Business Taxation Theory and Practice for Corporate System

Question: Discuss about theBusiness Taxation Theory and Practice for Corporate System. Answer: Introduction: Extensive and widespread transformation has happened in the system of corporate system of taxation that has been made in the recent years. The reformation has expressed the interest of creating a system of taxation which is easy to understand, modest to engage and difficult to evade (Leigh and Blakely 2016). The changes in the tax have supported the investment in business along with those that work hard and save. The reformation has been with the objection of maintaining competitive position. Discussion: The major areas of reformation have been made in the reduction in the rate of the corporate taxation. The development and changes includes the redefining of the corporate tax base comprising the elements of OECS base erosion and shifting of BEPS project profit. The developments that have been made includes the practices and policies concerning the evasion of tax and unacceptable avoidance of tax (Burman et al. 2016). The UK legislative process lag behind the announcement of proposal with certain changes are already law and other developments are very likely or practically about to become law. A large number of tax reformation was announced during the months of November and December. Major reformation in the tax include reduction in the rate of corporation to 19% with effect from 2017. Other major developments include revision of loss utilisation rules to enable more flexible usage of loss to be carried forward however with the restriction of carrying forward the loss to 50 per cent of the relevant profits (Vanhove 2017). The restrictions are applicable only to the profits that is beyond five-million-pound sterling. Additionally, another major development include the new rules relating to the deductibility of the interest that also includes the fixed expenditure ratio of 30 per cent of earnings before the interest and tax, depreciation and amortization. US on the other hand states that the income that is earned by the non-us person is dependent on the factor whether the income has any nexus with the US and the degree of non-us person existence in US (Vernimmen et al. 2014). Before the major development in tax legislation a non-us companies engaged in the US trade or business was imposed a tax of 35% corporate tax on the income generated from the US sources that are effectively associated with the business. The federal government significantly revised the federal system of taxation forever by reducing the corporate income tax rate to 21% flat rate. In spite of the major developments tax is in the headlines in a manner where few may have imagined for a year or two ago. The major developments have led to certain issues for business that is required to be considered from the OECD base erosion and Profit shifting project that calls for wider level of information regarding taxation. Issues such as allocation of risk, different method of pricing transactions that may unlikely take place among the unrelated parties. Issues such as transparency of tax authorities that covers the introductions of template representing the profits and taxes that are paid by the multinationals in each nation where the corporate firms conduct the business (Vatn 2015). Changes in this area may create an impact on the strategies of business. The issue relating to transparency represents the degree of public agenda by the firms of their tax affairs continues to be an element of agenda for political and media exchange. According to Yan and Luo (2016) it is evidently clear that most of the British business does not consider that transparency in reporting would be sensible for business. The strong response was that a large number of companies were dedicated to raise the level of transparency regarding their tax affairs however country to country reporting would not be delivering supportive info and will be expensive to prepare. In the modern age of tax transparency, the taxation council policy has forced the functions of corporate tax to change from the endeavour that was entirely profit seeking to one that extremely considered risk management. In the modern age of tax transparency, efficient tax reduction and cash savings tax has resulted in exclusive position and association of the businesses (Bell and Rowe 2017). Therefore, the involvement of the companys auditor in the functions of corporate tax can be considered as the vital determinant of tax results. The implications are however not directly clear whether the effective reduction the rate of taxation, savings of tax and risk of tax management are mutually exclusive or can be attained simultaneously. Furthermore, it is not clear that whether the outcomes of tax would be associated to the auditor offering tax planning services or tax compliance service. According to Schaufeli, Maslach and Marek (2017) threats to the relation of auditor is considered to be greater when they offer substantial amount of tax compliance and associated services. This helps in suggesting that audit forms offer higher level of transparency compliance services that would be less inclined to support higher effective tax reduction and cash tax services. The threat to reputation are the most likely implications to the corporate firms that are associated with auditors providing greater degree of tax planning. Though the corporate firms face the reputational threats shoots from the auditors increased sensitivity of having tax positions overturned, it is probable that the auditors offering tax planning service may seek to lower both the level of tax and risk associated to tax. The stakeholder and the non-governmental organizations on the other hand have also been impacted by the change that are made in the level of corporate taxation (Noked 2014). The infrequent internal critics and the challengers of the financial sector could be considered harshly. A group of non-government organisation stated in their report by criticising the status of Luxembourgs in the form of secrecy of jurisdictions that pointed out the conflict of interest with the overseas policies with response being ferocious. The conflict among the financial governance sector and the increased political governance is considered to be consistent with the patter of offshore centres. The present legal framework does not adequately provide guarantee to the entire operational independence to the stakeholders and non-government organizations (Kolk and Muller 2015.). An important aspect of the stakeholders and non-government organization is the complete immoral discrepancy among the texts of law and other application in the judicial life. The international pressure has enabled adapting stricter legal constraints to the financial activities that judicial application. An important consideration of BEPS is that it aims to align with the rights of tax that are more closely associated to economic substance. Though it may sound inoffensive however in some cases it results in reinforcing what the current system of taxation of trying to attain and therefore it is desirable. However, in another instances it represents adding up of new principles in such a manner that it could conflicts with the pre-existing values. Conclusion: Conclusively the desire of aligning the tax of profits with the actual activities created by them might appear direct and sensible which the current system of taxation is trying to attain. Corporate firms may at times organise themselves in the egregious manner which comprises of overall separation of taxable income from the actual activities that are entirely motivated by the avoidance of taxation. Therefore it is desirable to prevent this. Reference List: Bell, C.D. and Rowe, W.L., 2017. Recent Tax Developments in Virginia Taxation. InAnn. Tax Conf.(Vol. 63, p. 241). Burman, L.E., Gale, W.G., Gault, S., Kim, B., Nunns, J. and Rosenthal, S., 2016. Financial transaction taxes in theory and practice.National Tax Journal,69(1), p.171. Kolk, A. and Muller, A., 2015. Responsible Tax as Corporate Social Responsibility. Leigh, N.G. and Blakely, E.J., 2016.Planning local economic development: Theory and practice. Sage Publications. Noked, N., 2014. Integrated Tax Policy Approach to Designing Research Development Tax Benefits.Va. Tax Rev.,34, p.109. Schaufeli, W.B., Maslach, C. and Marek, T. eds., 2017.Professional burnout: Recent developments in theory and research. Taylor Francis. Vanhove, N., 2017.The Economics of Tourism Destinations: Theory and Practice. Routledge. Vatn, A., 2015. Markets in environmental governance. From theory to practice.Ecological Economics,117, pp.225-233. Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y. and Salvi, A., 2014.Corporate finance: theory and practice. John Wiley Sons. Yan, A. and Luo, Y., 2016.International joint ventures: Theory and practice. Routledge.