoidance?

5. How does tax avoidance work?

6. Conclusions

Definition

• Tax avoidance (Stiglitz, 1985): Explicit reduction of

tax liabilities

• Tax evasion: Illegal practice to avoid paying tax

liabilities

PresenterPresentation NotesStarted in 1880 in New York, to attract investors. In 1898 Delaware. In 1920 Switzerland canton Zug. 1957 Bank of England Jerzy, Isle of Man, Guernsey. Cayman Island 1966.

What would happen if people like you / me

violate the tax law in Sweden?

Tax offender (Criminal)

Skatteverket / Polisen

What would happen if IKEA / Starbucks /

Google violates the tax law in Sweden?

Tax planning / Tax avoidance

Investigation ???

Tax avoidance is a Legal practice to avoid

paying tax liabilities

PresenterPresentation NotesReplicate the problems of street crime and WCC

A problem for whom?

ActionAid

Christian Aid Oxfam

#occupiedwallstreet movement, 2011

PresenterPresentation NotesGlobal Alliance for Tax Justice Stiglitz Chair UN for tax

Crimes of globalization

“Crimes of globalization are those demonstrably

harmful policies and practices of institutions and

entities that are specifically a product of the forces

of globalization, and that by their very nature occur

within a global context”.

(Rothe and Friedrichs 2015, p. 26)

PresenterPresentation NotesIntegrated theory of WCC, origins in 2002 to explain crimes of International Financial Institutions

Increasing attention to tax avoidance

HSBC: 106.000 clients, 203 countries +$100 billion

PWC: 548 tax rulings in favour of 340 MNC

Liechenstein Leaks: 170 countries, 120,000 offshore companies + individuals

“But Nobody Pays That,” David Kocieniewski, The New York Times, 2012

http://www.nytimes.com/video/business/100000000870844/inside-the-accountants-playbook.html

PresenterPresentation NotesSwiss Leaks are shown in Uppdrag gransking SVTPlay FalcianiCompanies have CSR but it was removed from ISO 26000

Methods of tax avoidance - Basic schema

A

B

C

Country 1 Parent Corporation A Shareholder/investor

Country 2 Subsidiary B Wholly-owned by A

Country 3 Wholly-owned by B/ Second-tier subsidiary A

R&D

Transfer rights Buy-in payment R&D Services

Licence Royalties

Amazon USA

Amazon Luxemburg

Amazon UK

Methods of tax avoidance

• Profit shifting: Operational activities (higher-tax state) move to a subsidiary (lower-tax state)

Ireland Corporate income tax rate: 12.5%; Switzerland Corporate income: 0% non-residents Bermuda 0% (total exemption), Government fee • Payment for intangibles: Include royalties for the use of

licences, brands, patents Netherlands Innovation Box regime: 5% corp income • Transfer pricing: Payments for goods (and loans)

between a parent company and subsidiary

The Starbucks case

Starbucks Manufacturing EMEA BV (Netherlands)

Starbucks Mfg (Netherlands)

Starbucks Coffee Tradind SarL (Switzerland)

Rain City CV, Emerald City CV (Netherlands)

Starbucks Coffee International Inc. USA

Coffee beans

Royalties brand

Loan interest

Schema based on Edward Kleinbard, 2013. Through a Latter, Darkly: Starbucks’s Stateless Income Planning. USC Gould School of Law

The Google case

Google Incorporated

USA

Google Algorithms

Bermuda

Google Ireland Limited

Ireland

Royalties: 99.4% profits

Tax paid: £6m 12% rate (0.6% profits)

Tax paid: 0 No double taxation

Tax paid: 0 No double taxation

Sales locally, invoices Ireland

PresenterPresentation NotesDecember 2014 Cameron introduced 25% tax on income opeartion in the UK the so called google tax

Methods of tax avoidance (Cont…)

• Conduit: A corporation channels money through a country with low corporate tax rate Mauritius India; BVI China; Cyprus Russia

• Hybird entities: Obtain a deduction for the same cost in two different countries

Switzerland: Capital income for non-residents 0%; Witholding tax for royalties: 0% Belgium: 95% Dividends are exempt Luxembourg: Treaty with Belgium no taxed

Offshore territories

Source: http://visual.ly/locations-offshore-tax-jurisdictions

IMF: 46 territories OECD: 70 territories TJN: 82 territories

Cayman Islands (June,2015): - 58,238 inhabitants - Second Financial Center

(Portfolio invest. assest) - 96,554 companies - 196 banks - 11,061 mutual funds - 752 insurance companies - 144 trust companies Ugland House: 18,000 companies

