Chapter 20, Problem 4CDQ

Summary Introduction

Case summary:

Company G, in the year 2013, found itself attacked by politicians on Country E. They revealed that this company adopted strategies to avoid paying company income tax. According to the data from 2011, Company G did not pay its corporate income tax, amounting to $2 billion out of $9.8 billion income. This amount was transferred to Company S in Country B, where there is no corporate income tax.

In 2011, Company G paid $6 million tax out of $2.5 billion income in Country UKG stating that Company G has not done anything wrong, and was following the rule written by politicians. The company follows the strategy DI to reduce tax liability. This strategy is the main advantage for the company.

Company G has followed another strategy, DS; in this strategy, the products move between Union E members so Country I does not charge tax on these products. Country N charges some amount as fees to transfer from this country’s branch office to Country B’s branch office.

All these activities are said to be legal because they follow different tax rules in different countries. The company uses the strategy of different tax rules in different countries to reduce its tax.

Characters in the case:

Company G,

Company S,

Country E,

Country B,

Country UKG,

Union E,

Country I,

Country N.

To determine: Country B’s gain from Company G’s operations.

Introduction:

Tax is a compulsory payment that should be made by the company or by an individual to the government for various public expenditures.