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Organizing Tax Avoidance in Large Corporations Nubia Evertsson Post-doctoral researcher Department of Criminology
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
