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Thursday, 20 June 2013 00:00
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No, that's not a drink. Along with a Dutch Sandwich, that's the menu for tax-dodging the G8 hopes to fix

Apple, according to a US Senate panel on tax dodging, avoids paying US taxes by parking its overseas income in an Irish subsidiary—but since the subsidiary is controlled out of the US, thanks to a peculiarity in the Irish law, the money is not taxed there either. While Apple has defended its actions by saying the Irish operations funded more than half its global R&D, there are a host of colourful labels given to the array of choices available for firms. A ‘double Irish with a Dutch sandwich’ allows firms to send profits through one Irish firm to a Dutch company and finally to a nominally Irish company usually located in a tax haven. The Citizens for Tax Justice, a US-based organisation, argues that 17 Fortune 500 firms that include the likes of Dell and Microsoft have publicly admitted to Apple-type dodges and that hundreds of others are also doing the same. The US reckons it loses $100 billion of taxes each year due to this.


It is these tax shelters that the G8 hopes to be able to focus on eliminating in its ongoing summit. If it works, this will do wonders for countries like India that are forced to offer tax concessions worth lakhs of crore precisely because of such tax havens and policies that allow mobile capital to locate itself in the lowest-tax jurisdiction. This is also why India has such large transfer pricing disputes—adjustments in FY13 went up to R70,000 crore from R44,500 crore in FY12—and that is why disputes such as the Vodafone one arose. It has to be kept in mind, though, that the presence of even a few tax havens is enough to keep the problem alive—eliminating just a few of them isn’t going to be of much help. Big inroads have been made into Swiss secrecy laws through concerted actions—tax havens have to be the next such area.


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