Tag Archives: economy

Tax Avoidance and Competitive Advantage

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Mayowa Akinbote, Lecturer, Staffordshire Business School

Apple Inc. (Apple) is a well-known technology company for designing, manufacturing and selling smartphones, tablets, computers and other digitals accessories. Apple has been the world most valuable brand in 2020 with revenue of $267.7 billion (£203.3 billion) and profit of $57.2 billion (£43.4 billion) and the largest public organisation in the United State of America (US) in 2018.

Image Source: Apple Facebook Profile


In 2016, the European Commission found Apple guilty of paying the below 1% effective tax rate to the Irish government in 2003 and that Apple was given preferential tax treatment. This tax advantage was declared illegal and the commission rule that of £12.7 billion in taxes and interest should be paid to Irish government coffers. This amount is equivalent to the Irish National Health budget.
Recently, Apple becomes the most valued traded corporation in the world, valued at £1.7 trillion bigger than £1.5 trillion value of all the FTSE 100 the UK top companies. While Amazon and Google followed Apple as the most valued traded corporations in the US. Some commentators suggest that such sudden growth in value could be aided by tax avoidance deals thus such could create competitive advantages over their competitors.

Tax Avoidance

Tax avoidance is legally bending of the tax rules to gain an undue tax advantage that the rules never intended and creating tax loopholes. Transfer pricing is the biggest enabler of tax avoidance. Big companies like Apple design, manufacture, test, hold patent rights and marketing rights of their products in different countries. This gives opportunities to allocate high costs discretionarily to the country that offers low tax advantage like Ireland thus, profit is channel across borders. The annual global tax avoidance is equivalent to the entire Belgium Gross Domestic Product (GDP) with British overseas territories such as British Virgin Island, Bermuda, Cayman Island followed by Netherland, Switzerland, Luxembourg and Ireland in Europe topping the list of tax avoidance enablers.

Similar to the other multinational companies such as Starbucks, Google, Amazon and Facebook, Apple legally channels 90% all its global profits to through Luxembourg and Ireland before profits were channelled to non-Irish residence subsidiaries to avoid paying taxes. This is not unknown, but the Irish government accept the deal in return for the inward investments and jobs creation. Besides Ireland pride herself as one of the countries with the lowest corporation tax rates in Europe at 12.5%.

In the UK airline companies like tax exile, Virgin Atlantic and EasyJet benefited from tax avoidance for decades. Avoiding paying taxes into the countries where they generate profits hence, reducing the funds available for the development of the key facilities that could save host community’s livelihood especially during this period of uncertainty such as coronavirus pandemic. Regrettably, these companies are also ripping where they did not sow. For instance, the air industry seeking £7.5 billion in bailout due to coronavirus lockdown. They also took the advantage of the government taxpayer-backed general support during the uncertainty period.

Competitive Advantage

Michael Porter explains four generic strategies which companies could adopt to gain high profits over their competitors such as cost leadership, cost focus, differentiation leadership and differentiation focus.

Image source:
 https://www.econposts.com/business-management/generic-strategies/

The first two strategies focused on cost leadership strategies are price-based competition in a targeted market. Companies such as EasyJet and Amazon adopt cost focus and cost leadership using both economies of scale and scope to achieve the lowest cost of production to their advantage thus generating high profits with their strategy. These companies rather paid shareholder(s) than to invest in their workforce or pay taxes to the host countries. For instance, at the start of the pandemic, EasyJet paid £60 million of dividend to Monaco tax resident founder Stelios Haji-Ioannou.

The other two strategies focused on differentiation strategies which require significant investment in marketing and consistent promotion. Companies such as Virgin Atlantic and Apple adopts differentiation leadership by targeting larger markets and positioning their products quality superiority, global brand loyalty uniqueness to the market. Despite, cost reduction through economies of scale, Virgin Atlantic and Apple continue to charge premium prices on its products and services.

Although, none of the Porters’ generic strategies includes the possibilities of tax avoidance creating competitive advantages. However, some commentators believe that tax avoidance increases the shareholders’ wealth and the companies’ value thus, encouraging investors to increase investments with the hope of increasing their wealth. Furthermore, some observers consider that these extra investments enable such companies to oblige their host countries into offering tax avoidance deals in return for inward investments and jobs creation in their countries.

Mayowa Akinbote FCCA
Lecturer in Accounting and Finance
Staffordshire Business School
Staff Page: https://www.staffs.ac.uk/people/mayowa-akinbote
LinkedIn: http://linkedin.com/in/mayowa-akinbote-33448895

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Staffordshire Business School – Research update

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Staffordshire Business School aspires to be a leader in making a real impact on business and society through research and innovation. Our team have successfully delivered many industry/business and government funded research projects and have extensive experience of leading large team projects including local, UK, EU and internationally funded projects. Many of our team members combine rich industry and practitioner experience with academic rigour in conducting world-leading research in the areas of entrepreneurship and innovation, digital transformation, environmental health etc. Here are some of the exciting research projects that researchers at Business School have been doing:


Austerity, Welfare and Work: Exploring Politics, Geographies and Inequalities

In his new book, Prof David Etherington provides bold and fresh perspectives on the link between welfare policy and employment relations as he assesses their fundamental impact on social inequalities. Drawing on international and national case studies, the book reviews developments, including rising job insecurity, low pay and geographical inequalities.

