The Measures That Can Be Adopted to Prevent Tax Revenue Losses

In: Business and Management

Submitted By stevemc68
Words 1177
Pages 5
Topic 9

Question 4:

The measures that can be adopted to prevent tax revenue losses from multinational companies are as follows;

a) Thin Capitalisation Legislation is were a country prevents interest deduction if the ratio of debt to equity is in excess of a permitted amount. Some countries even limit the amount of debt that a subsidiary may borrow in relation to its equity base. When the interest exceeds the specified limits the interest paid from the excess debt is not tax deductible and can even be regarded as a dividend.
b) Controlled foreign company legislation prevents companies based in tax havens which are controlled by a non resident shareholder from retaining profits earned in that country so as to prevent the taxpayers country from collecting tax revenue from that profit. The legislation requires the taxpayers to include the profits which are attributable to the taxpayer even if the controlled foreign company pays a dividend or not.
c) Transfer pricing is were companies attempt to minimise tax by selectively allocating income and expenses between domestic and foreign entities, whereas transactions between entities are still required to be dealt in an arms length arrangement with transfer pricing this does not occur . Countries that have enacted anti-transfer pricing legislation recalculate the enterprises taxable profit using arms length pricing which is not recognised in the International Accounting Standards Section 27 Consolidated and Separate Financial Statements. Some of the methods used by countries are
• Comparable uncontrolled price method
• Resale price
• Cost plus method

Topic 10

Question 1:

(a) The tax implications for Bill Bates as he is working in Country B he would have withholding tax even though he is only a temporary resident of Country B. For this reason Bill Bates would be allowed to get an exemption or a credit…...

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