PresenterPresentation Notes1.86 corporations per capita in Cayman Islands

Inward direct investment of top ten economies

0

1000

2000

3000

4000

5000

6000

2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

Offshore Countries Non-offshore Countries

Investment in Offshore Countries Investment in Non-offshore Countries

Offshore countries: China, P.R.: Hong Kong, Netherlands, Luxembourg, Japan, Switzerland, Virgin Islands, British Non-offshore countries: Brazil, Canada, China, P.R.: Mainland, France, Germany, Spain, United States, United Kingdom Source: Coordinated Direct Investment Survey (CDIS) by the IMF Available at: http://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1410469433565&ss=1390030109571

Swedish inward direct investment

-

50,00

100,00

150,00

200,00

250,00

2009 2010 2011 2012 2013

Investment in Offshore Countries Investment in Non-offshore Countries

Top ten Swedish investment countries include: Offshore Countries: China, P.R.: Hong Kong, Luxembourg, Netherlands, Singapore, Switzerland Non-offshore Countries: China, P.R.: Mainland, France, Germany, United States, United Kingdom Source: Coordinated Direct Investment Survey (CDIS) by the IMF Available at: http://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5

Total inward direct investment – Sweden Vs. Top 10 economies (%)

Top ten Swedish investment countries include: Offshore Countries: China, P.R.: Hong Kong, Luxembourg, Netherlands, Singapore, Switzerland Non-offshore Countries: China, P.R.: Mainland, France, Germany, United States, United Kingdom Source: Coordinated Direct Investment Survey (CDIS) by the IMF Available at: http://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1410469433565&ss=1390030109571

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2009

2010

2011

2012

2013

2009

2010

2011

2012

2013

Sw

eden

Top

10 E

cono

mie

s

Investment in Offshore Countries Investment in Non-offshore Countries

Top 10 direct investment countries in Sweden (2013, US$, Millions)

Source: Coordinated Direct Investment Survey (CDIS) by the IMF Available at: http://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5

Chart2

Singapore

Switzerland

France

Germany

China, P.R.: Hong Kong

United Kingdom

China, P.R.: Mainland

United States

Luxembourg

Netherlands

750078

770327

783712

926532

1195301

1607970

2331238

2763956

3251506

4342358

Sheet1

2013

Counterpart Economy (Investment in): 2013Reporting Economy (Investment in):

NetherlandsLuxembourgUnited StatesChina, P.R.: MainlandUnited KingdomChina, P.R.: Hong KongGermanyFranceSwitzerlandSingaporeAll Other EconomiesTotal Investment

United States997.712774.72376.465389.60842.87194.00186.2698.32397.4171,239,7193,897,098

Netherlands322.325273.88427.721C78.515207.655123.09213.18169.0521,391,1572,706,581

United Kingdom455.896540.818518.64320.98920.05462.15475.80223.89240.501633.0312,391,780

Luxembourg693.715201.6034.94CC161.53133.495161.7619.479717.6082,094,131

China, P.R.: Hong Kong15.74423.9315.861,112,242C6422.243C25.23966.1951,252,096

Germany246.134104.871208.84153.45C5.30185.44628.70415.792429.6771,178,217

France166.57972.443226.13120.748C6.98153.58443.12412.129514.4411,116,159

Japan64.3573.2342.327147.59480.35725.93621.87514.4883.54655.433350.7641,109,877

Switzerland234.314123.912209.39711.70562.7488.24959.99181.82929.308251.9051,073,357

Virgin Islands, British40.508C330.62413.68447.9183.241757C57.61180.432974.772

All Other Economies1,427,4011,285,283777.27524.7591,061,577559.475261.86180.3197.797328.1183,505,38110,109,220

Total Investment4,342,3583,251,5062,763,9562,331,2381,607,9701,195,301926.532783.712770.327750.0789,180,31027,903,288

2012

Counterpart Economy (Investment in):Reporting Economy (Investment in):

NetherlandsLuxembourgUnited StatesChina, P.R.: MainlandUnited KingdomChina, P.R.: Hong KongGermanyBrazilSwitzerlandSingaporeAll Other EconomiesTotal Investment

United States791.171456.08462.96331.29635.66699.371114.97386.064101.2491,177,6133,256,447

Netherlands314.66274.87921.917197.65973.739243.107199.397180.96463.5071,326,9452,896,774

United Kingdom457.434532.464472.56118.79516.29884.29624.116.29240.083707.552,369,871

Luxembourg561.597191.0113.91477.986C148.59349.334147.13214.921905.22,099,688

France145.7130.779230.20516.587107.6344.85786.88434.64642.22712.445503.2471,215,222

