Tax - A Matter of Moral or Rule of Law?

In the course of running a business, having to pay taxes is a testimony that one has done well in the business. That said, it has always been a taxpayer’s right to arrange its business within the framework of the law to minimize the tax burden. Some tax payers have taken this to a great distance and they have successfully created and implemented elaborate schemes with the use of entities in exotic jurisdictions or tax havens.

One of such schemes is the so-called ‘Double-Irish with or without Dutch sandwich.’ The scheme has been popular with some of the most renowned American technology and pharmaceutical companies, such as Google, Apple, Facebook, Abbott Laboratories, Pfizer, etc. The scheme could allow taxpayers to cut the effective tax rate down to 2% or less (by way of measurement the standard corporate income tax rate of Singapore is 17%).

Today, public sentiment is becoming more negative. This was highlighted during the public hearings in December 2012 of Google, Amazon and Starbucks by the Public Accounts Committee of the House of Commons in the UK.

In short, they were questioned about their sense of moral and/or whether they have been paying ‘sufficient’ tax in the UK. The protests that followed against Starbucks have left Starbucks in the UK to volunteer to pay GBP 20 million in 2013 and 2014 even if they would be making losses - as they have done in most of the last 14 years. The reason behind this decision was that the public outcry could have a tremendous impact on the business and shareholders’ value.

To put things in context, Starbucks has been loss-making in the UK due to internal arrangements. On the basis of a planned structure, they had to pay to related parties hefty sums for the use of brand name, knowledge, etc. Bearing in mind that the application of such tax planning was legal (not contravening the law) but they were nonetheless challenged on the basis of morality. The Organisation for Economic Co-operation and Development (‘OECD’) is also working hard to address the global debate on the appropriateness and usefulness of the future of legal tax planning in the world economy.

This trend is increasingly and consistently moving towards a certain direction. Last week, Ireland acted under pressure from America, the European Commission and the OECD, and announced in its budget that it will close down the basis of the ‘Double Irish’ tax planning opportunity from next January.

In light of the above, whereby it does seem that we are living in a global village and tax authorities are becoming more sophisticated, we see that what was once perceived as effective and legal tax planning may nowadays be countered on reasons beyond the realm of rule of law.

In this regard, we would be pleased to work with you as to review any of the tax strategies deployed and discuss with you whether such would require an ‘update’ or an amendment.

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