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AQ3

Tax evasion: is an illegal way of reducing one's tax liability. Often times, this
involves a deliberate misrepresentation or concealing the true position of the
individual, company or corporation’s affairs to the tax authorities, thereby reducing
their tax liability. Those caught evading taxes are punishable under the law and are
subject to criminal charges and substantial penalties.
Tax avoidance: unlike tax evasion, this is the legal way of reducing one's tax liability
by using a number of accounting methods. Tax avoidance methods usually involve
ways in changing one's business structure through incorporation, changing of tax
residence to a country which has a lower income tax rate (tax haven) or even
deducting tax for materials or equipment use. The company also fully discloses this
information to the tax authorities. Tax avoidance is a serious problem all over the
world.
. International Business times (2014) reports that the Chancellor of the Exchequer,
George Osborne claims that £4bn will be recovered back into the economy after he
gives HMRC more powers and a bigger budget, he also pledges to crackdown on
companies evading tax.


According to House of Lords (2013), Tax avoidance can be carried out in various
ways, they include:


Forbes (2010) mentioned that Multinationals report large amount of profits in tax
havens such as: the Cayman Islands, Luxembourg, Switzerland and Ireland. For
example, multinational have recorded vast profit in Luxembourg, a very small country
which does not need much public funds for infrastructure or other general services.
Therefore, the companies pay little or no amount for tax in that country. These profits
are largely not proportional to the economy of Luxembourg, this gives rise to what
the some income is not taxed anywhere. Americans call it “nowhere income.” i.e.
income is not taxed anywhere.
Recent news reports have shown that almost half of Britain’s leading companies are
avoiding taxes. The top six companies are: Google, Apple, Amazon, Starbuck,
Facebook and EBay.
According to BBC news (2012), Google was one business to take advantage of the
tax haven; Ireland, by locating two data centres there. It was reported that Google
had only paid £6m in UK corporation tax in 2011, despite raking £2.5bn in annual
profit levels in Britain.