Accounting

All citizens have their obligation to the countrys tax system and at the same time have the right to appropriate tax deductions. This right brings the use of tax shelter. A tax shelter is any investment or method used to reduce the income tax of a citizen or a company. The methods used may differ according to the specific local and international taxation laws.

Some legitimate tax shelters include limited partnership and retirement plan.  These tax shelters are allowed by the government to encourage investments and allow individuals to invest on their own retirement fund. Although many tax shelters are viewed to be legitimate in reducing tax, some tax shelters are questionable and even consider as unlawful. One of these unlawful tax shelters is the use of offshore companies which is use to abuse the different tax legislations in each country. For example, a US-based company can use an offshore subsidiaryauxiliary company in the British Virgin Islands to buy a product from Thailand for 2 and sell the goods to the same US-based company for 5 and then this company will sell it again for the same price (5). Accordingly, the US-based company will pay no tax because they sell the product with no income in return. On the other hand, the subsidiary will also pay no tax since Virgin Island has no corporate tax rate.

At the present, many companies in the US use numerous subsidiaries offshore that will make tremendous reduction on their taxes. In line with this, many professional service firms offer service for creating an offshore company. One of these firms is the Coldwell, Seymour and Robinson Company that offers offshore business licenses. This company offers fully legal offshore companies. In terms of its code of conduct, there is no specific information that connects them to violation of professional code of conduct.

The scandalous case of KPMG tax shelter fraud which involved US members of the company showed the irregularities of their designed tax shelter. Nine individuals including the former deputy chairman of the KPMG were accused to be involved in the tax fraud conspiracy (United States Attorney). After the indictment, major law and accounting firms reduced the market of their tax shelters. Small scale marketing of tax shelters were done and being operated while the case is still on-going. In terms of accounting profession, the case showed a big effect in view with the partnership between firms and private professionals. In this case, it clearly shows that even though the firm knows what precisely their partners are doing they will be eventually on their own if the company experience major troubles. The KPMG partners were prosecuted and convicted on multiple counts of tax evasion of tax evasion but is acquitted of conspiracy. They were jailed for several months and were ordered to undergo electronic monitoring at their respective homes.