Germany163.27399.488201.12139.46484.0935.52518.19832.90214.862499.9871,158,914

China, P.R.: Hong Kong16.47419.0258.856952.27533.9112311.173C24.48160.9081,117,334

Switzerland203.55120.458195.65210.85264.2147.73986.61617.48326.779324.5391,057,882

Japan73.4391.998299.121129.38851.71321.94521.91233.4713.73550.796302.283989.801

Virgin Islands, British26.135C318.8758.704389.0651.0977.052C55.002118.79924.72

All Other Economies1,309,2001,205,697732.349492.999314.215569.455229.392237.445222.898313.6913,605,4459,232,786

Total Investment3,747,9822,780,6522,605,7552,068,0271,271,4251,124,2891,001,498737.274732.214717.8179,532,50726,319,440

2011

Counterpart Economy (Investment in):Reporting Economy (Investment in):

NetherlandsUnited StatesLuxembourgChina, P.R.: MainlandUnited KingdomChina, P.R.: Hong KongGermanySwitzerlandBrazilFranceAll Other EconomiesTotal Investment

United States839.526418.62857.751306.94644.61190.2188.052119.30772.0891,166,4103,203,529

Netherlands222.465197.29418.502206.18566.253232.245171.879172.196111.1661,152,1032,550,289

United Kingdom445.593446.077448.30418.09113.05484.65913.24621.04467.408646.5142,203,989

Luxembourg516.665172.1953.46686.367C135.809146.01932.788104.887731.0661,929,261

France155.644197.78528.97514.75889.3072.99986.32737.63934.388482.2491,130,071

Germany129.643213.60190.34334.69576.5644.08331.11617.31376.426420.4191,094,204

China, P.R.: Hong Kong16.2697.60515.413856.758C196C1.0262.30175.352974.921

Switzerland186.866198.05100.3278.740.5166.5581.88914.34461.858247.115946.214

Japan71.814274.2832.61121.99947.58923.91421.0322.58334.23512.498302.549915.106

Virgin Islands, British25.758C297.7926.24319.0781.067C6.427204152.822809.389

All Other Economies1,180,050701.7871,104,153474.396333.766546.504218.657202.784239.87176.7713,319,5568,498,293

Total Investment3,567,8272,433,8482,406,0481,906,9081,193,4791,027,047952.089693.318692.938685.6098,696,15624,255,266

2010

Counterpart Economy (Investment in):Reporting Economy (Investment in):

NetherlandsUnited StatesLuxembourgChina, P.R.: MainlandUnited KingdomChina, P.R.: Hong KongFranceGermanyBrazilSwitzerlandAll Other EconomiesTotal Investment

United States633.874270.64863.454303.43835.24499.97294.798122.58476.7871,167,7582,868,557

Netherlands234.408233.3415.17187.07459.755157.257220.102170.255164.6961,095,1982,537,254

United Kingdom484.1400.435603.54713.48314.822122.78171.99820.3415.648621.342,368,493

Luxembourg441.881170.3092.745114.438C138.517133.44433.926136.082634.4951,805,837

France159.894189.76345.93113.226104.5773.4991.28230.41343.831478.441,160,846

Germany114.447203.07774.75828.7381.8873.00194.30116.25431.315414.5691,062,339

Japan70.387255.012630106.30341.60822.07112.78220.49229.829802293.45853.366

Switzerland171.304180.64233.7026.64736.6335.6969.26178.46414.941243.356840.64

China, P.R.: Hong Kong8.0434.4410.668710.85215.1843.047302690C66.566819.791

Virgin Islands, British11.616C213.7323.319329.7764381.1626.329C130.442696.813

All Other Economies1,143,762641.958601.024395.263246.992517.654292.06200.44224.482148.7823,456,5047,868,921

Total Investment3,239,3072,280,0441,874,2481,569,6061,135,149991.503990.415912.482670.042617.9438,602,11922,882,858

2009

Counterpart Economy (Investment in):Reporting Economy (Investment in):

NetherlandsUnited StatesLuxembourgChina, P.R.: MainlandUnited KingdomFranceGermanyChina, P.R.: Hong KongSpainCanadaAll Other EconomiesTotal Investment

United States578.414246.39755.265255.599110.74296.06937.06763.366285.935758.2712,487,125

United Kingdom537.115414.59613.78813.446132.25466.26114.80462.28544.967434.3732,333,884

Netherlands206.622196.67811.729178.688158.737228.89348.149134.36853.748952.7042,170,315

