The Ethics Behind The Avoidance of Corporation Tax

Introduction

Ethics are written or unwritten principles that have been set by a society(LaFollette, 2003). They mostly contain values and virtues that people should uphold for their good and the good of the community (Aguilar, F. (1994).  In many cases, these values or principles have not been generally outlined, and individuals have a free will on whether to follow them or not (French, P. ,1995).They are not state-imposed and, therefore, no one will ever take one to court for breaching the said principles, however, the society can indirectly punish an organisation or individual for breaking such rules by boycotting their products or staying away from them. These actions may prompt companies to behave more ethically as they learn to obey their moral principles.

The topic up for discussion is based on whether or not more legislation are needed to reduce the avoidance techniques used by large multinationals such as Starbucks when it comes to paying corporate tax. Tax avoidance is a legitimate way of reducing one’s tax burden by using regulations that have been allowed by the state. In this case, implementingmore legislation would mean that a government would need to review their tax laws in order to seal the loopholes that such companies like Starbucks are using(Bagnoli C., 2011).The practice of ethics could be a more efficient way to resolve this underlying dilemma; however, ethics is a subjective matter as it can have a different meaning to different people.Although using more legislation could be effective. It is also time-consuming for the government to implement, as well as for companies to comply to.

As ethical standards, principles, and judgements are not state-imposed, the government cannot hold different organisations and multinationals, like Starbucks, responsible for breaking ethical guidelines. From an ethical point of view, every organisation is expected to have values that guide their operations. All businesses are expected to function with integrity and failure to pay taxes may show a lack of integrity(Bagnoli C., 2011.).

Large multinationals are expected to meet their tax obligations. The government has stated some of the things that can easily be exempted from tax.These involve circumstancesthat large corporations use to “genuinely” reduce their tax obligations, even if they did not do such things. For example, the government has allowed donations to charitable organisations to be discharged from tax. Therefore multinationals can claim to have donated a certain amount of money to a charitable organisation, which may not be the case, or even when it is the case, these figures are often overrated(Gini and Marcoux, 2012). This is more of an ethical issue; the company lacks integrity, and it is also not bearing in mind others the needs of others.

Thomas Hobbes theory emphasises the need for society at large to live at peace with one another without fights. He advises that we should allow a higher power to set guidelines for us so that there is no conflict of interest since we all respect similar set rules(Smith, 2009). If such guidelines were followed, there would be no social injustice like in South Africa whereby the locals are attacking foreign businesses and even killing them because they believe they have occupied their opportunities.

Theories

The Categorical Imperative theory, and the Formula of the End in Itself by Immanuel Kant places emphasise on duty and how rules should dictate the actions of individuals. Moreover, maxims need to be universally applied in all circumstances and at the same time should not be implemented to use people merely a means to an end (Crane and Matten, 2012). Therefore,using Kant’s idea to think through a dilemma to find a solution that is the right and morally acceptable, it is important that the maxim must not only be for one but for everyone (O’Hear, A., 2004). However, real life business situations are complicated and using one rule to fit all scenarios is problematic, as it ignores context, consequences and the personal interests of people.

The theory of actutilitarianism is one that believes that actions can be gauged to be right or wrong based on their resultsrather than concentrating on one’s duty(Waller, 2008).The theory advocates that an action should be taken if it creates the greatest happiness for the greatest number of people. In this case for example, large multinationals tax “avoidance” schemes have an effect on the mind-set of employees, as they will believe that legitimate ways of reducing one’s tax obligation are acceptable, even thoughit may not produce the greatest amount of good for the greatest number of people(O’Hear, 2004). This in effect encourages individuals to lower their ethical standards, in terms of utilitarianism,in order to take advantage of loopholes in government laws that are not morally accepted.

This theory, however, does not state what exactly is right or wrong. Thus, it depends on how different individuals view what acts as a good and what does not act as a good (Grace, D. and Cohen, S. , n.d.). It can be argued that behaviour such as tax “avoidance” does not maximise utility for the majority of people. In more detail, it causes the government to not obtain money that they should have ordinarily been given by these companies. These finances would have typically been used to better the country, therefore denying a society a right to enjoy the social stability it would have provided.

Virtue ethics emphasizes the role of one’s character and the impact it has in determining one’s ethical behaviour.If virtues are deeply rooted within everyone in the society, it should means that no one will be waiting for a chance to emerge whereby they can easily take advantage of other people. This will be across all sectors of business such as production not just in tax payment. Thus improving our livelihood as INSERT AUTHOR OF VIRTUE ETHICS emphasised (reference).

The Case

Corporations do not operate in vacuum but in the midst of people and it is therefore of essence to consider how others are affected by a particular action(Roth, 2005).

The Stakeholder theory is a theory of organisational management and business ethics that addressesthe moral values involved in running an enterprise. The traditional Stakeholder theory states that only the owners of a company are the key stakeholders of an enterprise. However, a more recent understanding of the Stakeholder theory debates otherwise and states that there are other parties involved. These other key parties are employees, customers, suppliers, financiers, communities, government, trade associations and unions. The stakeholder view of strategy integrates a resource-based view, a market-based view and a socio-political level.Thus, when an issue like that of ethics emerges, the nature of consideration should not only be based on the owners, but also on the effect of the same to external parties as well.

Utilitarianism theory encourages people to do things that only have positive impacts. If the results are not positive, then one should forego. Therefore, people should think of the end product or result even before they do whatever they are intending. Utilitarianism encourages people to do more good and produce more good results irrespective of the circumstances. Multinationals and Small enterprises should be encouraged to live by the same principles even in their operations. Before they make a decision that deem favourable to them, they should also ask themselves some questions. Is this ethical? Is it going to produce ethical results? Is it going to encourage employees, management and the other stakeholders to do good or to look at the bigger picture beside themselves? Is it something that you as a business would pride yourselves in even among other corporations and society? Would your company act as a role model for the younger generations to emulate?(Grace and Cohen, n.d.)

Ethical considerations refer to how individuals are impacted by their behaviour or that of others.Ethical implications refer to how results of a situation influence the interest of the society at large. Businesses improve the economic and social status of their country, states or regions by providing employment to locals or internationals, paying taxes to the states thus improving the livelihood of their nation. Engaging in social responsibilities such as offering scholarships to needy and bright students help improve the livelihood of the society at large. The communitybenefits from such acts and it also makes them associate with the company.

Businesses whether Small enterprises or large corporations have a duty to develop its codes of doing business or adopt the ones set by the State. These values include how they relate to customers by building trust and loyalty by selling to them a good quality product, handling them well and ensuring that one responds to their queries and issues so as to maintain a good image. They also have a duty to encourage their employees by treating them well, creating a conducive environment where the employees can thrive and pay them fair remunerations. Paying government is due taxes. Using integrity in their dealings even with the suppliers so as to ensure costs are minimised. Teaching their employees values and ensuring they adhere to such values failure to which there are consequences to follow. A company with good values and where they do not need the government to keep pushing them around creates a good image and thus attracts a large clientele base for their products unlike a company without values where employees or the management offer poor services to their clients. In today’s world, information is available everywhere especially in this era of internet, and it is very easy for one bad act to a client or government to destroy the reputation of a business(Roth, 2005).

In summary, ethics is very important in every society. In a society that upholds these principles, one will find a lot of growth and development within the state, community or even the organisations because people do not do things merely for personal gain, but they do it because it is the right thing and for the benefit of the entire community.

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