Tax Avoidance and Ethical Considerations for MNCs: A Study

This essay delves into the ethical considerations of tax avoidance by multinational corporations (MNCs), using the case of Apple and its tax dealings in Ireland as a central example. It examines whether tax avoidance practices, often employed through legal means, are ethically justifiable, particularly in light of corporate social responsibility (CSR). The essay explores the tension between complying with the letter of the law versus the spirit of the law, questioning whether companies that actively avoid taxation are socially irresponsible. It analyzes the economic, social, and moral consequences of special tax treatments provided by national administrations to MNCs, and it debates the fairness of MNCs arbitraging countries based on corporate tax rates. Furthermore, it discusses the role of international harmonization in combating tax avoidance and the importance of transparency and data exchange to address tax evasion. The essay considers the impact of tax avoidance on public trust, government revenues, and the overall integrity of the taxation system, ultimately arguing that the practice can undermine ethical business conduct and social obligations.

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"The Case of Tax Avoidance by Multinational Corporations and Is It Ethical for them to
Arbitrage Countries by Their Corporate Tax Rates "
As a part of good governance practices, the multinational corporations like Apple and Amazon
seek to minimalize their taxation liabilities through ‘proper tax planning’. For this, they make
proper use of the techniques made available to them by the government viz. deductions,
exemptions, rebates and allowances. So, it can be said that tax planning is a complaisant
behavior of the companies but unfortunately there lies a grey zone between it and ‘avoidance of
tax ' .While avoidance of tax can be seen as legitimate when it comprises the use of fiscal
instruments which are not anticipated by the government as mechanisms for obtaining tax
advantage (Barker, Houlder and Bradshaw, 2014).
The use of overseas tax havens by the multinational companies does not seem to be illegal unlike
evasion of tax. They are operational within the letter but not the spirit of the law. So, the
businesses like Apple and Amazon are abiding by the law but is it ethical in reality? In this
essay, we shall discuss our views on the case study of Apple which was claimed to be given
favorable treatment by the Irish government in Dublin motivated by the employment
considerations in the year 1991. We shall also debate whether the cases of tax avoidance are
making the companies socially irresponsible?
Additionally, we shall also discuss if it is just for multinational companies to arbitrage the
countries by their corporate tax rates? The moral, social and economic consequences of
providing special treatment by the national administrations to the multinational corporations
shall also be discussed in this regard. Whether there should be more harmonization

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internationally to combat tax avoidance by MNCs shall also be deliberated upon in this essay.
The details of the Irish tax deals have been revealed by Brussels in the year 1991, that Apple was
given illegal and favorable treatment by the Irish government which was inspired by
employment considerations in Dublin (BBC, 2016).
The European Commission has argued from its initial probe that Ireland had given sustainable
support of the state to Apple which may be recovered as a penalty amounting to billions of euros.
The Commission has stated that the tax margins had been negotiated and engineered in a reverse
manner without any reference to the economic basis. The most interesting part was that all of it
was being referred to the issues of employment which should not influence the application of
taxation law. The information was derived from the publication of the tax talks between Ireland
government and Apple in the year 1990 (Library of the European Parliament, 2013).
The Commission opined that with the help of tax rulings in 1991 and 2007, the government of
Ireland had conferred undue advantage on Apple in a discriminatory manner. It was mentioned
in the publication that it was agreed to mark 65% on costs which were attributable to the Irish
branch of Apple. The rate further fell to 20% on the costs which were in excess of $60 Million to
$70 Million. It was done so that the expansion of operations of the company cannot be restricted
in Ireland. On this remark, the Commission enquired that why the tax rulings had been applied
for 15 years without revising them, till 2007 when most of the countries adopted them for mere
three to five years (Barrera and Bustamante, 2018).
In the context of this case study, the social accountability of the business has been debated. Most
of the people are of the opinion that the MNCs sell the goods and services which are needed by