Luxembourg454.546138.6671.5279.236130.955136.456C78.78913.323661.0711,694,563

France173.937158.92443.95310.344118.5190.5342.79955.38816.844424.0811,095,315

Germany105.839183.96674.50621.694108.97597.1241.82836.0278.954356.119995.029

Japan78.459238.1457988.36437.93811.23420.44221.1362.0113.877230.368742.55

Switzerland152.589140.81923.6047.09528.90573.27379.2455.96415.47322.418173.336722.72

China, P.R.: Hong Kong7.6244.2362.421553.67610.8053.014194CC54.357636.326

Virgin Islands, British19.294C187.2483.5226701.139287.758C302100.659600.593

All Other Economies1,131,431583.474588.401282.114233.593305.56199.163430.42147.12387.9792,898,1996,887,458

Total Investment3,239,2482,069,4381,790,3281,232,4961,055,7711,023,562918.395849.925594.83548.3487,043,53720,365,878

2009offshoreNon offshore

Offshore1857.9284260.604

Non offshore2430.4472508.063

2010offshoreNon offshore

Offshore2028.2334818.324

Non offshore2443.7562166.793

2011offshoreNon offshore

Offshore1869.2923994.48

Non offshore2791.4562124.746

2012offshoreNon offshore

Offshore2397.1413881.162

Non offshore3084.8732027.184

2013offshoreNon offshore

Offshore2034.163288.527

Non offshore3794.2651972.122

Chart1

2009Offshore Countries2009Offshore Countries

20102010

20112011

20122012

20132013

2009Non-offshore Countries2009Non-offshore Countries

20102010

20112011

20122012

20132013

Investment in Offshore Countries

Investment in Non-offshore Countries

1857.928

2430.447

2028.233

2443.756

1869.292

2791.456

2397.141

3084.873

2034.16

3794.265

4260.604

2508.063

4818.324

2166.793

3994.48

2124.746

3881.162

2027.184

3288.527

1972.122

Sheet8

Investment in Offshore CountriesInvestment in Non-offshore Countries

Offshore Countries20091857.9282430.447

20102028.2332443.756

20111869.2922791.456

20122397.1413084.873

20132034.163794.265

Non-offshore Countries20094260.6042508.063

20104818.3242166.793

20113994.482124.746

20123881.1622027.184

20133288.5271972.122

OffshoreNon-offshore

Top 10 Economies20096118.5324938.51

20106846.5574610.549

20115863.7724916.202

20126278.3035112.057

20135322.6875766.387

Sweden2009113.45209.00

2010121.7576046619215.949297286

2011139.4109789915201.2992726164

2012149.9440387424203.5389345838

2013157.9428998412213.2593480494

Investment in Offshore CountriesInvestment in Non-offshore Countries

Sweden2009113.45209.00

2010121.7576046619215.949297286

2011139.4109789915201.2992726164

2012149.9440387424203.5389345838

2013157.9428998412213.2593480494

2009offshoreNon offshore

Offshore1857.9284260.604

Non offshore2430.4472508.063

2010offshoreNon offshore

Offshore2028.2334818.32420092010201120122013

Non offshore2443.7562166.793Non offshore209,001,475,444.39215,949,297,286.02201,299,272,616.40203,538,934,583.75213,259,348,049.44

Offshore113,446,076,020.52121,757,604,661.91139,410,978,991.54149,944,038,742.41157,942,899,841.22

2011offshoreNon offshore

Offshore1869.2923994.48

Non offshore2791.4562124.746

2012offshoreNon offshore

Offshore2397.1413881.162

Non offshore3084.8732027.184

2013offshoreNon offshore

Offshore2034.163288.527

Non offshore3794.2651972.122

Investment in Offshore CountriesInvestment in Non-offshore Countries

Sweden2009113.45209.00

2010121.7576046619215.949297286

2011139.4109789915201.2992726164

2012149.9440387424203.5389345838

2013157.9428998412213.2593480494

Top 10 Economies20096118.5324938.51

20106846.5574610.549

20115863.7724916.202

20126278.3035112.057

20135322.6875766.387

Sweden 2013

Singapore750078

Switzerland770327

France783712

Germany926532

China, P.R.: Hong Kong1195301

United Kingdom1607970

China, P.R.: Mainland2331238

United States2763956

Luxembourg3251506

Netherlands4342358

Sheet8

Investment in Offshore Countries

Investment in Non-offshore Countries

Inward Direct Investment of Top Ten Economies

Sheet3

Investment in Offshore Countries

Investment in Non-offshore Countries

Inward Direct Investment of Sweden

Sheet5

Investment in Offshore Countries

Investment in Non-offshore Countries

Distribution of Total Inward Direct Investment

Sheet6

Sheet4

2012

Counterpart Economy (Investment in):Reporting Economy (Investment in):

