2. WHAT ARE ZERO TAX COMPANIES?WHAT ARE ZERO TAX COMPANIES?
•A zero tax company is a business that shows a
book profit and pays dividends to investors but
does not pay taxes.
•This became a serious problem in India until it was
corrected in the 1990s.
4. FACTS ABOUT VERIZONFACTS ABOUT VERIZON
• Verizon made $19.3 billion in U.S. pretax profits
from 2008 to 2012.
• Got $535 million in tax rebates.
• Verizon’s federal income tax rate was negative
2.8% from 2008 to 2012.
• Had $1.9 billion in accumulated offshore profits in
2012
5. • In India two different business tax laws conflicted
with each other.
• A company was liable for taxes under the income
tax act but profit and loss accounts of the
company were prepared under provisions of the
Companies Act.
• This meant that many companies showed book
profits in their profit and loss account but their
income under the income tax act was zero or
insignificant.
HOW DO COMPANIES AVOID PAYING
TAXES IN INDIA
HOW DO COMPANIES AVOID PAYING
TAXES IN INDIA
6. HOW DO COMPANIES AVOID PAYING
TAXES
HOW DO COMPANIES AVOID PAYING
TAXES
• Offshore transfer payments.
• Harvesting losses.
• Accounting rules.
7. • One of the favorite ways for companies to slash
their tax bills is by setting up foreign subsidiaries
to make raw materials and components in
countries with low tax rates.
• The companies U.S. operations then purchase
these parts from the foreign units at well above
cost.
• By doing this, the overseas unit makes a large
profit, which then escapes U.S. taxes, as long as
it stays in the foreign country, Yee says.
• Many companies are likely waiting for a U.S. tax-
holiday, giving them a chance to bring the cash
to the U.S. tax-free.
OFFSHORE TRANSFER PAYMENTS.OFFSHORE TRANSFER PAYMENTS.
8. • Most of the companies with effective tax rates of zero, or
even negative, are money losers.
• While Hewlett-Packard, J.C. Penney and E-Trade pay
taxes, since they lose money, they have negative
effective tax rates due to the way the number is
calculated.
• These reserves can be very lucrative and give profit a
boost by lowering the effective tax rate, Companies with
these tax loss reserves include General Motors and
Crown Castle.
• GM, for instance, released credit from its reserve, taking
it down from $45 billion to $11 billion.
• Investors must be aware, though, that once that $11
billion reserve is used up, the company's tax rate
returns to the statutory rate. All this follows tax rules,
HARVESTING LOSSES.HARVESTING LOSSES.
9. • A big reason that Verizon's effective tax rate is so low,
coming in at a negative 4.8%, is largely due to
accounting.
• The company's sped-up depreciation, severance and
pension costs are large credits that contribute to pushing
the company's taxes down.
• But there's also a distortion caused by the company's
55% interest in Verizon Wireless. Vodafone, which owns
45% of Verizon Wireless, pays taxes on its share, but
the entire profit is reported on income.
• Adjusting for this, Verizon's effective tax rate is closer to
30%, the company says. Verizon is buying Vodafone's
stake, which will eliminate the issue in the future.
• Similarly, real estate investment trusts have low
effective tax rates because they pass profit to
shareholders, who then pay the taxes.
ACCOUNTING RULES.ACCOUNTING RULES.
10. MINIMUM ALTERNATE TAXMINIMUM ALTERNATE TAX
• To Counter increase in number of Zero taxpaying
companies.
• Company earning substantial income:
– Paying handsome dividends.
– Not paying tax on account of various
incentives.
• All profitable companies should pay minimum
corporate tax.
11. AcknowledgementAcknowledgement
• We would like to thank respected Abhijeet Sir to
give us this wonderful opportunity to expose our
minds to the vast knowledge of the real workings
of the world.
