CHAPTER ONE

1.0      INTRODUCTION

1.1   BACKGROUND OF STUDY

Tax evasion is an unlawful practice which has the effect of reducing the government revenues needed for the provision of infrastructures, and for public services and public utilities. Tax avoidance, while not regarded by some as being unlawful, has the same effect. Both practices are motivated by different factors and involve a wide range of different mechanisms (Mo, 2003). They are a major feature of national and international fiscal policy and of the global capitalist economy.

Scholars have considered tax evasion and tax avoidance from many perspectives, such as the legal, ethical and economic (Abudlrazaq, 2002; Alm et al., 2002; Cowell, 2000; Fashokun, 2006; Flesch, 2008; Killian and Kolitz, 2004; Ola, 2001; Wheatcroft, 2005). These tax practices are not the prerogative of developed economies, but are also encountered in developing countries; and huge sums of money are lost to government coffers by such practices (Cobham, 2005; Christian Aid, 20051; Oxfam, 2004).

Unlike tax evasion, tax avoidance is considered by some scholars to be a lawful activity (Brown, 2003; Flesch, 2008; Sommers, 2008), but others disagree (Cowell, 2000; McBarnet, 2001; Potas, 2003). Also, as a thin line can separate the two practices, what constitutes lawful or morally acceptable behaviour may be problematic (McBarnet, 2001; Slemrod, 2007).

However, despite disagreement about whether tax avoidance is an unlawful activity, both practices have negative consequences and effects (Cobham, 2005; Kirchler et al., 2003) and have, in the words of He and Li (2006), ‘similar impacts on fiscal revenues’. Companies and wealthy individuals use a range of tax evasion and tax avoidance schemes, tax havens, shell companies and inter-group structures to avoid and evade taxes in order to boost profits and capital (Bakre, 2007; Palan et al., 2010; Sikka and Hampton, 2005; Sikka, 2003, 2007, 2008a; Tax Justice Network, 2007; US Government Accountability Office, 2004, 2005; US Senate Sub-Committee on Investigations, 2006). These schemes result in a loss of tax revenues which undermines government legitimacy and prevents economic and social development (Cobham, 2005; Richardson, 2006; Sikka, 2008a).

However, corporations regard tax avoidance schemes as justifiable and legitimate cost reduction programmes and not as practices which undermine social solidarity and the development of a just and fair society (Sikka, 2008a). In the last few years or so, the effects of such tax schemes on the world’s poor have been considered by various bodies, including charities such as Oxfam and Christian Aid and Tax Justice Network (Christian Aid, 2005, 2006, 2008; Oxfam, 2000, 2004; Tax Justice Network, 2005, 2006, 2007); and there have been calls for reform to prohibit MNCs and the wealthy from using such schemes (Christian Aid, 2008; Murphy, 2003, 2007; Palan et al., 2010).

While accountants and tax professionals are not expected to condone tax evasion by their clients (Sikka, 2008a) and are expected to promote transparency and accountability and devise techniques for detecting tax fraud, it has been shown that some professionals do, in fact, use their expertise to facilitate both tax avoidance and tax evasion practices (Bakre, 2007; Ezeoha and Ogamba, 2010; Sikka and Willmott, 2010; Sikka, 2003, 2008a; US Senate Sub-Committee on Investigations, 2005).

1.2   STATEMENT OF THE PROBLEM

Tax avoidance is a problem facing by all the tax system. The extent to which payment of tax is really neglected is actually bringing low the economy of the nation. The loss of tax revenues in Nigeria due to tax evasion and tax avoidance has had a significant impact on the Nigerian government’s investment in social infrastructures and social welfare programmes and has increased poverty. Tax avoidance and evasion could be as a result of compromised expertise that are willing to compromise with those that do not see any need to pay tax. Finally, several researches has been carried out on the roles of Multinational Corporation on tax avoidance but not even a single research has been carried out on the roles of multinational companies in tax evasion and avoidance in Nigeria.

1.3   AIMS AND OBJECTIVES OF STUDY

The main aim of the study is to examine the roles of multinational companies in tax evasion and avoidance in Nigeria. Other specific objectives of the study include;

1.          to determine the effect of multinational companies on tax evasion and avoidance in Nigeria.

2.          to determine the factors affecting multinational companies in Nigeria.

3.          to determine the extent to which multinational companies affect tax evasion and avoidance in Nigeria.

4.          to proffer possible solutions to the problems.

1.4      RESEARCH QUESTIONS               

1      to determine the effect of multinational companies on tax evasion and avoidance in Nigeria.

2      to determine the factors affecting multinational companies in Nigeria.

3      to determine the extent to which multinational companies affect tax evasion and avoidance in Nigeria.

4      to proffer possible solutions to the problems.

1.5   STATEMENT OF RESEARCH HYPOTHESIS

H0:    multinational company has no significant effect on tax evasion and avoidance in Nigeria.

H1:         multinational company has significant effect on tax evasion and avoidance in Nigeria.

1.6   SIGNIFICANCE OF STUDY

The study on the roles of multinational companies in tax evasion and avoidance will be of immense benefit to the entire Pz Nigeria in the sense that it will educate them on the merits of tax payment and also it will enable them to be actively involved in tax payment. Furthermore, the study will educate the government on the different strategies which can be used in getting taxes. Finally, the study will contribute to the body of existing literature and knowledge to this field of studies and basis for further research.

1.7   SCOPE OF STUDY

The study on the roles of multinational companies in tax evasion and avoidance is limited to Pz, Ltd, Nigeria.

1.8   LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9   DEFINITION OF TERMS

RolesThe function assumed or part played by a person or thing in a particular situation.

Multinational CompaniesIs usually a large corporation incorporated in one country which produces or sells goods or services in various countries.

TaxIs a mandatory financial charge or some other type of levy imposed upon a taxpayer (an individual or other legal entity) by a governmental organization in order to fund various public expenditures.

Evasion and AvoidanceThe act of intentionally avoiding doing something that you have a duty or responsibility to do.

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