MNC Tax Minimization: An Examination of Ethics and Governance Issues

This essay critically examines the ethics of multinational corporation (MNC) tax minimization, questioning whether it constitutes unethical behavior that warrants government intervention or a legitimate business practice. It discusses how companies like Apple and Google utilize tax minimization strategies, sparking debate about the legality and morality of such actions. The essay explores the nuances between tax planning and tax avoidance, highlighting instances where companies faced public backlash for perceived unethical tax practices. Furthermore, it emphasizes the importance of fair tax contributions to support public services and infrastructure, referencing the UK's PAYE system. The essay also delves into the complexities of determining a fair tax amount and the role of initiatives like the UK's General Anti-Avoidance Rule (GAAR) in clarifying tax avoidance policies. It concludes by discussing legal yet unethical tax avoidance methods, such as the exemption of foreign affiliate income and round-tripping, underscoring the need for transparency and ethical considerations in corporate tax strategies. Desklib provides access to this document along with a wealth of study tools and solved assignments to support students.

RUNNING HEAD: Ethics
ethics

Ethics 1
Is MNC Tax Minimization unethical, an issue that governments should be taking action on, or
legitimate conduct?
Tax minimization is an unethical practice which is followed by many companies and
organizations. The government must take a strict action on such issues. All the reputed
companies basically all those MNCs are highly involved in cases related to tax. They earn large
number of profits by developing unnecessary ethical practices and following them as well. Taxes
are reduced by investing which easily delays the amounts which is payable. It also minimize the
assets investments which have low rate of taxes. Further income is categorized among spouse or
other kids and the changes that takes place in income or the way any business is controlled or
managed and implemented. An individual can also save or minimize tax rates by managing and
controlling investment plans, employment income, and bonuses very carefully but it can also be
considered to be unethical (Hoi, Wu, and Zhang, 2013).
Today, it has been examined that reputed companies named Apple and Google uses such tax
minimization policies. They have grown successfully and ranked itself in US and UK
respectively. They are also highly involved in tax avoidation which the government must take
strict action. The government of US and UK must take strict action upon these two giant
companies. Despite of such issues, there were many companies who supported Apple and
Google. They stated that every company can maximize their profits using any practices and it
can be legal or illegal, do not matter. But there were many companies who argued against it by
saying it will uncover the laws and create hindrances in the legal policies. So, whenever a firm
decides to reduce taxes, it must be considered to be unfair, illegal and unethical (McGee, 2006).
Minimizing tax may be legal, but can it ever be ethical
Being a part of a good and sound governance, there are large number of multi-national
companies which aims to reduce or reduce their tax liability with the help of “tax planning”
which helps in the availability of these taxes for some specific purposes. Tax planning is referred
to a behavior which is compliant by nature but still there occurs a grey area between this and “tax
avoidance”. Minimizing tax or reducing tax includes financial and other many instruments and
arrangements (Miller, 2014). Tax evasion is denoted as paying tax in illegal form which can
sometimes be unethical too. Bending or molding the rules and norms and values of the tax is not
ethical and this do not comes under the spirit of fair law too.

Ethics 2
When government planned to cut the spending costs, then many people started suffering from it.
Any organization will not be able to neglect or say no to pat taxes which they are liable to pay.
Those who pays and those who don’t will develop a discrimination and partiality.
In the year 2012, a survey was conducted by Ipsos MORI in IBE. As per the information
gathered from survey, it was found that tax minimization was the second important issue which
each business or organization must take care of. Minimization of tax helps an individual or a
company to act vulnerable and develop greediness. It also aim at creating a hamper and damage
in the image and also reduces trust of public. Every customers or coworkers will reduce their
interest in such company because there will always be a greed nature beside company’s mission
and vision. Later, company will try to focus on the objectives set by it and work to achieve those
targets instead of developing all performance. Let us take an example of famous company
Starbucks and Amazon. They have faced many issues related to tax and policies. These both
companies were later boycotted and were vilified. They failed to maintain transparency and
reliability in all the activities they were involved in (Alstadsæter, and Jacob, 2013).
When there comes a time, a company decides to create and enhance the habit of paying fair taxes
for all the activities they follow, then they actually start helping society as well as country. It also
aims at creating and developing funds for sectors like education, health, infrastructure, and
development and training programs. Avoiding tax or minimizing it are branded very strongly by
several unethical practices and immoral activities which deregulates the overall integrity of tax
system. Increasing the value in order to help the shareholders of the company by reducing the
cost of tax is the most common issues that every company faces. It is legal but the techniques
behind minimizing it may not be ethical. Now, each company has focused on minimizing tax by
involving itself in many unethical practices which must be paid to the government in any form
(Minnick and Noga, 2010). Apart from the corporation tax, businesses must be praised and taken
care of and acknowledged too in order to contribute the economy of a nation. It is because
paying tax to the government will help to enhance the economic capabilities of a nation and also
helps any country to boost its income. Let us take another example of UK, there people pay
PAYE. PAYE is a national insurance contributions but in other many countries, they pay with
the medium of agreements. They use agreements to pay any infrastructure costs (Uslaner, 2010).
Paying a fair share