NetherlandsLuxembourgChina, P.R.: Hong KongSwitzerlandSingaporeUnited StatesChina, P.R.: MainlandUnited KingdomGermanyBrazil

Netherlands314.6673.739180.96463.507274.87921.917197.659243.107199.397

Luxembourg561.597C147.13214.921191.0113.91477.986148.59349.334

China, P.R.: Hong Kong16.47419.025C24.4818.856952.27533.9112311.173

Switzerland203.55120.4587.73926.779195.65210.85264.21486.61617.483

Japan73.4391.99821.9453.73550.796299.121129.38851.71321.91233.471

Virgin Islands, British26.135C389.065C55.002318.8758.7041.0977.052

881.195456.141492.488331.831235.486969.5191437.221434.187732.325307.91

2397.1413881.162

United States791.171456.08435.66686.064101.24962.96331.29699.371114.973

United Kingdom457.434532.46416.29816.29240.083472.56118.79584.29624.1

France145.7130.7794.85742.22712.445230.20516.587107.63486.88434.646

Germany163.27399.4885.52532.90214.862201.12139.46484.09318.198

1557.5881118.81562.346177.485168.639903.887137.806523.023270.551191.917

3084.8732027.184

Sheet2

2010

Counterpart Economy (Investment in):Reporting Economy (Investment in):

NetherlandsLuxembourgChina, P.R.: Hong KongUnited StatesChina, P.R.: MainlandUnited KingdomFranceGermanyBrazil

Netherlands233.3459.755234.40815.17187.074157.257220.102170.255

Luxembourg441.881C170.3092.745114.438138.517133.44433.926

Japan70.38763022.071255.012106.30341.60812.78220.49229.829

Switzerland171.30433.7025.69180.6426.64736.63369.26178.46414.941

China, P.R.: Hong Kong8.04310.6684.44710.85215.1843.047302690

Virgin Islands, British11.616C329.776213.7323.3194381.1626.329

703.231907.71417.292844.8111055.449398.256818.864755.664945.28

2028.2334818.324

United States633.874270.64835.24463.454303.43899.97294.798122.584

United Kingdom484.1603.54714.822400.43513.483122.78171.99820.34

France159.89445.9313.49189.76313.226104.57791.28230.413

Germany114.44774.7583.001203.07728.7381.88794.30116.254

1392.315994.88456.557793.275118.893489.902317.054258.078189.591

2443.7562166.793

2009

Counterpart Economy (Investment in):Reporting Economy (Investment in):

NetherlandsLuxembourgChina, P.R.: Hong KongUnited StatesChina, P.R.: MainlandUnited KingdomFranceGermanySpainCanada

Netherlands196.67848.149206.62211.729178.688158.737228.893134.36853.748

Luxembourg454.546C138.6671.5279.236130.955136.45678.78913.323

Japan78.45957921.136238.1488.36437.93811.23420.4422.0113.877

Switzerland152.58923.6045.964140.8197.09528.90573.27379.24515.47322.418

China, P.R.: Hong Kong7.6242.4214.236553.67610.8053.014194CC

Virgin Islands, British19.294C287.758187.2483.5226701.139C302

728.484849.632339.0941047.213660.175230.64405.366

1857.9284260.604

United States578.414246.39737.06755.265255.599110.74296.06963.366285.935

United Kingdom537.115613.78814.804414.5913.446132.25466.26162.28544.967

France173.93743.9532.799158.92410.344118.5190.53455.38816.844

Germany105.83974.5061.828183.96621.694108.97597.12436.0278.954

757.48100.749483.084340.12252.864217.066356.7

2,430.452508.063

2011

Counterpart Economy (Investment in):Reporting Economy (Investment in):

NetherlandsLuxembourgChina, P.R.: Hong KongSwitzerlandUnited StatesChina, P.R.: MainlandUnited KingdomGermanyBrazilFrance

Netherlands197.29466.253171.879222.46518.502206.185232.245172.196111.166

Luxembourg516.665C146.019172.1953.46686.367135.80932.788104.887

China, P.R.: Hong Kong16.26915.413C7.605856.758C1961.0262.301

Switzerland186.866100.3276.55198.058.740.51681.88914.34461.858

Japan71.8142.6123.9142.583274.283121.99947.58921.03234.23512.498

Virgin Islands, British25.758C319.078C297.7926.241.0676.427204

817.372315.644415.795320.481874.5981307.217386.897668.042261.016496.71

1869.2923994.48

United States839.526418.62844.61188.05257.751306.94690.21119.30772.089

United Kingdom445.593448.30413.05413.246446.07718.09184.65921.04467.408

France155.64428.9752.99937.639197.78514.75889.30786.32734.388

Germany129.64390.3434.08331.116213.60134.69576.56417.31376.426

1570.406986.2564.747170.053857.463125.295472.817261.196192.052215.923

2791.4562124.746

2013

Counterpart Economy (Investment in): 2013Reporting Economy (Investment in):

