How legal loopholes shape the strategies businesses adopt 

Year 12 student Inaam Bawa takes a look at how businesses use gaps in the law to maximise their profits

Businesses are run to maximise their profits. This means that, when taxes and legal limitations threaten to reduce their earnings, businesses begin to reconsider their strategies. Therefore, many companies turn to “loopholes”, gaps or ambiguities in legislation, as a strategic tool.

Whilst these practices aren’t actually illegal, they often raise ethical concerns and are frowned upon by the public. This article will explore how loopholes shape strategies in three different ways: international tax avoidance; domestic regulatory exploitation; and the morals involved in the flexibility of the law. Using case studies and various sources, I will argue that although loopholes may offer short-term benefits to businesses, they ultimately reveal the need for smarter laws.

One of the most prominent examples of how legal loopholes shape business strategy is seen in international tax planning. Some multinational corporations exploit the differences in national tax codes to move profits from high-tax countries to low or no-tax jurisdictions. For example, Google utilised a mechanism known as the “Double Irish with a Dutch Sandwich” to transfer billions in profits from Europe through Ireland (and the Netherlands) to Bermuda. In 2017, Google moved roughly £16.9 billion ($23bn) using this to process. Though entirely legal at the time, this strategy drew sharp criticism. The European Parliament argued that these mechanisms distort competition and undermine the fairness of tax systems. In 2013, Apple chief executive Tim Cook said the company paid “all the taxes we owe, every single dollar”, however the company announced in 2020 that it would no longer be using this strategy, following a change in US tax law. Companies that use these structures say they are complying with the law; however, these schemes force us to confront whether legality is an adequate measure for fairness.

Loopholes are not always limited to international tax shelters; they also exist in domestic systems and are exploited in other ways. In the UK, for example, property owners began registering empty commercial buildings as “snail farms” to avoid paying full business rates. As agricultural land is taxed differently, this reclassification allowed owners to significantly reduce their liabilities, costing local councils revenue. Though it seems absurd on the surface, these actions highlight the resourcefulness with which some businesses exploit legal ‘grey areas’. The fact that this strategy was used to bypass a legal duty without straying outside the boundaries of the law, indicates the need for more precise laws to be drafted. It also demonstrates that loopholes are not always the result of international complexity; often, they stem from oversights in domestic policy.

Another major way loopholes shape decisions is through how companies treat their workers. A clear example is how gig economy platforms like Uber, Deliveroo, and Bolt have sought to classify their drivers and riders as “self-employed” rather than employees. By doing this, they don’t have to cover holiday pay, sick leave, or pensions. These workers often work full-time hours, but legally they’re not entitled to the same protections as regular employees. It’s a clever strategy, but one that comes at a human cost. It means many people working under these conditions have no real security, even if the company relies on them every day.

This loophole in employment law has generated some backlash and legal challenges in recent years, with courts in both the UK and EU ruling in some cases that these workers should be considered employees. For example, Uber drivers were recognised as ‘workers’ by the Supreme Court in 2021, although this only applies when they are logged onto the app, they are now entitled to holiday pay and a few other employment rights. However, they still don’t have the same full-employment rights as employees. Interestingly, much more recently, Deliveroo riders were subject to a ruling that was not in their favour, as the Supreme Court ruled against collective bargaining rights finding that they were not ‘workers’ but ‘self-employed contractors’. This left thousands of riders without paid sick leave and other benefits.

Another example would be zero-hour contracts. Technically, they offer flexibility and no guaranteed hours, just the chance to work when needed. However, in actuality, this can often lead to unstable incomes and workers being constantly “on call” without knowing when they’ll get paid. It makes it hard to budget, plan childcare, or even apply for a mortgage. Companies defend these contracts by saying they’re legal and suit some lifestyles, but the reality is that it results in uncertainty and stress for lots of employees.

According to the Trades Union Congress, over a million people in the UK are on zero-hour contracts, with many stuck in low-paid, insecure work. It’s a clear case of businesses using a legal structure to their advantage, even when it puts workers in difficult positions. More recently however, the Labour Party’s pledge to ban these contracts has been widely anticipated by the UK. Changes to these zero-hour contracts are included in the Employment Rights Bill 2024-25. The Bill would create two key rights: the right to reasonable notice of shifts and payment for shifts that are cancelled or curtailed at short notice and the right to a guaranteed hours contract reflecting the hours regularly worked. This provides evidence of how the law is constantly adapting and adjusting to close a few of these loopholes that businesses exploit.

Finally, there’s also outsourcing. Large companies often use agencies or third-party contractors to avoid taking responsibility for how workers are treated. A 2023 University of Aberdeen research report shed light on the treatment of Bangladeshi suppliers by global clothing retails. Some major online retailers have been criticised for poor conditions in UK warehouses, long shifts, pressure to meet intense targets, and little recourse for workers, because the staff were hired through agencies. Technically, these companies can say the workers aren’t “theirs”, even if they’re doing the company’s work. It’s another loophole that keeps profits up while shirking responsibilities and shifting accountability to someone else. These gaps in the law make it easy for consumers to separate a company’s brand image from the reality behind the scenes.

Legal loopholes are likely to continue to shape business strategy across both global and local contexts alike, as no matter the measure put in place, individuals are likely to always find a way around the law. Whilst these tactics provide a way for companies to reduce costs and increase competitiveness and profit, they often do so at the expense of fairness and public trust. Whether through tax avoidance or domestic rate manipulation, these methods reveal the need for smarter regulation and more ethical awareness. Legal systems should close the gap between what is permitted and what is fair. Ultimately, it is not just the loopholes our societies need to examine, but the culture that rewards the use of them.

Inaam Bawa is an A-level student at the Tiffin Girls’ School and is currently studying English, Psychology, and Economics. She plans to pursue a law degree and legal profession and is particularly interested in how the law constantly adapts to human behaviour.

The Legal Cheek Journal is sponsored by LPC Law.