Ethics 3
Today there are many multinational companies who are operating well in the UK but they are not
paying corporation tax. Not paying corporation tax is illegal and unethical. Corporation tax can
be defined as that tax which must be paid on the amount of profits. So, it makes very clear that
when a company fails to earn profit, then it will not be liable to pay any tax. Likewise, if a
company earns profit, then it is liable to pay tax to the government. The other main reason
behind the tax is when the profits are calculated by any company, then are those profits
calculated with sound accuracy or not. It must be calculated with transparency. It can also be
well stated that when any company is performing well and generating huge profits but do not pay
any tax then it means the company do not earn any profits. But it must be known by the company
about what are the methods that a company uses to calculate the profits. Tax gap figure is also
calculated and estimated by HMRC (McGee, 2011). Tax gap figure is that amount which is
calculated by finding the difference between the tax collected and the amounts that needs to be
collected. If any company is complied with spirit of law, it must be liable to pay tax.
Later in 2011, according to Action Aid report, 98 companies out of 100 companies of FTSW
used tax havens policy in order to decrease the bills of their corporates. The exact amount of tax
is still unknown to many business corporates. There are many citizens who are still unaware
about tax policy. It is very complex task to know the amount of fair tax that needs to be paid to
the government. It differs from countries and company to company as well. One company may
feel the amount of tax which it pays to be ethical while the other company may feel it is
unethical. So it is very important to know the amount of tax whether it is fair or not. Moreover, it
is also important to pay tax using ethical practices (Robinson, Sikes and Weaver, 2010). In the
year 2008, it was stated by HMRC, “we want to make sure that the burden of tax does not fall
unfairly on taxpayers who play by the rules and pay their fair share". But it again failed to clear
the actual meaning of the fair definition (Sikka, 2010).
Need for certainty
In UK, GAAR was introduced in order to generate and provide clear meaning of tax avoidance.
GAAR stands for General Anti Avoidance Rule. It aimed at justifying the actual definition of tax
and what are its basic policies. It also focused that there exists many tax schemes which are
abusive in nature and wrong too. Such tax schemes must be avoided by every companies. Today,

Ethics 4
every business knows well about the activities that are carries out by them along with the
strategies and plans required to develop the desired targets and objectives (Harvey, 2012).
Coming to Australia, tax industry there must have a clear picture and understanding of the tax
schemes because this helps the citizen to know what is fair, legal and ethical and what is unfair,
illegal and unethical. Tax policies which are implanted in any country must be well pinned with
all the ethical values and norms including accountability, accuracy and transparency (Sikka and
Willmott, 2010). The arrangement which are related to tax planning and which also goes far
beyond the policy intent of government laws are not always ethical and legal. Sometimes, they
are also involved in eradicating and exploiting tax system. It can also be argued that the
businesses are no longer working with pace. Whenever a company plans to maximize their
profits and share those profits among its shareholders then it will obviously benefit the entire
country and a nation as well (Farok, 2016).
In Britain, there exists 70% of the total population who do not want that their money should be
invested in any unethical practices. Out of 70%, 65% thinks that it is illegal to avoid paying tax
to the government and when any company fails to pay such tax, government must take a strict
action upon it.
Ensuring businesses to pay a fair return
One must start paying attention and also be more attentive on the place where they plan to invest.
They must be attentive about the money spent on the valuable products. There are many
investment firms which are involved in CSR activities and they also do not refer any account of
companies’ tax practices when they decide to invest. There also exists many companies who pay
high taxes to government but it is the responsibility of government to assure whether all the
contributions are made fairly or not. The government should also ensure this should also
contribute to society as well. Despite of hiding the case of tax by business, it must be involved in
being more transparent and accurate related to tax policies (Christensen, 2011). Today
companies along with the government must be attentive enough to solve all the issues regarding
tax and its policies. This will help to boost the interest of public and gain their trust and create
more flexible, accurate and transparent business environment (Haufler and Runkel, 2012).

Ethics 5
There are many methods used to avoid tax which are legal but again unethical. They are legal
because of the provisions used by them and the loopholes granted by the respective countries.
1) Exemption of Foreign Affiliate Income
There are large number of countries who are highly involved in operations related to tax
minimization. Those countries fails to generate tax benefits in the favor of company’s foreign
affiliates. Similarly, there are also many countries who think that all the incomes generated must
pay tax to the government. Country like US believes that every business must pay tax to the
government and it must be calculated fairly (Edmond Financial group, 2014).
2) Round tripping and evading currency convertibility restriction
A country named Bermuda focuses on paying sow taxes only by using incorporate shell
companies. Incorporate shell companies generally focuses in balancing and controlling two
major functions. They are liable to hold all the patent and brand rights of every MNC. Similarly,
they can also work in the form of licensor by collecting royalties which are charged to another
affiliates internationally. They also focuses on reducing the tax because every affiliate will
definitely claim a deduction in the royalties which is paid for their respective country while all
the royalties are liable to gather tax free in terms of tax havens (Edwards, Schwab and Shevlin,
2015).
As a result, it can be stated that reducing tax or minimizing tax in all the multinational companies
can never be ethical. It can be legal when followed by the laws of the government. There are also
large number of ways where one company can reduce the amount of tax but these ways must be
done with reliability (Dowling, 2014). Every business mist implement the overall activities
followed by them in an effective way. Moreover, they must analyze all the necessary transactions
carried out by them. It has also been found that there do not exist any business which are highly
involved in harmonizing tax laws internationally. They first aims at focusing on the economic
interest by enhancing and growing revenues and developing their objectives. Thus, it can also be
concluded that a country will have to suffer in the economic factors because there is huge
competitions in the market in terms if tax revenue which is growing rapidly (Alm and Torgler,
2011).

Ethics 6
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Ethics 7
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