NetherlandsLuxembourgChina, P.R.: Hong KongSwitzerlandSingaporeGermanyFranceUnited StatesChina, P.R.: MainlandUnited KingdomAll Other EconomiesTotal Investment

Netherlands322.32578.515213.18169.052207.655123.09273.88427.721C1,391,1572,706,581

Luxembourg693.715C161.7619.479161.53133.495201.6034.94C717.6082,094,131

China, P.R.: Hong Kong15.74423.931C25.2396422.2435.861,112,242C66.1951,252,096

Japan64.3573.225.9363.54655.43321.87514.488342.327147.59480.357350.7641,109,877

Switzerland234.314123.9128.24929.30859.99181.829209.39711.70562.748251.9051,073,357

Virgin Islands, British40.508C447.918C57.6113.241757330.62413.6880.432974.772

1048.638151.043482.103165.306187.07888.637989.055759.187494.863156.785

2034.163288.527

United States997.712774.72342.87198.32397.41794.00186.2676.465389.6081,239,7193,897,098

United Kingdom455.896540.81820.05423.89240.50162.15475.802518.64320.989633.0312,391,780

Germany246.134104.8715.30128.70415.79285.446208.84153.45C429.6771,178,217

France166.57972.4436.98143.12412.12953.584226.13120.748C514.4411,116,159

1866.3211492.85575.207194.043165.839209.739247.508953.615171.652389.608

3794.2651972.122

What do we know about tax avoidance…

• Who uses it? Multinational companies (Halmon, 2010) • Who decides? CEOs (Dyreng, Hanlon and Maydew, 2010) • When to use it? High quality governance (Desai, 2009) Non-family firms (Chen, 2010) Risk-takers [fine/scandal] (Hanlon, 2009) Spend on auditing firms (Dyreng, 2010)

Is the top leadership of the organi-zations promoting tax avoidance?

• Cross-national analysis • Sample size: 22 countries (including Sweden)

High-income: 15; Medium-income: 6; Low-income: 1 • Data:

– Global Competitiveness Report 2012-2013 (Reports 99 indicators base on surveys with 100 CEOs in 144 countries)

– Atwood et al. (2012) ”Home country tax system characteristics and corporate tax avoidance: International evidence”. The Accounting Review 87(6)

Hypotheses tested

• H1: CEOs who report that their firms have a strong ethical behaviour are less likely to adopt tax avoidance mechanisms.

• H2: Corporate boards and investors who demand that management be highly accountable tend to reduce the use of tax avoidance mechanisms in their corporations.

• H3: In countries with strong auditing standards, corporations are less likely to adopt tax avoidance strategies.

Results of OLS regression on the nature of tax avoidance

*, **, *** indicate significance at 10%, 5%, and 1%, respectively. Dependent variable: Tax Avoidance (ETR)

H1: CEOs can contribute to reduce tax avoidance

H2: Boards can help to reduce tax avoidance

H3: Strong auditing increasing tax avoidance

Accepted

Rejected

Hypothesis Predicted Final Model Independent variable EthicBehav H1 Negative -0.171 (0.030)** EfficCorpBoard H2 Negative -0.520 (0.077)** StregthAudit H3 Negative 0.404 (0.056)** Control variables … Constant 3.813 (0.493) ** Adjusted R2 0.940 Observations 22 F 18.366*

Accepted

How does tax avoidance work?

and tax avoidance

• Mr. Ingvar Kamprad

• Fourth-wealthiest individual in the world (2013, Forbes)

• Personal Fortune $ 57 billion

• Personal Fortune in Sweden (2013) $ 88 million

• Tax Sweden $1.3 million

Source: http://www.svenskbladet.se/ekonomi/index.php?alias=ingvar_kamprad_annu_rikare_an_du_trodde_nar_du_inte_ens_kunde_fantisera_om_hur_rik_han_ar.html http://www.svd.se/sa-mycket-kommer-kamprad-att-skatta

