There are various motivations to smuggle. Examples of non-financial motivations include bringing banned items past a security checkpoint or the removal of classified documents from a government or corporate office, Smuggling is a common theme in literature, from Bizets opera Carmen to the James Bond spy books Diamonds are Forever and Goldfinger. The verb smuggle, from Low German schmuggeln or Dutch smokkelen, apparently a frequentative formation of a meaning to sneak. Smuggling has a long and controversial history, probably dating back to the first time at which duties were imposed in any form, in England smuggling first became a recognised problem in the 13th century, following the creation of a national customs collection system by Edward I in 1275. Medieval smuggling tended to focus on the export of highly taxed export goods — notably wool, merchants also, sometimes smuggled other goods to circumvent prohibitions or embargoes on particular trades. Most studies of historical smuggling have been based on official sources — such as court records, according to Dr Evan Jones, the trouble with these is that they only detail the activities of those dumb enough to get caught.
This has led him and others, such as Prof Huw Bowen to use records to reconstruct smuggling businesses. Grain smuggling by members of the elite, often working closely with corrupt customs officers, has been shown to have been prevalent in East Anglia during the 16th century. In England wool was smuggled to the continent in the 17th century, the principal reason for the high duty was the need for the government to finance a number of extremely expensive wars with France and the United States. The thievery was boasted about and romanticized until it seemed a kind of heroism and it did not have any taint of criminality and the whole of the south coast had pockets vying with one another over whose smugglers were the darkest or most daring. The Smugglers Inn was one of the commonest names for a bar on the coast, in Henley Road, smuggling in colonial times was a reaction to the heavy taxes and regulations imposed by mercantilist trade policies. After American independence in 1783, smuggling developed at the edges of the United States at places like Passamaquoddy Bay, St.
Marys in Georgia, Lake Champlain, and Louisiana. During Thomas Jeffersons embargo of 1807-1809, these places became the primary places where goods were smuggled out of the nation in defiance of the law. Like Britain, a gradual liberalization of laws as part of the free trade movement meant less smuggling. In 1907 President Theodore Roosevelt tried to cut down on smuggling by establishing the Roosevelt Reservation along the United States-Mexico Border, Smuggling revived in the 1920s during Prohibition, and drug smuggling became a major problem after 1970. In the 1990s, when sanctions were imposed on Serbia. The state unofficially allowed this to continue or otherwise the entire economy would have collapsed, much smuggling occurs when enterprising merchants attempt to supply demand for a good or service that is illegal or heavily taxed. As a result, illegal trafficking, and the smuggling of weapons, as well as the historical staples of smuggling, alcohol
Tax avoidance is the legal usage of the tax regime in a single territory to ones own advantage to reduce the amount of tax that is payable by means that are within the law. Tax sheltering is very similar, although unlike tax avoidance tax sheltering is not necessarily legal, Tax havens are jurisdictions which facilitate reduced taxes. While forms of tax avoidance which use tax laws in ways not intended by governments may be considered legal, many corporations and businesses which take part in the practice experience a backlash, either from their active customers or online. Since 1995, trillions of dollars have been transferred from OECD, though the specifics may vary according to jurisdiction, these rules invalidate tax avoidance which is technically legal but not for a business purpose or in violation of the spirit of the tax code. Related terms for tax avoidance include tax planning and tax sheltering, Tax evasion, on the other hand, is the general term for efforts by individuals, corporations and other entities to evade taxes by illegal means.
Both tax evasion and some forms of tax avoidance can be viewed as forms of tax noncompliance, a company may choose to avoid taxes by establishing their company or subsidiaries in an offshore jurisdiction. Individuals may avoid tax by moving their tax residence to a tax haven, such as Monaco and they may reduce their tax by moving to a country with lower tax rates. However, a number of countries tax their citizens on their worldwide income regardless of where they reside. As of 2012, only the United States and Eritrea have such a practice, whilst Finland, Hungary, Italy, in cases such as the US, taxation cannot be avoided by simply transferring assets or moving abroad. U. S. citizens therefore cannot avoid U. S. taxes simply by emigrating from the U. S, the 2012 limit on the amount that can be excluded is US$95,100. Most countries impose taxes on income earned or gains realized within that country regardless of the country of residence of the person or firm, to avoid tax, it is usually not enough to simply move ones assets to a tax haven.
