Assignment Tax essay
On 10 May 2013, the IRS issued regulations under section 336(e) that allow taxpayers in certain situations to elect to treat sales and distributions of 80 percent of a corporation’s (the target) stock as taxable sales of the target’s assets (Taxation of Cross-Border Mergers and Acquisitions, 2014). In such a way, the US fiscal policy aims at the enhancement of the transparency of fiscal operations and minimizes the risk of tax avoidance. The development of section 336(e) contributed to raising barriers on the way of international fiscal schemes that allow money laundering and transferring money off shore.
Net investment income tax imposes 3.8% tax on net investment income of individuals, estates and trusts (Taxation of Cross-Border Mergers and Acquisitions, 2014). In such a way, the US fiscal policy aims at the accurate and effective taxation of investment incomes obtained by companies as well as individuals operating internationally. At this point, it is worth mentioning the fact that some companies have developed numerous schemes of tax evasion using their investments as the way to transfer their capital off shore or to other countries, where the fiscal legislation is more liberal and less restrictive. In such a way, the national legislation raises barriers for international schemes planned for tax avoidance and other schemes.
Furthermore, the Foreign account tax Compliance act (FatCa) was enacted into law to address tax evasion by US taxpayers that hold unreported assets in financial accounts and undisclosed interests in foreign entities (Taxation of Cross-Border Mergers and Acquisitions, 2014). The tax evasion is a serious threat to the national economy. At the same time, international transfers are the most efficient way to complete tax evasions fast and effectively. Local law enforcement agencies have difficulties with the investigation of such crimes. The elimination of fiscal barriers and the enhancement of the foreign account tax policies help to minimize the risk of the violation of tax policies and prevents the problem of tax evasion.
One of the major advancement in fiscal policies at the international level is the introduction of International Financial Reporting Standards. International Financial Reporting Standards introduce the common set of standards of financial reporting at the local and international level. In such a way, International Financial Reporting Standards help to balance the international legislation and fiscal policies, to harmonize them and develop common, transparent standards and principles that will contribute to the transparency of accounting and financial performance. International Financial Reporting Standards have been implemented since 2012. The first phase of the International financial Reporting Standards was introduced in 2013 and the preparation for the introduction of the second phase has started. 2014 involved the evaluation and assessment of the implementation of phase one of International Financial Reporting Standards. The accurate assessment is pivotal for the further implementation of phase two of International Financial Reporting Standards.
Furthermore, the international cooperation in fiscal policies contributes to the tighter regulations and higher transparency of fiscal policies and accounting of businesses operating at the domestic and international market (Chernick & Reschovsky, 2000). In this regard, the introduction of the automated information exchange international standard is an important step toward to the enhancement of the international fiscal policies and standards that facilitate the tax policy and tax accountability of businesses.
At the same time, well-developed nations, including the US and the EU assist developing countries into the implementation of international accountability standards and fiscal policies that match international standards (Fighting Tax Evasion and Avoidance: A year of progress, 2014). In such a way, developed nations help developing ones to close fiscal gaps and help to introduce effective systems of monitoring and control. However, the key to the effective fiscal policies at the international level is the transparency of fiscal policies.
However, one of the primary concerns of the international community in terms of fiscal policies was tackling tax heavens and aggressive tax planning that prevent the risk of the development of tax evasion schemes and transferring substantial financial resources offshore.
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International Financial Reporting Standards may become the tax framework within which international fiscal system can operate successfully. At the same time, the implementation of the common, global fiscal framework does not necessarily mean the resolution of the problem of tax avoidance. In fact, the tax avoidance occurs not only because of differences in fiscal policies and different policy standards but also because of the different in fiscal policies conducted by fiscal institutions of each country. At this point, the International Financial Reporting Standards can become a solid financial framework for well-developed nations with the solid legal system, well-established democracy, and low level of corruption. On the contrary, some developing nations, like Nigeria, for example, face the high risk of corruption. Even emerging economies, like China, suffer from the high level of corruption. Therefore, in case of the creation of the global tax framework after the implementation of International Financial Reporting Standards, countries with the high level of corruption may become new tax heavens for companies and individuals, who want to hide their profits and pay fewer taxes.
At the same time, the risk of corruption is not the only obstacle for the successful introduction of the global fiscal framework. The implementation of the International Financial Reporting Standards and the elaboration of the common fiscal policy worldwide raises the problem the economic disparity in the global economy and the different dynamics of the economic development of different countries (Holzman, 2005). What is meant here is the fact that fiscal policies, including fiscal policies regulating international financial operations, are effective tools that help governments to stimulate business activities and balance the economic development. For example, in case of ‘overheating’ of the domestic economy, the government of a country may be willing to raise taxes to avoid the further ‘overheating’ that may lead to the crisis of overproduction and further economic decline. On the contrary, the government of a country that suffers from the economic recession may need to eliminate fiscal barriers and introduce more liberal fiscal legislation to attract more investors. In such a way, they can boost their economic development. However, the introduction of the International Financial Reporting Standards as the common, global tax framework will become an obstacle for such independent policies conducted by governments. Obviously, at the moment, national governments are not ready to put international fiscal policies above their national economic interests. Therefore, even in case of the introduction of the International Financial Reporting Standards as the global tax framework, this framework will be unable to prevent the risk of tax avoidance.
Nevertheless, the introduction of the International Financial Reporting Standards as the common, global tax framework can lay the foundation to the development of common fiscal policies and tax legislation. The introduction of the tax framework implemented internationally will stimulate the introduction of the common tax legislation that will help to prevent the risk of tax avoidance. Even though the International Financial Reporting Standards will not eliminate the problem of the tax avoidance point blank, but still such global tax framework helps to decrease such a risk. At this point, the elaboration of common international standards is an important step toward the effective prevention of tax avoidance at the international level. At any rate, the global tax framework helps to stimulate companies to introduce common strategies to match international fiscal standards. In the course of time, International Financial Reporting Standards can help to make the global business more transparent.
In such a way, the International Financial Reporting Standards as the global tax framework will not bring immediate positive changes in terms of the tax avoidance minimization but still the global tax framework will have a positive impact on the development of international business and fiscal policies. Even though the International Financial Reporting Standards will not eliminate the problem of the tax avoidance, they will help to decrease the risk of the tax avoidance.
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