Creative Accounting: Literature Review: Creative Accounting

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Nowadays, creative accounting has become familiar with us. Some big companies which own excellent accountants can exploit loopholes to minimize their bills. Amazon is also one of those companies. To respond to a growing public anger over tax avoidance, the public accounts select committee in order to ask Amazon to explain structures of Luxembourg-registered offices which incur lower tax rate. a. Literature review on the topic of the news The term 'creative accounting' can be defined as accounting practices that obey regulations and required laws, but deviate from what these standards intend to accomplish. It means that creative accounting take advantage of loopholes in the accounting standards in order to make the company seem more successful…show more content…
Tax avoidance is using of lawful methods to change an individual's financial situation so as to cut down the amount of income tax owed. This is usually accomplished by claiming the acceptable deductions and credits. Almost all taxpayers use a several forms of tax avoidance. This practice is different from tax evasion, which is unlawful. b. Review of the news in a chronological order To reduce UK tax bill, Amazon, the UK's most popular online retailer, has done business through Amazon EU SARL, which is the Luxembourg subsidiary. When consumers order products from the website of Amazon, the payment will be transferred through the Luxembourg arm of Amazon, which will pay the British branch a delivery fee. In the UK, Amazon owns over 5,000 employees, but takes advantage of Luxembourg's extremely low corporate tax rates. According to Amazon’s 2012 public accounts, it whipped more than £11 billion through Luxembourg subsidiary in 2013 and the revenue increased by 14% in that year before reimbursement by the Government of Luxembourg. In 2013, Amazon generated sales of £4.3 billion in the UK. Nevertheless, the payment for UK corporation tax of the online giant retailer Amazon was only £4 million. The amount of tax payment is only equal to 0.1% of the £4.3 billion in sales which Amazon created in the UK in that…show more content…
The high-street stores have been severely decreased by online retailers which are actually eating up the entire sectors. Furthermore, the number of jobs which almost all online businesses create is very few in fact. All of internet companies relocate their profits abroad, disappear from the GDP and deprive the governments from marginal turnover that should commonly arise from higher productivity. Besides Margaret Hodge, Richard Murphy of the Tax Justice Network is a fairly vocal campaigner on tax, and has the ear of a lot of people in the media and politics, so it is worth looking at his views. He said that altering tax rules to avoid tax arrangements like creative accounting applied by Amazon is regarded as a big duty. The main problem is that “what is sold here” and “what is sold 'into' here”. The answer is to deem distance sales people as residents in British relating to their sales made here, which can be an important problem to take on. In conclusion, this online retailer exploited the Luxembourg loophole for tax avoidance. The creative accounting practices of Amazon is not illegal, but this company has been seriously criticized by consumers, politicians and other retailers about the tax payment it pays to HM Revenue & Customs in British. "We need serious tax reform to ensure everyone pays no more or less than their fair share” – Sinclair

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