Financial Crime: Ethical Implications of Tax Avoidance

This presentation critically examines the ethical implications of aggressive corporate tax avoidance within the realm of financial crime. It begins by defining corporate tax and tax planning, differentiating it from aggressive tax avoidance. The presentation explores the grey area between legal tax planning and potentially unethical tax avoidance practices, emphasizing the social responsibility of corporations and the impact of tax avoidance on society. It delves into the concept of tax as a social responsibility and analyzes how aggressive tax avoidance can negatively affect a company's reputation. The presentation further discusses the role of governments in ensuring corporate returns and the importance of certainty in tax regulations. Case studies, such as those involving Amazon and Starbucks, are used to illustrate the real-world consequences of tax avoidance. The presentation concludes by emphasizing the negative societal impacts of tax avoidance, including the shifting of funds away from public goods and the weakening of economic stability. References from academic journals support the arguments presented.

Financial Crime
Aggressive corporate tax avoidance is
considered legal but can it ever be
ethical? Critically discuss the
question, using case studies to
support your arguments

What is corporate Tax?
• Corporate tax or corporation Tax is a
direct tax, levied on net income or
the profit that a corporation makes
from their business activities
(Dowling, 2014).

Taxable profits for the corporate
tax include the money that an
organisation earns from:
• Doing business (trading profit)
• Selling assets (chargeable gain)
• Investment

What do you mean by “tax planning”?
• Tax planning is: an arrangement of financial
affairs of an organisation in such a manner, that
the organisation can get advantage of all
exemptions, deduction, rebates without
violating legal provision of an act (Lanis and
Richardson, 2015).
An analysis of financial situation of an
organisation from the perspective of taxation
As a part of good governance, now every
business organisation tries to minimise the
burden of tax through proper taxation planning
process (Greenwood and Freeman, 2018)

The company has the tendency to
make “tax planning” by using tools
and mechanisms, which the
government makes available to the
organisation for the purpose of:
• Allowances
• Deduction
• Rebates
• Exemption

Main objective of tax planning:
• Increase the disposable
income
• Avoid inequalities in tax
burden
• Curb on tax evasion
• Avoidance of excessive
tax burden or shield
against high taxation
(Payne,
• and Raiborn, C.A., 2018)
• Avoidance of litigation

• So, Tax planning is nothing but a tax-
compliant approach by using which
an organisation can reduce the tax
burden, but....
“There is a grey area between Tax
planning and Tax avoidance”

What do you mean by “ Aggressive
Tax avoidance”?
• Tax avoidance is the most important
ethical issue for business- avoiding tax
means to avoid social obligation.
• According to financial law: reducing tax
bill through proper planning and
governmental policies is legal and ethical-
and in some cases, it is encouraged by
government (Dowling, 2014)
• But….

• Reduction of tax liabilities is
considered to be problematic, while
tax is avoided aggressively through
some schemes, which are neither
authorized by government nor by
state
• Avoiding tax and bending the rules
related with the tax is not at all
illegal, unlike of the tax evasion
(Barrera and Bustamante,2018)

Therefore, question arises that
business should comply with the
law- but is it ethical?

Tax considered as social responsibility:
• Paying of taxes is considered as a social
responsibility
• Avoiding corporate taxes can prove to
be aggressive
• Negatively impact the organizational
reputation (Lanis and Richardson, 2015)
• Amazon and Starbucks had to face bad
times for their tax policies supporting
tax avoidance

Paying of fair share:
• The payment of corporate taxes depends on making
profits
• If a company does not make profit then it need not
to pay corporate tax
• In UK most of the MNCs pay no corporation tax at all
• Taxpaying depends on which method the profits are
getting estimated (Payne and Raiborn, 2018)
• Rules for safeguarding the taxpayers from unfair
burden of taxes are present
• No proper definition of what is fair way of carrying
out tax avoidance

Ensuring business provides proper return
• Investment firms focuses on the tax practices of
the companies
• FTSE avoids companies that incorporates
excessive tax reduction policies
• Governments are entrusted with the objective of
ensuring high end corporate return (Barrera and
Bustamante, 2018)
• Business corporations to be more clear about tax
planning
• Increased Coordination between companies and
government required

Rules relating to certainty
• UK promulgated GAAR regulations to
generate tax avoidance clarity
• Avoidance of tax schemes that are
abusive in nature (Dowling, 2014)
• Morally wrong methods of tax
evasion restricted
• Certainty in relation to application of
company rendered tax bills

Tax games
• Panama paper in 2016, Swiss/HSBC leaks in
2015- states that corporations and high net worth
organizations have the ability to organize their
income and wealth transnational through
established financial system.
• This indicates :
• corporations have the tendency to play “tax
games” by shifting their income statements and
profits between the jurisdiction for the purpose of
exploiting gaps and the mismatches, exist in their
organizational tax policies and rules (Barrera and
Bustamante, 2018).

• In most recent times, The Queen,
Lewis Hamilton, Bono and others are
being criticized for avoiding tax
liabilities to the UK Government-
though their level of culpability vary
from being fully aware to willfully
blind to just be ignorant about the
governmental taxation policies
(Payne and Raiborn, 2018).

As a conclusion…
• Tax avoidance has a negative impact on society.
• Tax avoidance not only shifts funds away from
public, but also weaken the social fairness and
economical stability of a nation- be it UK or be it
other continent.
• Tax avoidance can be described as improper
transfer of money away from the general
population and public goods.
• UK is considered as sovereignty states- it has made
several pledges for tackling the tax avoidance- but
it has not been followed by punitive

References
• Barrera, R. and Bustamante, J., 2018. The rotten apple: Tax
avoidance in Ireland. The International Trade Journal, 32(1),
pp.150-161.
• Dowling, G.R., 2014. The curious case of corporate tax
avoidance: Is it socially irresponsible?. Journal of Business
Ethics, 124(1), pp.173-184.
• Lanis, R. and Richardson, G., 2015. Is corporate social
responsibility performance associated with tax avoidance?.
Journal of Business Ethics, 127(2), pp.439-457.
• Greenwood, M. and Freeman, R.E., 2018. Deepening ethical
analysis in business ethics. Journal of Business Ethics, 147(1),
pp.1-4.
• Payne, D.M. and Raiborn, C.A., 2018. Aggressive tax
avoidance: A conundrum for stakeholders, governments, and
morality. Journal of Business Ethics, 147(3), pp.469-487.