Environmental health inequalities resource package

Prof Jon Fairburn is the lead author of a recent World Health Organization publication. The publication is aimed at local, regional and national policy makers hoping to improve environmental health especially for deprived and other groups. Jon has been collaborating with WHO for over 10 years on this subject.

Covid-19 and Smart Cities – What’s Changed? Getting ahead of the Game

Prof Fang Zhao and her team have been conducting research and analysis of a range of changing scenarios of smart cities in post-Covid-19 and pinpoint the opportunities and challenges for businesses, city councils and universities. Their research focuses on strategies, tactics and digital transformation.

The Impact of COVID-19 on BAME Owned Businesses in the UK

The project led by Dr Tolulope Olarewaju is investigating the specific challenges that BAME business owners faced during the COVID-19 pandemic and lockdown, the strategies that they used to keep their businesses afloat, and how they engaged with financial and regional support. The project is funded by the British Academy.

People, Place and Global Order: Foundations of a Networked Political Economy

This book co-authored by Dr Andrew Taylor explores how the convergence of technology and globalisation is shifting value creation out of products and processes and into digital networks and, in the process, leaving many people behind. He is looking into examples and models of how people and place may flourish within global networks. 

Leadership typology reveals how smart city leaders prefer to tackle inequality

The research of Associate Professor Alyson Nicholds sheds light on how leaders, operating in different organisations, roles and sectors prefer to tackle inequality differently. Her latest writing draws on organisational concepts of leadership and philosophy to show the benefits this type of understanding can reap for society.

Entrepreneurs in Residence

Business School has recently appointed Entrepreneurs in Residence providing students and staff with hands-on experience in conducting research to spot business opportunities, conduct market analysis and better understand consumer behaviour, leading to business venture creation.

For more information and collaboration and partnership, please contact Prof Fang Zhao – Associate Dean Research and Enterprise at fang.zhao@staffs.ac.uk.

Covid-19 and the Stay-at-Home Economy

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Fang Zhao, Professor of Innovation and Strategy & Associate Dean Research and Enterprise, Staffordshire Business School

Covid-19 outbreak is not only a global health crisis but also an imminent economic shock. According to the Office for Budget Responsibility (OBR), the UK economy could shrink by a record 35% by June 2020 with over 2 million job losses. The International Monetary Fund warned Covid-19 would push the UK into its deepest recession for a century.

Image: BBC – https://www.bbc.co.uk/news/business-52279871

For businesses, it is estimated that the government’s lockdowns may cost 800,000 to 1 million business closures in the UK. The sector that is affected the most and is also the most vulnerable is small businesses which account for 96% of all businesses in the UK (Business Statistics, 2019). To prevent the catastrophic structural economic damage and mitigate the huge spike in unemployment, sound economic policy responses are urgently needed, which goes far beyond government handouts.

Image: BBC – https://www.bbc.co.uk/news/business-52279871

Economic restructuring is already happening. Cloud computing, e-commerce, online entertainment and delivery business are booming, being inflated by a huge surge in demand while retail (e.g. shops, pubs and restaurants) and entertainment industries (e.g. cinemas, theatres, and theme parks) and many others are suffering from heavy losses. Policy makers are confronting with the unprecedented daunting tasks to make strategic decisions on how to deal with the pandemic economic restructuring and crisis.

The pandemic outbreak has fuelled disproportionately the so-called ‘stay-at-home economy’. Working from home is becoming a new norm. For many this is the beginning of a new life and a new way of work for years to come. The implication for business is that it is time to rethink and reposition existing business models, processes, and target markets because consumer behaviours are changing fast and life will never be the same again.

Although small businesses are the hardest hit, they are also the most agile ones.  Some small businesses have already responded and adapted quickly to market changes. For examples, some have moved their businesses entirely online and some shifted their target market from restaurants and hotels to individual consumers or new markets. New businesses are also emerging surrounding the stay-at-home economy, such as virtual hair salons and online gym classes. Over the longer term, Covid-19 has irrevocably changed the way businesses will run and compete over the next decade.

Researchers at Staffordshire Business School are working hard to help better understand the impacts of Covid-19 on the economy and society and help policy makers develop strategies to tackle the economic fallout and revive the economy. Our staff are also conducting research on the changing behaviours of consumers due to Covid-19. For more information on our research and partnerships, please contact Professor Fang Zhao, Associate Dean – Research and Enterprise at fang.zhao@staffs.ac.uk.