Tax Havens or Off Shore Financial Centre Research Proposal

Tax Havens or Off Shore Financial Centre - Research Proposal Example Economic federations typically struggle with the impact and desirability of tax policy diversity among member states. In particular, there is widespread concern that low-tax areas within a federation impose a fiscal externality on other countries and might attract investment that would otherwise locate in high-tax areas within the same regions. There are no reliable estimates of the magnitude of such diversion. Moreover, there has been little consideration of the possibility that the availability of low-tax jurisdictions facilitates foreign investment and economic activity in high-tax jurisdictions within the same regions. The latter possibility arises if affiliates in low-tax areas offer valuable intermediate goods and services to affiliates in high tax areas, if the ability to relocate taxable profits into low-tax jurisdictions improves the desirability of investing in high-tax areas, or if low-tax jurisdictions facilitate deferral of home country taxation of income earned in highe r-tax countries. High-tax countries might then benefit from tax diversity within regions, particularly if domestic governments would prefer to offer tax concessions to multi-jurisdictional businesses but are constrained not to do so by non-economic considerations. The study willThe study will analyzes the use of tax havens by multinational firms, and the effect of tax haven operations on economic activities in foreign countries other than tax havens. First, havens serve both to permit firms to relocate taxable income out high-tax jurisdictions and to facilitate deferral of repatriation taxes, suggesting that multinational parents with differing foreign tax rate exposures can benefit from haven activities. Second, the use of havens to relocate profits from high-tax jurisdictions is concentrated amongst larger tax haven countries, and the effect of these havens on activities in non-havens is most pronounced within regions. Third, there appears to be a complementary relationship between levels of multinational activity in havens and non-havens within a region, in that the establishment of tax haven operations is associated with expansions of activity outside of tax havens. Large multinationals, and those with the greatest reliance on foreign profits, are the most likely to operate in tax havens, suggesting that there are economies of scale in using havens to avoid taxes. Additionally, multinational parents with foreign (non-haven) operations concentrated in low tax countries, and those in technology-intensive industries characterized by extensive intra firm trade, are more likely than others to operate in tax havens. While the latter evidence is consistent with the intuition that multinationals employ haven affiliates to move taxable profits out of high-tax jurisdictions through intra firm trade and transfers of intangible property, the fact that

Application of Financial Statement Essay Example | Topics and Well Written Essays - 2250 words

Application of Financial Statement - Essay Example The Income Statement The income statement is â€Å"a financial statement listing all revenue and expenses for a fiscal period leading to net income or net loss: a statement that describes the operations of a business over a period of time (fiscal period)† (Kravitz, 1999 p63). The income statement is therefore a financial statement that shows the results of the operations of a business. This involves financial information about the income that a business makes and the expenditure that the business incurs over a given period of time. In effect, the income statement matches the revenue of a business with its expenses and provides the net income or net loss. In other words, the income statement provides an insight into the kind of revenue inflows and outflows that were incurred during the normal trading activity of the business. Another aspect of the income statement is that it is a period statement. In other words, it captures the financial picture of a business's trading activit ies over a defined period of time. This means that the income statement is mainly concerned with how a business performed in trade over the specified period of time. Tracey (2009) identifies that the main purpose of the income statement is to identify the profit or loss made by a business in a given period of time (p13). This means that the income statement identifies the performance of a business in terms of how much profits or losses that the business made over the specified period for which the accounts were prepared. This shows clearly that the income statement is mainly a tool for the measurement of the financial viability or otherwise of a given business in a stated period of time. â€Å"The income statement summarizes the sales revenue and expenses of a business for a period, usually 1 year† (Tracey, 2009 p13). This indicates that most businesses prepare their income statements over a period of 12 months. The GAAP and other legal statutes require businesses to prepare financial statements once every 12 months. However, in some instances, a business might opt to prepare an income statement for periods that are less or more than the 12 month period. If a business began trading in the middle of they year, they many prepare income statements for a period that is less than 12 months. Such a financial statement might be pro-rated for taxation and other financial purposes. This means that the number of months for which the accounts were prepared will be identified and divided by the 12 months period to find out the true worth for certain statutory purposes like tax. Typically, the tax rate that is invoked on such a business is calculated by identifying the number of months for which the accounts were prepared and dividing it by 12 before the figures are multiplied by the annual tax rate. The main motive is that income statements must be prepared over a given period and there should be definite cut offs within which the income and expenditure captured ar e compared. Tracey (2009 p13) identifies four main steps in the preparation of income statements. In the first step, the sales revenue is matched with the cost of goods or services that were sold. In other words, this involves the matching of income or payments made by customers to the business against the cost the business incurred in producing the goods sold.