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the people along with providing employment and making returns for the shareholders. All of
these activities are examples of operations within the law but there is a divergence of opinion
that if this range of activities should be expanded of their own accord by the companies. The
Corporate Social Responsibility (CSR) and code of conduct for businesses explain that the
companies should follow all the compliances of the country in which they conduct their
commercial activities (Dowling, 2014).
But here the question arises that is it sufficient for the companies to abide by the letter of law?
All the discussion of CSR proposes that MNCs should comply with the law. On the other hand,
some of the interpretations raise a question that whether the companies which avoid taxation are
socially irresponsible? The political comprehension of the spirit of the law states that if it is
stipulated by the law that all the companies should pay taxes out of their profits, then these are
expected to pay the taxes (Lanis and Richardson, 2015). While the spirit of the law is that all
these companies are obliged to pay a financial return to the country. Furthermore, the letter of
law is mentioned in the statutes and rulings which are further interpreted by various agencies. In
this case, corporate taxation practices are formulated for complying with the laws of the land.
Thus it is a mistake to confuse this spirit with the letter of law (The University of
Sheffield,2017).
Now the question arises that if it just for the companies to arbitrage countries by their corporate
tax rates. I believe that if MNCs avoid tax, they are avoiding their social obligations. Through
the arbitrage of tax rates, the companies have become vulnerable to the allegations of selfishness

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and greed. This can damage their goodwill and public trust. For example, Amazon and Starbucks
were boycotted because of their taxation policies. Thus the companies should be accountable
enough to pay taxes. This can help them in providing funds for public amenities such as
education, health care and infrastructure. It is a well-established fact that the companies also
benefit from these amenities( Fisher, 2014).
The avoidance of tax has been known to be the most unethical and immoral practice which
weakens the integrity of the taxation system. This notion has been challenged by the directors of
various corporations. They argue that their accountability is to maximize the value delivered to
the stakeholders. It comprises keeping the costs pertaining to the taxes up to the minimum level
within the limits established by the taxation law. The debate on this topic by stating the fact that
apart from paying corporate taxes, the businesses are required to pay for national insurance and
business rates along with paying for infrastructure costs (Back, 2013).
Most of the MNCs which are operating successfully are paying little or no taxes. It has been
found that most of them are using tax havens for reducing their corporate tax bills. It can result in
ravage of public mistrust towards these corporations which would in return affect their
profitability and returns to the stakeholders. Also, the governments which set this basis for the
corporations have been the target of public annoyance as well. So, it is the responsibility of the
governments to interpret the law with more clarity for the business. The businesses require
intense internal engagements regarding their decisions and situations underpinning their tax
positions (Ylönen and Laine, 2015).

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In this regard, the economic, social and moral consequences of the fact that some national
administrations provide special tax treatment for multinational companies are discussed here.
The taxation policy of corporates speaks about power more than anything else. The corporations
attempt to minimize their taxes and hence the governments which try to maximize their revenues
understand that the MNCs have to be treated carefully. Therefore the governments accept that
they have fewer powers due to the mobility of the capital from the bureaucracy to the capitalist
corporations. In the current era, the rules of trade and competition impose a challenge to the
application of subsidies and tariffs( Elbra and Mikler, 2017).
Hence the governments have to seek newer inducements to maintain the current and capture the
new investments for their businesses. In this regard, corporate taxation has provided new chances
for them. These circumstances have created a powerful impact on the taxation policies of the
countries when the national governments have been indebted with high public debts and huge
national deficits. So, this leads to capturing the revenues owed to them and closing the prevalent
tax avoidances schemes.Here the basic strategy of the tax avoidance for corporates is simple
(The Conversation, 2015).
They design their business in such a way so that most of the income is paid in tax havens and
costs are paid in the nations where the tax rate is higher. This creates an impact on the corporate
tax competition viz. structural pressures on the jurisdictions for encouraging the businesses to
invest and corporate lobbying. These drives have created a variety of tax benefits for the MNCs
which have led to an increase in the opportunities for the avoidance of taxes along with lowering
the effective tax rates. Large accountancy firms interpret the taxation rules and provide advice to

