Complete 12 page APA formatted essay: Tax Avoidance by the use of Tax Haven Jurisidication: A Corporate Governance Issue.The state’s claim to taxes on capital flows makes the state a minority stakeh

Complete 12 page APA formatted essay: Tax Avoidance by the use of Tax Haven Jurisidication: A Corporate Governance Issue.

The state’s claim to taxes on capital flows makes the state a minority stakeholder in virtually all corporations within its jurisdiction. Even so, the state’s interest does not typically factor into corporate governance constructs (Shleifer and Wolfenzon 2002, p. 3). This oversight facilitates the corporation’s incentive to divert corporate income as a means of avoiding taxes (Desai, Dyck &amp. Zingales 2007, p. 594). Monks and Minow (2008) refer to this as “capital flight to avoid taxation” (p. 364).

In this regard, multinational corporations devise frameworks by which transactions and capital are filtered through dummy corporations situated in tax havens. These dummy corporations facilitate a method by which proceeds of legitimate transactions as well as proceeds from illicit practices such as fraud, illegal arms trade, drug trade and embezzlement can be laundered without having to pay taxes. This is possible because of weak corporate constructs implicit in a general failure of transparency among global financial markets (Monks and Minow 2008).

Corporate governance usually focuses on investor protection and the protection of outside shareholders (Porta, Lopez-de-Silanes, Shliefer and Vishny 2000, p. 4). It is a state’s method for making corporations accountable for management of corporate capital.

However, a state’s control is subject to jurisdiction boundaries in that a state cannot control and regulate corporate governance with respect to funds that are transferred out of the jurisdiction and into the control of dummy corporations located abroad (Monks and Minow 2008, p. 364). Corporate governance can only manage that which can be measured. Tax avoidance by the diversion of capital to tax havens therefore poses a significant difficulty for corporate governance initiatives at home. This is because, tax havens typically have secrecy laws that permit corporations to manipulate income and payables or by “outright diversion” of capital and failing to report these taxable transactions (Schon 2008, p. 15). This dissertation proposes to argue that there is a direct link between taxation and corporate governance effectiveness. It will be argued that since taxation and corporation are both jurisdictional in nature, corporations can avoid both taxation and corporate governance standards and practices by virtue of capital flight to tax havens. In order to test this hypothesis, this dissertation will be investigated and analysed by reference to a primary research question and a number of secondary research questions. The primary research question is: How does tax avoidance by the use of tax havens undermine the effectiveness of corporate governance? This research question is investigated by an exploration and analysis of corporate governance standards and practices and the role of tax havens in facilitating the circumvention of corporate governance controls. The secondary research questions are: What is tax avoidance? This research question calls attention to the distinction between tax avoidance and tax evasion.