One must move to a tax haven to avoid tax. Without changing country of residence, personal taxation may be avoided by the creation of a separate legal entity to which ones property is donated. The separate legal entity is often a company, trust, or foundation and these may be located offshore, such as in the case of many private foundations. Assets are transferred to the new company or trust so that gains may be realized, or income earned, if assets are transferred back to an individual, capital gains taxes would apply on all profits. Also income tax would still be due on any salary or dividend drawn from the legal entity, for a settlor to avoid tax there may be restrictions on the type and beneficiaries of the trust. For example, the settlor of the trust may not be allowed to be a trustee or even a beneficiary, Tax results depend on definitions of legal terms which are usually vague. For example, vagueness of the distinction between business expenses and personal expenses is of concern for taxpayers and tax authorities
Tax evasion is the illegal evasion of taxes by individuals and trusts. Tax evasion is an activity associated with the informal economy. In contrast, tax avoidance is the use of tax laws to reduce ones tax burden. In 1968, Nobel laureate economist Gary Becker first theorized the economics of crime, allingham and A. Sandmo produced, in 1972, an economic model of tax evasion. This model deals with the evasion of tax, the main source of tax revenue in developed countries. According to the authors, the level of evasion of income tax depends on the detection probability, the literatures theoretical models are elegant in their effort to identify the variables likely to affect non-compliance. Alternative specifications, yield conflicting results concerning both the signs and magnitudes of variables believed to affect tax evasion, empirical work is required to resolve the theoretical ambiguities. Income tax evasion appears to be influenced by the tax rate, the unemployment rate. The U. S. Tax Reform Act of 1986 appears to have reduced tax evasion in the United States, customs duties are an important source of revenue in developing countries.
Importers purport to evade customs duty by under-invoicing and misdeclaration of quantity, when there is ad valorem import duty, the tax base can be reduced through underinvoicing. Misdeclaration of quantity is more relevant for products with specific duty, production description is changed to match a H. S. Code commensurate with a lower rate of duty. Smuggling is importation or exportation of products by illegal means. Smuggling is resorted to for total evasion of customs duties, as well as for the importation of contraband, during the second half of the 20th century, value-added tax emerged as a modern form of consumption tax throughout the world, with the notable exception of the United States. Producers who collect VAT from consumers may evade tax by under-reporting the amount of sales, the US has no broad-based consumption tax at the federal level, and no state currently collects VAT, the overwhelming majority of states instead collect sales taxes. Canada uses both a VAT at the level and sales taxes at the provincial level, some provinces have a single tax combining both forms.
In addition, most jurisdictions which levy a VAT or sales tax legally require their residents to report and this is especially prevalent in federal countries like Nigeria, US and Canada where sub-national jurisdictions charge varying rates of VAT or sales tax. In Nigeria, for example, some federated states enforce VAT on each item of goods sold by traders, the price must be clearly stated and the VAT shown separately from the basic price. If the trader does not comply this is punishable as an attempt to siphon the VAT, therefore, it is not generally cost-effective to enforce tax collection on low-value goods carried in private vehicles from one jurisdiction to another with a different tax rate
In a tax system, the tax rate is the ratio at which a business or person is taxed. There are several methods used to present a tax rate, average and these rates can be presented using different definitions applied to a tax base and exclusive. A statutory tax rate is the legally imposed rate, an income tax could have multiple statutory rates for different income levels, where a sales tax may have a flat statutory rate. The statutory tax rate is expressed as a percentage and will always be higher than the tax rate. An average tax rate is the ratio of the amount of taxes paid to the total tax base. Let t be the tax liability. Let i be the tax base. In a proportional tax, the tax rate is fixed and the tax rate equals this tax rate. In case of tax brackets, commonly used for progressive taxes, the average tax rate increases as taxable income increases through tax brackets, asymptoting to the top tax rate. Under this system, someone earning $25,000 would pay $1,000 for the first $10,000 of income, $2,000 for the second $10,000 of income, in total, they would pay $4,500, or an 18% average tax rate. A marginal tax rate is the tax rate an individual would pay on one additional dollar of income, the marginal tax rate is the tax percentage on the last dollar earned.