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the MNCs on how to recognize the loopholes in the newly formed legislation and the means of
taking their advantage (Morgan, 2017).
The capability of MNCs to interpret the taxation rulings in a creative way leads is reflected in the
misbalancing of resources amongst the taxation authorities and accountancy firms. Even when
the companies are accused of having paid fewer taxes, the outcome is a negotiated settlement
which is an unequal process allocated to the various resources which are available to the twin
sides along with the need of the government to create a pro-business environment. Even certain
aggressive approaches initiated by the government have a lesser influence on the mitigation of
tax avoidance schemes due to a lack of resources for taking pre-emptive measures (Konrad and
Stolper, 2016).
This evidence has raised a question on the sustainability of the taxation system for the corporates
and the alignment of the national governments with the interests of corporates along with their
impacts on the tax revenues and public spending in future. This also raises doubt about the extent
to which the national governments can go to support the MNCs in the future. So, there should be
more international harmonization to combat avoidance of tax by MNCs. In order to combat the
evasion and avoidance of taxes, there should be an increase in the availability of data for tax
administrations (Devereux, 2015).
This should be the essential element of the recent initiatives in the context of tax cooperation in
the international scenario. The answer to how there should be more international harmonization
to combat avoidance of tax by MNCs is that transparency is amongst the major tools for dealing
with tax evasion and avoidance. Also, there should be an exchange of data of the taxpayers

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amongst the countries. By doing this, they would become aware of the activities in which the
taxpayers are engaged on a global level. In this regard, the United Nations Double Taxation
Convention between developed and developing countries has brought the provision for exchange
of information which is being followed by approval of the United Nations Code of Conduct.
This Code has supported the information exchange for taxation purpose (Picciotto, 2015).
There are various multilateral tax information exchange initiatives which are based at the OECD.
The Multilateral Convention on Mutual Administrative Assistance in Tax Matters
(MCMAATM) has been formulated by Council of Europe and OECD in 1988 mutually. It
covers all types of cooperation for dealing with tax avoidance and evasion.It has been modified
in 2010 for aligning it to global standard on information exchange in order to ensure that the
developing countries can be benefitted by the transparent environment. Furthermore, the
G20/OECD Global Forum on Transparency and Exchange of Information for Taxation Purpose
is a multilateral structure developed for the exchange of information and enactment of
transparency for taxation purpose (Out-Law.com,2013).
The Global Forum analyses that its member countries are compliant with its global standards and
labels them as the complaint, partially complaint and non-complaint. The third dimension is the
exchange of country-by-country reports. It refers to the submission of annual reports by the
MNCs to the national governments where they are headquartered, thereby showing the financial
activities of each authority in which they operate. The OECD and G20 had agreed for a template
for country-by-country reporting in the year 2015. At the global level, the OECD and G20 with

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the help of Global Forum have utilized the standards set by the Financial Action Task Force
(United Nations, n.d.).
The answer to why there should be more international harmonization to combat avoidance of tax
by MNCs is because MNCs creatively harmonize their national laws and modify the bilateral
treaties so that the hybrid mismatch agreements can be neutralized. These corporations set up
their entities in more than one country for non-productive purposes, in order to generate foreign
tax credits and create deductions. So, the national governments must make sure that their
legislation and treaties reveal the transparency of the regulations related to transferring pricing.
Furthermore, they should adopt the regulations on how the intangible assets such as copyrights
and trademarks, which offer the chances for the exploitation of loopholes, can be accounted for
(Jolly, 2014).
Hence to conclude, it can be said that there is no surprise that the MNCs like Apple and Amazon
are seeking to lessen their taxes but the most worrisome matter is that the national governments
are also involved in this practice. The battlefield is no longer amongst the national jurisdictions
and corporations but amongst the various national governments as each one of them is eager to
attract investments from the private sector. To add on to the misery, the comments given by
corporate leader show their disrespect for the tax mitigating concerns. Instead, they emphasize
on the lawful behavior of their corporations.
It also illustrates that avoidance of tax is not due to capitalism, market forces or globalization but
due to the competition of tax amongst the countries. Therefore in order to resolve the issue, the

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US in which the company is headquartered, must take appropriate actions against Ireland where
the incidence of tax avoidance has occurred in this case.

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References
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