Abstract
This study concentrates on the tax avoidance strategies of multinational companies using the case study of Apple Inc. Objectives of the analysis include identifying strategies that could be exploited by multinational companies to avoid taxes and to find improvements for the Sri Lankan tax system based on the loopholes that multinational companies could exploit. The methodology consists of a critical analysis based on literature and secondary data. Findings of the study include thin capitalization, manipulation of transfer prices and royalty payments, Double Irish Arrangement and Dutch Sandwich, tax inversion and cost sharing agreements as some of the tax avoiding strategies used by multinational companies. Recommendations of the study applicable for the Sri Lankan context include addressing the loopholes of the tax system by implementing country-by-country reporting at least for the companies headquartered in Sri Lanka, a common reporting standard for all the companies, formulate and implement Controlled Financial Corporation rules and to limit certain incentives including tightening of foreign dividend income regulations.
Highlights
The literature discusses in detail how important it is to pay taxes to the government in a decent civil society for its own development
If a multinational company like Apple Inc. can avoid taxes whose origin is in the USA, where tax laws are considered to be stringent and strong, there is a higher possibility for other multinational companies to avoid taxes in other countries
Tax avoidance strategies exploited by multinational companies discussed with the example of Apple Inc. could be identified as follows. (Apple Inc., 2019)
Summary
The literature discusses in detail how important it is to pay taxes to the government in a decent civil society for its own development. Present-day companies are practicing tax avoidance with extensive tax planning to reduce their effective tax rates (Rego, 2003). This has become a major issue for most countries, especially in tackling the fiscal deficits, because it is argued that tax avoidance will erode the tax base. This study expects to address this issue considering a multinational company as an example of how they have avoided taxes through methods like transfer pricing, royalty payments, intra-corporate loans, inversions etc (Contractor, 2016). It is essential to identify the strategies that could be exploited by the Multinational Companies (MNCs) and the loopholes of the tax system to close them to minimize tax avoidance and to improve the legal framework of a country
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