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Another Setback for Wal-Mart Stores, Inc. (WMT): Accused of Avoiding Taxes

Wal-Mart Stores, Inc. (NYSE:WMT) has always remained in the limelight for some reason or the other. The company has been accused of breaching food safety measures, slapped with bribery charges and faced labor disputes in the past. Such allegations significantly impact the company’s reputation and severely hurt investor confidence. Recently, a report by Americans for Tax Fairness accused the retail giant of having undisclosed subsidiaries in overseas tax havens.

Reportedly, Wal-Mart has established at least 78 subsidiaries and branches in 15 tax havens, which are not shown in its annual 10-K filing with the SEC. In addition, the study, carried out by the United Food and Commercial Workers International Union, found that its overseas operations have helped the company to evade more than $3.5 billion worth of income tax bills in the past six years. This is because reportedly 90% of Wal-Mart’s overseas assets are owned by subsidiaries in Luxembourg and the Netherlands, two of the most popular corporate tax havens.

In response, a Wal-Mart spokesperson stated that the company has disclosed its significant subsidiaries in its 10-K, and that these are flawed and incomplete reports containing erroneous information, which might mislead investors. Moreover, the spokesperson said that Wal-Mart always complies with applicable SEC and IRS rules, as well as the tax laws of each country where it operates.

The news came into picture after the Group of Twenty nations unveiled its decision to combat multinational corporate tax avoidance. The body wants companies to disclose to regulators where they book profits, employees and sales, so that tax authorities are aware of any discrepancies.

To this, Wal-Mart stated that SEC permits companies to avoid disclosure of subsidiaries that have significant intercompany transactions. He also stated that Wal-Mart’s tax savings overseas are driven by lower rates in markets including Canada and the U.K.

Nevertheless, Wal-Mart is not the only company which is entangled in such a situation.  Google Inc. , Apple Inc. and Starbucks Corp. have also come under fire for avoiding billions of dollars in income taxes by attributing profits to mailbox subsidiaries in low-tax jurisdictions like Bermuda.

The study has led Group of Twenty to direct the Organization for Economic Cooperation and Development to develop plans to crack down on such strategies. If any ruling is issued against Wal-Mart, then the company might have to pay huge taxes in the near future. The company is already burdened with increased expenses related to huge investments in e-commerce initiatives, higher wages and training costs. Any rise in expenses would significantly hamper the company’s operations.

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