In the United States in 2013, for example, the highest marginal income tax rate was 39. 6%. Earnings under $400,000 that year had a tax rate of 33% or less. The marginal tax rate on income can be expressed mathematically as follows, Δ t Δ i where t is the tax liability and i is total income. In accounting practice, the tax numerator in the above equation usually includes taxes at federal, provincial, marginal tax rates are applied to income in countries with progressive taxation schemes, with incremental increases in income taxed in progressively higher tax brackets. In economics, one theory is that tax rates will impact the incentive of increased income. With a flat tax, by comparison, all income is taxed at the same percentage, an example is a sales tax where all purchases are taxed equally. A poll tax is a tax of a set dollar amount per person
Double Irish arrangement
The double Irish arrangement was a tax strategy that some multinational corporations used to lower their corporate tax liability. The strategy has ceased to be available since 1 January 2015, the strategy used payments between related entities in a corporate structure to move income from a higher-tax country to a lower or no tax jurisdiction. It relies on the fact that Irish tax law does not include transfer pricing rules as does the United States, Ireland has territorial taxation, and does not levy taxes on income booked in subsidiaries of Irish companies that are outside the state. The double Irish tax structure was first used in the late 1980s by companies such as Apple Inc, in 2013, the Irish government announced that companies which incorporate in Ireland must be a tax resident there. This counter-measure took effect in January 2015, for newly incorporated companies, Irish Finance Minister Michael Noonan, during the presentation of his 2015 budget, said that he believed this would align Irelands corporate tax regime with international best practice.
It is called double Irish because two Irish companies are used in the arrangement, one of these companies is tax resident in a tax haven, such as the Cayman Islands or Bermuda. This company is the entity which owns the valuable non US rights that are licensed to a second Irish company in return for substantial royalties or other fees. The remaining profits are taxed at the Irish rate of 12. 5%, the payments between the two Irish companies are ignored for American tax purposes. Ireland does not levy a tax on certain receipts from European Union member States. Revenues from sales of the products shipped by a second Irish company are first booked by a company in the Netherlands. The remaining profits are transferred directly to Cayman Islands or Bermuda and this part of the scheme is referred to as the Dutch Sandwich. The Irish authorities never see the revenues and hence cannot tax them. In 2010, the Obama administration was said to propose to tax profits of offshore subsidiaries to curb tax avoidance in the United States.
The first deadline for corporate tax submissions under the new rules was September 2012, Irish Finance Minister Michael Noonan addressed the Double Irish during the presentation of his 2015 budget. An effective tax rate of 6. 25% can be obtained on qualifying profits generated in periods commencing on or after 1 January 2016. In Summer of 2016 another dispute is flaring up between the European Commission and the US Treasury Department over Irish tax breaks, which in the EU may comprise a type of state aid. U. S. Secretary of the Treasury Jacob J. Lew has issued a white paper referring to transfer pricing. ”A number of companies are known to employ the double Irish strategy, Tax exporting Tax inversion Singapore Sling Bermuda Black Hole K2 Base erosion. Companies Dodge $60 Billion in Taxes With Global Odyssey An illustration
Theories of taxation
Several theories of taxation exist in public economics. Governments at all levels need to raise revenue from a variety of sources to finance public-sector expenditures, adam Smith in The Wealth of Nations wrote, Such things as defending the country and maintaining the institutions of good government are of general benefit to the public. Thus, it is reasonable that the population as a whole should contribute to the tax costs and they are proportionate to incomes or abilities to pay certain rather than arbitrary payable at times and in ways convenient to the taxpayers and cheap to administer and collect. In modern public-finance literature, there have two main issues, who can pay and who can benefit. Influential theories have been the ability theory presented by Arthur Cecil Pigou, there is a version of the benefit theory known as the voluntary exchange theory. Under the benefit theory, tax levels are determined, because taxpayers pay proportionately for the government benefits they receive. In other words, the individuals who benefit the most from public services pay the most taxes, two models adopting the benefit approach are discussed, the Lindahl model and the Bowen model.
