How Big Companies Avoid Taxes.
                     How big Companies Avoid Taxes
Big companies avoid tax
• A total of 100 companies in the USA avoided paying income taxes 
in at least one year between 2008 and 2015, and their combined 
pretax income during that period totaled $336 billion. Yet, instead 
of paying $118 billion according to the 35% statutory income tax 
rate, the number of tax breaks applicable to these companies 
allowed them to earn a negative effective tax rate. 
Source: Google Images
How do they avoid taxes?
• There are several major ways that corporations avoid paying taxes, 
or manage to earn tax subsidies. One way is through finding ways to 
shift profits to foreign subsidiaries in countries with lower tax rates, 
a practice known as offshore tax sheltering. Another way is through 
the use of accelerated depreciation. The relative degree of freedom 
in tax laws has allowed companies to expense the cost of their 
capital at a faster pace than it actually wears out.
Source: Google Images
Declaring less income
• This allows a company to declare less income and thus defer 
paying taxes until later years, and as long as the company 
continues to invest, the deferral of taxes can continue for an 
indefinite amount of time. The giving of stock options to 
employees, as a part of their compensation, is another avenue 
that has helped companies reduce their total tax bill
Source: Google Images
Tax breaks
• Some industries such as research, oil and gas drilling, ethanol 
production, alternative energy, video game and film production, are 
privileged by the federal tax code to receive certain tax breaks. Over 
the eight years, more than half of the total tax subsidies, which 
totaled $286 billion, went to just 25 companies. AT&T raked in the 
largest amount with a total of $38 billion in subsidies over the period
Source: Google Images
Legally avoiding tax
• Multinationals can do this legally by using so-called transfer pricing: 
A parent company sets the prices of transactions among its 
subsidiaries to guarantee that profits are registered in low-tax 
countries. For example, Vodafone, the first big multinational to 
publish country-by-country data voluntarily, revealed that nearly 40 
per cent of its profits for 2016 to 2017 were allocated to tax havens, 
with €1.4 billion declared in Luxembourg
Source: Google Images
In all sectors
• Tax avoidance can be found in all economic sectors, but digital 
companies best demonstrate how outdated the current 
international tax system is. Because these companies’ marginal cost 
of production is zero, the revenue accruing to them is equal to a 
rent, and it is therefore important to tax this rent effectively and 
contrary to what these companies’ leaders claim, this taxation would 
not negatively affect the supply of digital services.
Source: Google Images
Holding companies
• The most popular locations for holding company are Ireland, the 
Netherlands, Luxembourg and Switzerland, all of which have a low 
corporation tax rate. For example, Amazon used its European 
headquarters, which is based in Luxembourg and owns the separate 
trading companies that operate in the UK, France and elsewhere to 
absorb its profits and reduce the amount of tax it pays in the actual 
countries where it trades.
Source: Google Images
Transfer pricing rules
• The abuse of transfer pricing rules is illegal in some countries – 
increasingly tax authorities in developed countries look out for 
such practices. It is easier, however, for companies to manipulate 
prices for trading in and out of developing countries. In those 
countries, tax authorities do not have the capacity to challenge the 
sophisticated trading techniques used by multinationals and their 
teams of lawyers and accountants. 
Source: Google Images
Getting away
• Companies can also get away with abusing transfer pricing rules by 
selling products and services that are notoriously hard to value. 
There may be no way of determining the market price for some 
products transferred across international borders. Such process of 
estimating can be undertaken in good faith, or with the intent of 
disguising the reallocation of profit. 
Source: Google Images