Is Tax Avoidance by Corporate and Multinationals Acceptable - Literature review Example

Name Institution Date Is tax avoidance by corporate and multinationals acceptable? There are many views that are raised concerning whether it is right or wrong to evade taxpaying. In relation to that, there are various views that have been put in place. In support to the proposition, three views have been laid forth to support ethical obligation of paying tax to the state. The views are; as a duty to God everyone has a duty to pay tax to the respective government, secondly evading to pay tax could be justified if the state is illegitimate or unworthy of being given tax contributions. The third view is that it could be justifiable to evade paying tax if the circumstances prevailing at the time allow it. But it is still a big obligation of businesses to pay tax. As a strategy of good governance, companies always seek to reduce the tax liability through strategic tax planning whereby they make the best of mechanisms which the state avails to them that are directed specifically for such purpose as exemptions, allowances or deductions. They come up with choices about how to work towards their business goals amidst all the implications including consequences of tax. McGee (2006) “Three Views on the Ethics of Tax Evasion”, Journal of Business Ethics 5 (22) 66-71, considers the first view that, it is absolutely unethical not to pay tax, the view expresses that religiously, it is absolutely wrong for corporate firms and multinationals to engage in avoiding tax. As required by the law, all groups that engage in trade should give back to the state for development to be effected. It is looked at as a duty to God. Whatever is requested to organizations or individuals by the state should always be obeyed. In addition to the religious views, tax is a responsible thing which should be done by all corporations for any social good whereby the tax paid is used to pay for public services such as health care, public infrastructure and education whether it is in a developed or less developed country. It is looked at as good practice for all the firms to have a clear statement concerning their view towards paying tax. A company that comes clean on such an issue will be considered to be operating in accordance within the set codes of ethics. It should be looked at as a commitment and not an issue. However, some companies who declare paying tax as a commitment only do that as a way through to avoid illegal evasion of taxpaying while abiding by the requirements of the country in which they operate in. Business Ethics Briefing, (April 31 2013) “Tax avoidance as an ethical issue for businesses” bring to light that companies such as L’Oreal and Vodafone are an example of firms who get committed to taxpaying and look at it as the decision of the government and they only pay what is required. However, some companies use tax as a tool of social responsibility where they go ahead and make a specific reference to abide by the governments intentions of them to pay the required tax proportion. Companies which evade tax on the other hand are looked at on as if they are defying the law. Giving back to society fails to be a part of their operations hence the public may have negative image of such a company and their future operations may not be secured since customers are very keen on the operations of a firm. Cullen (2009) “Avoiding tax”," Business Ethics Journal” 19:11–17 expounds on the issue of companies failing to pay tax by letting the rules of taxpaying be bend, which he says is not considered by some firms to be illegal but a fact that a company is operating within the context of the law and not the spirit of the law. Businesses are required to pay the taxes under the laws that are set by their governments. This makes the issue to fall into the category of business ethics as the businesses have a choice on the manner in which they will interpret the law which will see them pay the tax or fail to do so. Lately as the years have passed by, surveys show that majority of the people get really annoyed by companies who pay little or no tax at all. Some individuals go to an extent of even boycotting to buy the products or services of such a company. In fact individual think that paying tax should be the second important ethical issues that companies should adhere to. However some views discredit tax evading as unethical but rather the only moral thing to do by lying. As much as some businesses pay only a little amount, the public expects firms to pay off a fair proportion of tax which should not be uniform across all companies as the law may require because fair amount is subjective to the company’s profit level. As interested authorities might want to come up with a more concise way to calculate what fair tax is, it seems somehow difficult to come up with a figure that will be fair across all the interested parties. So the only way companies would view the responsibility of paying tax is not to look at it as a cost to evade but as a payment that is legitimate from the wealth that has been created in their nations and communities which had a contribution to the created wealth. Crowe (2008) “The Moral Obligation of Paying Tax”, “Business Ethics Journal” 6(7) 123-132 points out that accountability should be the most important ethical principal which has to direct the tax policies and on which such policies are pinned. Its frame work should not imply that firms pay more share but rather they should see to it that their contributions as tax is noticeably a fair return to the society The Guardian Magazine of May 10, 2012 Russell pointed out that in the United Kingdom, there are new rules which have been introduced that will see to it that there is less tax evasion. The rules are more of anti avoidance though other individuals argue that the rule is only building more uncertainty to firms by not being subjective with what is fair proportion to be paid as tax. Murphy (2010), Tax Disclosure, Tax Blame Game, Tax and Economics Journal, 15 (6) 121-129, many businesses that have a mandate to social responsibility claim that they take into account the tax practices of their companies when making a decision of where to invest but only a few are screened over issues related to tax. Therefore many companies out there are evading tax. There are time when the economy is up tight when the cuts of the government on spending have great impacts on the day to day lives of the citizens, at such a time, it becomes morally indefensible for corporations and multinationals to avoid paying their taxes. If a company avoids paying tax it is similar to avoiding a social responsibility that is urged to. Such immoral behavior leaves a firm to be judged harshly by the public. They are viewed as greedy and selfish which greatly ruins their reputation and destroys their trust from the public. As a result of such acts, businesses need an intensive internal engagement concerning the decisions they make regarding their tax position. The external environment should then be made aware of the decision by proper communication which bring out the story behind such tax decisions that have been undertaken and how much has been paid out. Only such clarity and openness can help restore lost trust that a company had lost. In conclusion, avoiding tax is an ethical issue which should be adhered to by all businesses operating in a given country. It is an obligation which firms should look at as giving back to the society and the government for enabling them creates a kind of wealth they own. The government has to improve the infrastructure and provide essential services to the public using the tax paid in. It is also a way of creating and sustaining a good relationship with the public. Companies should therefore embrace taxpaying as a part of social responsibility to the community and the government for giving them the privilege of creating wealth hence developing financially. It should not be considered as a part of costs which could be evaded by lying on the profit margin or escalating the costs in the business so as to come up with only a smaller proportion to pay References Business Ethics Briefing.(April 31 2013). Tax avoidance as an ethical issue for businesses: retrieved from: http://www.ibe.org.uk/index.asap?upid Cullen Smith, (2009). "Avoiding tax," Business Ethics Journal 19:11–17 McGee, Robert (2006). Three Views on the Ethics of Tax Evasion, Journal of Business Ethics 5 (22) 66-71 Crowe, Mathias (2008). The Moral Obligation of Paying Tax, Business Ethics Journal 6(7) 123-132 Russell, Owen (May 10, 2012). “Global Tax Scandal, the Guardian Murphy, Richard (2010). Tax Disclosure, Tax Blame Game. Tax and Economics Journal 15 (6) 121-129 Read More