http://www.svenskbladet.se/ekonomi/index.php?alias=ingvar_kamprad_annu_rikare_an_du_trodde_nar_du_inte_ens_kunde_fantisera_om_hur_rik_han_ar.htmlhttp://www.svenskbladet.se/ekonomi/index.php?alias=ingvar_kamprad_annu_rikare_an_du_trodde_nar_du_inte_ens_kunde_fantisera_om_hur_rik_han_ar.htmlhttp://www.svenskbladet.se/ekonomi/index.php?alias=ingvar_kamprad_annu_rikare_an_du_trodde_nar_du_inte_ens_kunde_fantisera_om_hur_rik_han_ar.htmlhttp://www.svenskbladet.se/ekonomi/index.php?alias=ingvar_kamprad_annu_rikare_an_du_trodde_nar_du_inte_ens_kunde_fantisera_om_hur_rik_han_ar.htmlhttp://www.svd.se/sa-mycket-kommer-kamprad-att-skattahttp://www.svd.se/sa-mycket-kommer-kamprad-att-skattahttp://www.svd.se/sa-mycket-kommer-kamprad-att-skattahttp://www.svd.se/sa-mycket-kommer-kamprad-att-skattahttp://www.svd.se/sa-mycket-kommer-kamprad-att-skattahttp://www.svd.se/sa-mycket-kommer-kamprad-att-skattahttp://www.svd.se/sa-mycket-kommer-kamprad-att-skattahttp://www.svd.se/sa-mycket-kommer-kamprad-att-skattahttp://www.svd.se/sa-mycket-kommer-kamprad-att-skattahttp://www.svd.se/sa-mycket-kommer-kamprad-att-skattahttp://www.svd.se/sa-mycket-kommer-kamprad-att-skattahttp://www.svd.se/sa-mycket-kommer-kamprad-att-skatta

IKEA

• Created 1958

• “Småland legacy”

• 361 stores in 49 countries (Franchise)

• 1982 Residence in Leiden, Netherlands

• Charity foundation

High income countries Australia, Austria, Belgium, Canada, Croatia, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, Iceland , Ireland, Israel, Italy, Japan, Kuwait, Lithuania, Netherlands, Norway, Poland, Portugal, Puerto Rico, Qatar, Russia, Saudi Arabia, Singapore, Slovakia, Spain, Sweden, Switzerland, Taiwan, United Arab Emirates, United Kingdom, United States Upper middle income countries Bulgaria, China, Dominican Republic, Malaysia, Jordan, Romania, Thailand, Turkey

Lower middle income countries Egypt, Indonesia Lower income country South Korea

PresenterPresentation NotesSmåland legacy: It is a stony and rather rugged landscape where the inhabitants often were forced to get by on small means and make use of the scarce resources at their disposal. Smålanders have a reputation for being thrifty and innovative with a straightforward, no-nonsense approach to problem-solving in general and to business challenges in particular.

IKEA became a charity

“Ingvar Kamprad spends a lot of time thinking about how to secure longevity and independence for his business and concept. He seeks for an ownership

structure […] that would be sustainable over many generations. The answer was to separate the ownership

of the retail operation from the ownership of the concept and the IKEA brand. Ingvar Kamprad therefore donated

a large number of the operating companies to a Dutch Foundation – the INGKA Foundation - which today owns

a large number of the IKEA franchisees”.

(IKEA Foundation 2015)

Stichting INGKA Foundation

Netherlands

Stichting IKEA Foundation

Netherlands

INGKA Holding B.V

Netherlands

IKEA Group

Netherlands

Vastint Holding BV (Real state) Netherlands

Inter IKEA Finance SA (Interbank) Luxembourg

Inter IKEA Holding S.A

Luxembourg

Inter IKEA Finance (Inter-banking)

Switzerland

Société de Participations Financières (Holding Investment)

Switzerland

Stichting IMAS Foundation

Netherlands

IKANO Foundation

Netherlands

Interogo Foundation

Liechtenstein

Inter IKEA Systems B.V. (Franchise) Netherlands

Inter IKEA Investment AB (Investment) Sweden

Inter IKEA Holding Services SA (Services) Belguim

IKANO S.A.

Luxembourg

IKANO Bank

Sweden

Inter IKEA Center Groups

(Shopping centers) Denmark

Inter IKEA Holding Ltda (Fund managment) Cyprus

Inter IKEA Holding NV (Fund investment)

Cyprus

TwoEye Capital Ltd (Fund managment) British Virgin Islands

Inter Private Equity (Private Equity)

British Virgin Islands

IKEA GreenTech (Venture capital)

Sweden

IKEA Koncernen (Adm Franshise)

Netherlands

IKEA taxes and donations

• In 2014 the Stichting INGKA Foundation informed that: – IKEA Group reported sales for €28.7 billion – Paid taxes for €801 million – Corporate income tax rate 19.3%

• In 2014 Stichting INKEA Foundation informed that: – Gave donations for €104 million – Reached 170 million children around the world through 40 partner

organizations (i.e. UNICEF, UNDP, Save the Children) – Received the 2015 THANKYOU award from the World Childhood

