BEST IELTS Academic Reading Test 555

Table of Contents

IELTS ACADEMIC READING TEST 555 – PASSAGE – 1

IELTS ACADEMIC READING TEST – 555

READING PASSAGE – 1

Base Erosion and Profit Shifting – does the corporate world avoid paying its fair share of tax?

A recent tax study was completed in Australia and close reading of the assembled data revealed that nearly a third of private companies with annual incomes of AUD200 million or more pay no tax on profits to the Australian government. Similarly, statistics in New Zealand show that a list of 20 of the top multi-national earners in New Zealand reported an average profit of just 1.3 per cent for New Zealand-generated revenue yet their parent companies reported, on average, profit margins of over 20 per cent for their global operations.

In South Africa, a report to the U.N. from the charity OXFAM stated that “only 1.6 out of 2 million registered companies in South Africa… pay their tax revenue.” It is noted that in the U.S., corporate tax rates are amongst the highest in the world, at a stated rate of 35 per cent, yet the figures show that corporate America pays, on average, less than half that rate, costing the U.S. government USD90 billion annually in lost revenue. Worldwide, lost income from unpaid taxes is estimated to come in at 10 per cent of global corporate income.

IELTS Academic Reading Test

How does this loss of federal income and, it would seem, tax evasion, happen? Are there illegal practices being pursued by what would otherwise seem to be upstanding, and in many cases outstanding, companies? The answer lies in a murky netherworld of corporate tax laws, cross-nation trading practices, a growing world of Intellectual Property (IP) services and an army of tax lawyers and tax accountants trolling through the myriad of national tax laws intent on securing the best, and legal, tax structures for their clients.

What has emerged now is a somewhat-acceptable understanding of the possibilities of the advantages being taken of various national tax laws to the benefit of the corporate client, but the question then arises as to not whether the tax regime is legal, but whether it is ethical, in a business and good-corporate-citizen sense.

IELTS Academic Reading Test

The underlying situation that created this complicated nightmare is that the collection of tax no longer keeps pace with the new globalised trading economy, a system which is based on tax structures nearly a century old. The basic principle that most corporate entities employ is the concept of transfer pricing, which, in simple terms, is moving profits from a high-tax country to a lower tax jurisdiction, and expenses to a high-tax locality, all within the organizational structure of the company, using its many branch and subsidiary operations.

An example of this is a well-known multi-national technology company that had set up what are known as ‘shell companies’ – that is, companies designed to absorb tax and legal requirements but that deliver no real tangible services, but are still a legal entity as a subsidiary or branch of the parent company.

IELTS Academic Reading Test

The term given to this practice by governments around the world, who are working together in an attempt to minimize tax losses, is Base Erosion and profit shifting, or BEPS, in that moving costs and revenues from country to country within a company’s structure erodes the tax base of the host countries.

Efforts by the G20 group of top industrialized nations to make the tax information of multi-national companies public have so far failed, and since 2012, the G20 has been working on a World Financial Registry, with only small steps being recorded as to progress made. In 2015, a G20 meeting released an action plan for further progress, but there was general consensus that the G20 countries had “failed to take bold action needed to end tax avoidance in developing countries”, as reported by the anti-poverty charity ActionAid.

IELTS Academic Reading Test

However, the entire situation lies within such a grey area that there are some who claim there are no illegalities involved, just a careful maneuvering through existing tax laws within countries. There is an argument advanced that tax avoidance is a symptom of the high, and complex, corporate tax rates and laws imposed by the industrialized countries, and that if a company did not seek to exploit the rules, they would be at a competitive disadvantage.

Others also point out that large multi-nationals working in developing nations bring employment, wages and security to the economy, and some even mention that their company has been actively sought to bring its operations to a country by having lower tax rates offered by the government. The complexity of the situation is such that there are no two similar situations and the complications involved in drafting legislation to cover all scenarios is proving to be a difficult and time-consuming task.

IELTS Academic Reading Test

Various attempts at solutions have been presented, but there is an apparent unwillingness to reach a consensus on the best approach. One proposal put forward, and even adopted by some countries, is what is known as unitary taxation, which aims to tax activities where they actually generate the income, not where the accounts have been shifted through the internal workings of the company. The company would then be expected to produce one overall set of accounts and the global profits, and resulting tax liabilities, would then be allocated. However, unitary taxation has its detractors as well, owing to the difficulty in agreeing on how to apportion incomes and taxes levied on service sector companies and those dealing with intangible assets.

In particular, developing countries are working with OECD countries to ensure they are receiving a bigger portion of tax revenue. An example of this is one large multi-national brewer that was selling its product in Africa and India with local labelling, but the trademarks for the company’s products were held in low-tax European countries. It was calculated that the brewer had avoided paying USD30 million in taxes in Africa and India, but public action has now spurred results, just as another multi-national coffee chain raised its tax payments in developing countries owing to a consumer backlash.

IELTS Academic Reading Test

The end result is that governments do not benefit from profit shifting, the companies and their shareholders do. It is recognized that action is needed to look at the missing 10 per cent of global corporate revenue that appears not to be taxed. The billions of dollars not going into government coffers represents lost income that should more properly be spent on a country’s infrastructure, and ultimately, its citizens.

Questions 1 – 6

Do the following statements agree with the information given in Reading Passage 1?

In boxes 1 – 6, write

TRUE if the statement agrees with the information

FALSE if the statement contradicts the information

NOT GIVEN if there is no information on this in the passage

1. Multi-national companies operating in New Zealand have a lower average profit than in Australia.

2. Approximately 90 per cent of global corporate income is taxed appropriately.

3. Research now indicates that all situations of lost tax income result from illegal activities.

4. The global practice of avoiding paying tax has been occurring for nearly one hundred years.

5. Some people argue that the avoidance of paying corporate tax is within the laws, because the tax laws are so complicated and the tax rates so high.

6. There is universal agreement that unitary taxation will prove to be the best solution.

IELTS Academic Reading Test

Questions 7 – 13

Complete each of the following statements with one of the phrases A – J from the box below. Write the correct letter A – J in boxes 7 -13.

A. shell companies	F. national tax laws
B. unitary taxation	G. high corporate tax rates
C. no tax	H. transfer pricing
D. action plan	I. multi-national companies
E. developing countries	J. avoidance of tax