DDa is the curve of taxpayer A, and DDb is the demand curve of taxpayer B. The vertical summation of the two demand curves results in the total demand schedule for state services. A and B pay different proportions of the cost of the services, when ON is the amount of state services produced, A contributes NE and B contributes NF, the cost of supply is NG. Since the state is non-profit, it increases its supply to OM, at this level, A contributes MJ and B contributes MR. Equilibrium is reached at point P on a voluntary-exchange basis, bowen’s model has more operational significance, since it demonstrates that when social goods are produced under conditions of increasing costs, the opportunity cost of private goods is foregone. For example, if there is one good and two taxpayers, their demand for social goods is represented by a and b, therefore. The supply curve is shown by a+b, indicating that goods are produced under conditions of increasing cost, the production cost of social goods is the value of foregone private goods, this means that a+b is the demand curve of private goods.
Simultaneously, the tax shares of A and B are determined by their individual demand schedules, the total tax requirement is the area out of which A is willing to pay GCEO and B is willing to pay FDEO. The advantage of the theory is the direct correlation between revenue and expenditure in a budget. It approximates market behaviour in the procedures of the public sector. Taxes are based on ability to pay, there is no quid pro quo
Typically businesses purchase the stamps from the government, and attach them to taxed items as part of putting the items on sale, or in the case of documents, as part of filling out the form. Revenue stamps often look similar to postage stamps, and in some countries. Revenue stamps are used to collect taxes and fees. They are issued by governments and local, and by bodies of various kinds. They take many forms and may be gummed and ungummed, perforated or imperforate, printed or embossed, in many countries, they are as detailed in their design as much as banknotes, they are often made from the same type of paper. The high value of revenue stamps means that they may contain security devices to prevent counterfeiting. The Revenue Society has defined revenue stamps as, in the Ottoman empire, Damga resmi was already in use by the sixteenth century. Records of tax revenue from stamps for silk provide evidence of changes in production over time. The use of revenue stamps goes back further than that of postage stamps, Revenue stamps have become less commonly seen in the 21st century, with the rise of computerization and the ability to use numbers to track payments accurately.
There are a great many kinds of revenue stamps in the world, both national and local entities have issued them. Governments have sometimes combined the functions of postage and revenue stamps, in the former British Empire, such stamps were often inscribed Postage and Revenue to reflect their dual function. Other countries have simply allowed revenue stamps to be used for postage or vice versa, a revenue stamp authorized subsequently for postal use is known as a postal fiscal. Bhutan, for instance, authorized the use of stamps for postal purposes from 1955 until the first proper postage stamps of the country were issued in 1962. In the Stanley Gibbons catalog, this type of stamp has an F prefix, while revenue stamps often resemble postage stamps, they are not normally intended for use on mail and therefore do not receive a postal cancellation. Some countries such as Great Britain have issued stamps valid for postage and revenue, but this practice is now rare. Many different methods have used to cancel revenue stamps, including pen cancels, inked handstamps, embossing.
