Graphics: How Corporations Get Out of Paying Taxes

Everyone knows that corporations dodge taxes. If a regulation loop hole exists, they are likely to try and exploit it, inventing a new practice, tool or mechanism for the purpose, with a new, jargon-laden name that gives it an air of legitimacy. Whereas much past evasion of taxes would happen in the corporation’s own country, with the rapid globalization of businesses over the last few decades it now spreads across nations and continents. For example, a huge relatively new field of transfer pricing has mushroomed within the financial accounting realm, with whole teams, even departments, charged with it. What does it mean? In the most basic terms, a parent company sells or trades to its own subsidiary in a different country some goods, services or labor, often at an obscenely low or high price, in order to move income or expenditure of their balance sheet around to make them fit into lower tax brackets and less regulated jurisdictions. In essence, it transfers the price somewhere else that reduces its tax liability, hence the name transfer pricing. All of this is done “for tax purposes,” with tax professionals involved engaging in what they call “tax planning,” evidenced by the fact that transfer pricing is often and increasingly an offshoot of tax departments in companies and accounting firms. Translated, it means legal tax dodging. Read this useful summary by the Tax Justice Network for a closer look.

This is of course but just one example and understanding what fully occurs behind closed doors can be clouded by the terminology. Today, Development Roast brings you an infographic published by The Online MBA that attempts to explain exactly How Corporations Get Out of Paying Taxes in more visual terms. Read More »


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