Tax avoidance can be defined as an unlawful way in which tax defaulters ignore the responsibility of paying the full amount of taxes. Tax evasion is the complete avoidance of paying taxes through unlawful activities such as concealing earnings in offshore bank accounts. Tax fraud occurs when individuals or businesses provide inaccurate information on their tax filings in order to avoid paying the appropriate amount of income tax.
The activities are highly punishable worldwide, and all countries have laid down strict measures for those who may violate these laws. Many nations have been reported to lose considerable revenue through tax crimes; hence, any organization found guilty of such crimes is subject to punishment by law. This paper will explore Pfizer company which was accused of involving in tax misconduct by transferring their profits to offshore accounts to avoid paying taxes to the U.S. government.
Pfizer is one of the most profitable and premier biopharmaceutical companies based in the United States. The firm has established itself as a global and trusted company producing pharmaceutical drugs. Between 2010 and 2012, the corporation earned a total profit of $43 billion across the world (Diller & Lorenz, 2017). The company tried evading tax in the United States by shifting the U.S. profits offshore, making $2.2 billion in tax funds (Nygård et al., 2018).
Thus, the above action amounted to tax avoidance since the firm failed to pay the full amount of tax to the United States government. This allowed the business to earn a total of $3.4 billion in taxpayer projects reported to be funded by some of the company’s investors in the years 2010 to 2012 (Nygård et al., 2018). However, due to the complexity of the matter, the relevant authorities did find it difficult to handle this matter due to the existing laws.
The Internal Revenue Service (IRS) treated this act seriously since the company falsified its documents to gain profit unlawfully. A report issued by the IRS directed the company to ensure that it paid back all the pending amount of funds they had failed to pay as tax returns. Thus, since then, the funds transferred to offshore accounts have been accumulating, making the total profits rise to approximately $148 billion as of 2021. This means that the company owes the government an approximate figure of $74 billion (Diller & Lorenz, 2017). Though the company had promised to pay the amount, it seems unlikely that it will keep its promise because of the idea of the stealth account.
In my opinion, Pfizer’s case scenario cannot be interpreted as tax avoidance but rather tax fraud, mainly because the company did not avoid the tax directly but rather transferred their profits offshore. This act implies that the IRS will have the difficult task of determining the true figure of the total profits made by the company. Through the assistance of the Treasury Department, the IRS has strived to warrant that no more funds are lost. This is achieved by the inversion of loans that becomes a stronghold or an impediment for those companies who might want to default in paying taxes (Diller & Lorenz, 2017). The IRS should have implemented regulations that restricted any entity from filing their profits in offshore accounts.
The company was able to do so because it sold a substantial amount of medications without testing, which demonstrated that the company failed to abide by the rules and regulations required by them. Thus, by imposing strict measures, the company can control and clear the remaining debts.
References
Diller, M., & Lorenz, J. (2017). Do tax information exchange agreements curb transfer pricing-induced Tax Avoidance? SSRN Electronic Journal. Web.
Nygård, O., Slemrod, J., & Thoresen, T. (2018). Distributional implications of joint tax evasion. The Economic Journal, 129(620), 1894-1923. Web.