A Discussion of Corporate Tax Evasion and Legal and Ethical Considerations - Research Paper Example

Section/# A Discussion of Corporate Tax Evasion and Legal and Ethical Considerations By its very nature, tax is intended as a means of redistributing income both within the government and within society to speak to a number of extant needs. As a function of this basic operation, when an entity, regardless of size seeks to shirk the level and extent to which they are paying into the taxation system, their responsibility is not only shirked from their perspective but is ultimately either shouldered by other taxpayers or is represented as an increase in debt that the central government must accrue in order to continue to fund the programs it has integrated with. Due to such a basic understanding of what tax evasion effects upon the system, one can readily understand that when it comes to corporate tax evasion, the effects are even more dire as this usually represents a very large sum of money that is derived from the tax base. This of course represents severe legal and ethical consequences; however, all too often, the individual firm is willing and able to evade taxation in the hopes of carving out a higher percentage of profit. As a function of understanding some of the means by which this takes place as well as some of the ethical and legal ramifications of such a process, this essay will approach corporate tax evasion from a very basic angle and attempt to define each of these causal factors. Firstly, understanding the means by which the tax base exists and funds public goods that benefit each and every citizen is a starting point upon which the reader should consider. Firstly, these tax dollars are ultimately not sent into oblivion to fund pork only pork barrel spending projects that many of the news outlets would have the citizen believe; rather, they are utilized as a means to provide highways, schools, equip law enforcement and firefighters, and provide for the national security of the nation. In such a way, the reader can seek to understand the severe implications of seeking to deprive the system of these funds and the way that it is ultimately reflected back into the community or region in which the corporate entity operates, draws from the labor pool, and provides for the education that it relies upon to recruit talented individuals. Whereas tax evasion is most commonly thought of on a personal basis, the fact of the matter is that personal tax evasion pales in comparison to the untold millions, billions, even possibly trillions of dollars that go unaccounted for due to intricate accounting mechanisms, offshore accounts, and outright dishonesty with regards to the level of profits that many firms are willing to admit to the government (Barton et al 38). Although it is not the purpose of this research to identify the core level and underlying reason why this practice is so often engaged and to such a degree, it does not require a great deal of research or analytical thinking to categorize the answer to such a question within the framework of the rational actor approach. Within such a framework, the self interest of profit maximalization and/or greed comes to be seen as the main reason why such a practice is engaged with (Slemrod 880). One of the most famous and primary ways that corporations seek to shirk their tax burden and responsibility is by utilizing offshore tax havens to hide and/or minimalize their profits (Martinez-Vazquez & Rider 56). This serves two functions. The first is of course to reduce the overall tax burden that will be affected for the fiscal year; whereas the second is to outright hide millions or even hundreds of millions of dollars outside of the purview of the tax system (Tzur 58). Such an approach is utilized by a great many corporate entities within the United States due to the fact that it is not expressly illegal to utilize tax havens as a means of minimizing the total amount of taxes paid. Such a level of tax dodging has meant that firms such as Google and Pfizer have been able to dodge billions in tax bills within just a few years time by means of aggressively shifting their revenues offshore and ensuring that domestically generated profits are not prone to the tax bill that comes at the end of the year (Gravel 728). Although it is of course easy to target firms such as Apple, Google, or Pfizer when one speaks about the sheer mass and weight of the level of tax losses that mega corporations can engender upon the system, the fact of the matter is that smaller corporations are just as guilty; however, reporting upon such statistics is often lost on the media due to the fact that the overall income levels or level of tax dodging that they engender is far less impressive than the types that a firm as large and multinational as Pfizer or Google can be. Although highly unethical, such an approach oftentimes does not have a specific legal penalty that goes with it; at least according to current law (Harun et al 125). However, the secondary approach that is oftentimes utilized as a means of hiding revenue and seeking to minimize tax burden is both highly illegal and perhaps even more unethical than the first. As such, the secondary approach which this brief research paper will discuss is that of unlawful accounting practices intended on misleading the Internal Revenue Service with regards to total liabilities, total profits, or total sales within a given period of time. This can be done to varying degrees of illegality but the general approach is to maximize losses while minimizing profits by employing dubious accounting methods (Brunson 226). Due to the fact that these methods continue to change and morph from year to year, picking up upon and recognizing the means by which companies can engage in such a practice is difficult for tax examiners as a result of limited resources and the physical inability to verify the income statements of each and every corporate entity (Shea 38). This secondary approach also forms a shade of grey in the sense that there are varying levels of dishonesty and illegality that can be manifest within the realm of accounting and tax evasion. Whereas one way of looking at an asset may to be categorize it in a certain way, there may be alternatively grey yet still not illegal means of performing financial and accounting calculations that although unethical will not ultimately lead the accountant or the firm into deep legal trouble with the Internal Revenue Service. However, as with the other issues that have been specified herein, although aspects of such accounting practices might be legal, they nonetheless represent highly unethical behavior on the part of the corporation. In such a manner, the unethical rot that pervasive accounting irregularities have upon all shareholders within the firm that are aware of such a means of tax evasion will necessarily have a corrosive effect on morale as well as the trust in which the employees will engender with their employer. Accordingly, the extent and level to which this can be engaged and for how long is ultimately a question that must be asked in order to determine for the leadership what is more important for the firm, a longer term disaster of trust and possible legal ramifications or the short term increase in profitability and salaries that such an approach may lend. Both of these practices represent unethical and to some degree or another oftentimes illegal means by which the system is robbed of valuable resources that ultimately help it to be self-sustaining and self-continuing (Rosenzweig 940). One need look no further than Greece or Spain to see the effects that tax evasion and tax avoidance can effect on an economic system. Ultimately, such a level of evasion causes the de-industrialization of a society, and an increase in poverty from lack of jobs, lack of direct investment, and lack of economic opportunity for the inhabitants due to the fact that the government is no longer able to fund a high level of public service projects that it would otherwise be able to engage if it only had full tax revenue from the corporate entities operating within its borders (Klassen & Laplante 933). Although he effects are not immediately felt, such an approach to shirking the tax burden that a nation imposes can have disastrous effects to the economy, labor force, infrastructure, and educational system; thereby ultimately decreasing the competitive advantage that the firms that initially shirked their tax burden can bring to bear within any given economy. In terms of economics, this can of course be understood in terms of the long run and of the short run. In the short run, profits are maximized, shareholders of the firms stocks are made happy, and the company can experience a period of rapid and stunning growth by means of reneging on its tax obligation via legal or illegal means. However, in the long run, one or two things will occur. Either the firm will be caught in what could be an illegal practice and forced to pay or be forced to shutter operations or the social and economic damages will be so severe that in time the economy that the firm is operating within will no longer be competitive; thereby negating the entire point and purpose of avoiding taxes in the first place. Work Cited Barton, Huglene A., Stewart A. Karlinsky, and Cynthia Blanthorne. "Perception Of A White-Collar Crime: Tax Evasion." ATA Journal Of Legal Tax Research 3.(2005): 35-48. Business Source Premier. Web. 27 Mar. 2013. Brunson, Samuel D. "Repatriating Tax-Exempt Investments: Tax Havens, Blocker Corporations, And Unrelated Debt-Financed Income." 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