Multinational Tax Management

Multinational tax management is involved with the positioning of an international company abroad so that it avoids the highest tax rates that it is liable to pay in the countries that it operates within. This will minimize their total tax liability worldwide. They do this by allocating costs and revenues to different centers in different parts of the world where tax rate varies significantly. For example, Ireland has a tax rate of 12.5% which often attracts businesses to become incorporated in Ireland as opposed to the UK where it is now 24%. (However, is due to be reduced to 21% by April 2014 to reduce the gap between 'tax havens' so as to encourage businesses to remain within the UK and for new ones to be encouraged to incorporate here.
There have been a number of high profile cases recently of companies that have been avoiding tax by moving their costs and revenues abroad so as to report lower profits in the UK and as such reduce their liability.
Starbucks were recently discovered to have only payed £8.6m in tax over the last 14 years of trading within the UK, which caused public outrage. Since then they have agreed to voluntarily pay additional taxes. However, they are not the only companies that are doing this; Amazon and Google have also been criticised for this. George Osborne has recently spoken out against these firms and has demanded a crackdown on firms who "are not paying their fair share of tax". Many people have criticised him as these companies are using Subsidiaries or joint ventures to restructure transactions, ownership and/or re-position funds which are entirely legal options available to them. There are also a great number of people who believe they should be paying more tax. This implies the stakeholder theory of strategic management which involves the companies taking a bigger interest in society as a whole.
Using these methods, many individuals as well as multinational companies have avoided paying large amounts of tax in the UK. In a very controversial move by the HM Revenue & Customs (HMRC) a list of "tax dodgers" have been named and shamed. However, there were no large corporations on the list and in response the HMRC said they were working to close the loopholes that these corporations used to avoid paying large amounts of tax.
Accounting firms have also been criticised for offering tax advice that actually helps companies reduce their tax liability within the UK. This is threatening revenues within some of the biggest accounting firms in the industry who are currently doing nothing illegal.
The upcoming G20 summit will take a long look at closing the loopholes that multinational firms firms currently exploit to reduce their tax liability.
The reasons for these moves by multinational companies aren't always clear; many believe that a shareholder theory perspective can be used as they are trying to increase shareholder value the most by reporting the highest possible net profit. However, agency theory could also be applied as the higher the profits, the higher the reward for senior management.