Foundation

IKEA’s tax approach

“The operations comply with all relevant laws and

regulations and thus pay taxes accordingly. However, we have always viewed taxes as a cost,

equal to any other cost of doing business. An optimized tax structure allows us the flexibility to

use funds, that have already been taxed in one market, in new markets for further business

development without the additional burden of double taxation”. (Kamprad 2011)

IKEA tax avoidance strategies

• Payment for intangibles • Profit shifting • Use double treaty (Luxembourg-Belgium) • Use exemptions (Netherlands) • Use exemptions + Avoid double treaty (BVI)

• Charity: ”[T]o support individual IKEA retailers

experiencing financial difficulties”. (Kamprad 2011)

Stichting INGKA Foundation

Netherlands

Stichting IKEA Foundation

Netherlands

INGKA Holding B.V

Netherlands

IKEA Group

Netherlands

Vastint Holding BV (Real state) Netherlands

Inter IKEA Finance SA (Interbank) Luxembourg

Inter IKEA Holding S.A

Luxembourg

Inter IKEA Finance (Inter-banking)

Switzerland

Société de Participations Financières (Holding Investment)

Switzerland

Stichting IMAS Foundation

Netherlands

IKANO Foundation

Netherlands

Interogo Foundation

Liechtenstein

Inter IKEA Systems B.V. (Franchise) Netherlands

Inter IKEA Investment AB (Investment) Sweden

Inter IKEA Holding Services SA (Services) Belguim

Inter IKEA Center Groups

(Shopping centers) Denmark

Inter IKEA Holding Ltda (Fund managment) Cyprus

Inter IKEA Holding NV (Fund investment)

Cyprus

TwoEye Capital Ltd (Fund managment) British Virgin Islands

Inter Private Equity (Private Equity)

British Virgin Islands

IKEA GreenTech (Venture capital)

Sweden

IKEA Koncernen (Adm Franshise)

Netherlands

IKEA Pty Ltd (Stores Australia: Perth and Adelaide) [30% corporate income tax (0.65%Turnover)]

[361 IKEA Stores 49 countries]

Prod

ucts

+ M

anuf

actu

ring

pro

fit

Fran

chis

e fe

es+

Ris

k ag

reem

fe

es +

Inte

rst

IKANO S.A.

Luxembourg

IKANO Bank

Sweden

PresenterPresentation NotesProfit shifting. (2) Use exemptions (Netherl). (2) Payment for intangibles. (3) Use double treaty (Lux-Bel). (5) Use exemptions + avoid double treaty (BVI). (6) Charity. (7) Investment Green Green Orange Purple Blue Gray GrayIKEA Group in blue the only that pay taxes

Conclusion

• IKEA’s tax avoidance structure harms society in

the 49 countries they operate.

• IKEA uses tax avoidance to expand their global operation

• IKEA is involved in crimes of globalization Cont….

Conclusion

Understanding IKEA’s crimes of globlization: 1. Rational choice theory: Profit, opportunity

2. Neutralization techniques: Stick to regulations

3. Learning theories: MNC

4. Anomie theory: Goals, egoism

5. Organizational theory: Structure, differential association

6. System criminality theory: global ”experts”

7. Regimes of truth: Legislation in offshore territories

8. Political economy theories: Interaction politics & economics

PresenterPresentation NotesCrimes of globalization is an integrated theory of WCC

Organizing Tax Avoidance in Large CorporationsContentDefinitionWhat would happen if people like you / me violate the tax law in Sweden? � Tax offender (Criminal)� Skatteverket / Polisen ��What would happen if IKEA / Starbucks / Google violates the tax law in Sweden? � Tax planning / Tax avoidance� Investigation ???�� Tax avoidance is a Legal practice to avoid paying tax liabilitiesA problem for whom?Crimes of globalizationIncreasing attention to tax avoidanceMethods of tax avoidance -�Basic schemaMethods of tax avoidance The Starbucks caseThe Google caseMethods of tax avoidance (Cont…)Offshore territoriesInward direct investment of top �ten economiesSwedish inward direct investmentTotal inward direct investment – Sweden Vs. Top 10 economies (%)Top 10 direct investment countries in Sweden (2013, US$, Millions) What do we know about tax avoidance…Is the top leadership of the organi-zations promoting tax avoidance?Hypotheses testedResults of OLS regression on the nature of tax avoidanceSlide Number 22 and tax avoidanceIKEAIKEA became a charitySlide Number 26IKEA taxes and donationsIKEA’s tax approachIKEA tax avoidance strategiesSlide Number 30ConclusionConclusion