Tax Minimization: An Ethical Task or an Unethical One?

Business Ethics 2
In 2015, the world saw the documents covering the personal financial information of wealthy
public officials and individuals, which had been private till that time. Panama Papers involved
the leak of 11.5 million documents which covered the details of over 2 million offshore entities,
regarding their attorney client details and financial information (Harding, 2016). Some
documents even dated back to the 1970s. These were taken from Mossack Fonseca, the corporate
service provider, and the Panamanian law firm. Even though offshore business entities have the
legality to exists, some of the reporters highlighted that some of shell corporations of Mossack
Fonseca were being used for unlawful reasons, which included invasion of international
sanctions, fray and tax evasion. With Panama Papers, tax havens were in the news again
(Obermayer and Obermaier, 2016). They highlighted how the secretive companies were having
hidden beneficial owners, which included famous personalities. With this leak, a question was
raised on whether the tax minimisation schemes adopted by the multinational companies (MCSs)
were ethical, or were the activities involving tax havens an unethical task. Resulting from these
questions is the issue of government taking actions into such tax havens or tax minimisation
schemes, as being a legitimate conduct or a morally incorrect one. This discussion aims to
highlight that the tax minimisation is not an unethical task per se; it is the tax haven creation
which is the unethical aspect.
When it comes to the concepts like good governance, corporate social responsibility,
accountability and the like, it is expected from the companies that they would work towards the
needs of different stakeholders, instead of being focused on the shareholders only. This is
particularly stated in the stakeholder theory. In the attempts of good governance, the companies
attempt to minimize the tax liabilities which they have through the use of tax planning (Back,

Business Ethics 3
2013). This is done by using the mechanisms and the tools which are available, where the
particular focus is on exemptions, rebates, deductions, allowances, and the like. Tax planning has
to be seemed as a tax compliant behaviour. However, the issue is raised when the matters reach
the grey area which is between tax planning and tax avoidance. Even though tax avoidance is
legitimate, it is seen as an aggressive tool where it includes using the financial arrangements or
instruments which are not anticipated or intended by the regulatory department as being a mode
of taking the taxation benefit. An example of this is the tax havens where the tax is avoided by
bending the rules and regulations under the taxation system, particularly which is not unlawful,
as against tax evasion. It operates within the words of the law, but definitely not based on the
spirit of it (McGee, 2011).
Tax is seen as a social responsibility. This is what raises a question against the tax avoidance
schemes. A particular point raised in this regarding is the impact of government spending having
a negative impact over the daily lives of people. When such happens, how can the avoidance in
paying the fair share of taxes, of MNCs, taken to be a fair thing? This is just the systematic
avoidance of the tax by the rich people and the companies. This is a significant ethical issue as
avoiding payment of tax is basically avoiding the social obligation. However, when such
arguments are made, a key aspect which is forgotten is that the law permits the individuals and
companies to manage their tax, by investing or by using the lawful means. This is done to allow
the individuals to not be burdened by excessive taxation and to allow for flexibility. This is just
like a person managing their finances, in place of spending every hard earned penny. It is the
responsibility of the company directors to maximize the value for the shareholders and included
in this is minimizing the tax costs for the purpose of the increasing the value for shareholders,