From around 1900, United States revenue stamps were required to be mutilated by cutting, after being affixed to documents, a class of office equipment was created to achieve this which became known as stamp mutilators. Revenue stamps were widely collected by philatelists and given the same status as postage stamps in stamp catalogues
Tax law is an area of legal study dealing with the constitutional, common-law, tax treaty, and regulatory rules that constitute the law applicable to taxation. Primary taxation issues facing the world over include, Taxes on income. Taxation of capital gains versus labor income, ecotax refers to taxes intended to promote environmentally friendly activities via economic incentives. Tax evasion and avoidance leading to reduced government revenue, due to an Inefficient tax system in many underdeveloped countries, the majority of small businesses are not taxed. In law schools, tax law is a sub-discipline and area of specialist study, U. S. law schools require 30 semester credit hours of required courses,60 hours or more of electives and a combined total of at least 90 credit hours completed. Law students must choose available courses on which to focus before graduation with the J. D. degree in the United States. S, Master of Laws programs are offered in Canada, United States, United Kingdom, Netherlands and an increasing number of countries.
Many of these focus on domestic and international taxation. In the United States, most LL. M, programs require that the candidate be a graduate of an American Bar Association-accredited law school. In other countries a graduate law degree is sufficient for admission to LL. M. in Taxation law programs, the Master of Laws program is an advanced legal study. General Requirements J. D. or First degree in law, an English proficiency test score for students with a native language besides English. The Juris Doctor program is offered by only a number of countries and these include, United States, Canada, Hong Kong, Philippines and the United Kingdom. The courses vary in duration of years and whether or not further training is required, law School Admission Test - Required for law school admission in United States, Canada and a growing number of countries. A list of tax faculty ranked by publication downloads is maintained by Paul Caron at TaxProf Blog
The first inversion in the United States took place in 1982, but the practice became common only in the late 1990s, with U. S. corporations seeking to relocate to tax havens such as Bermuda. More recently, because of changes in U. S. law, the issue drew public attention in 2014 when Pfizer proposed to invert to the UK through a takeover of AstraZeneca. Tax inversions are a form of tax avoidance, whereby corporations, unlike the law of most other developed nations, the U. S. Internal Revenue Code imposes income tax on the profits of American corporations foreign subsidiaries and this creates a strong incentive for American companies with large overseas markets to seek to recharacterize themselves as a foreign corporation. Internal Revenue Code §7874 contains the tax rules related to inversions, the legacy U. S. corporation retains its domicile and becomes a mere subsidiary. Importantly, corporate inversions do not by themselves require a change in the location of the corporate headquarters. This can typically be achieved by holding a majority of meetings in these jurisdictions.
Earnings stripping is one of the most common tax avoidance techniques facilitated by tax inversions, in addition to allowing U. S. companies to avoid tax on non-U. S. Profits, inversion allows them to taxes on some domestic profits because it facilitates several techniques for re-allocating U. S. profits to lower-tax foreign jurisdictions. One study of four inverted companies in 2004 found that most tax saving was generated by earnings stripping, in the United States taxation can be imposed as a statutory corporate income tax as well as a taxation on the profits that domestic corporations collect from their subsidiaries abroad. The result is that U. S. corporations with subsidiaries in lower-tax jurisdictions face higher taxes on foreign operations than they would if they were incorporated elsewhere. The Economist explains, The incentive is simple, america taxes profits no matter where they are earned, at a rate of 39% — higher than in any other rich country. When a company becomes foreign through a merger, or “inverts” and it still owes American tax on its American profit.
By changing its domicile to another country with a tax regime. Further, the corporation executing the tax inversion may find additional tax avoidance strategies allowed to corporations domiciled in foreign countries not available in the U. S. For example, the corporation may find ways of defining its revenue or costs such that they are taxed in lower-tax countries, the Congressional Budget Office described how tax inversions work in a January 2013 report. The first inversion took place in 1982, when McDermott Inc. a New Orleans-based construction company, McDermott had accumulated a large amount of profit in a Panama-registered subsidiary that served as the holding company for the companys non-U. S. operations. This would allow the company to pass the Panamanian profits to shareholders in the form of dividends without facing a U. S. corporate income tax