Ethics of Corporate Taxation
Table of Contents
Business conduct affects the environment where an organization is located. Paying taxes refers to the obligations in business area that are dictated by socioeconomic mode of any country. Taxation belongs to current stumbling blocks in the UK economy as the large corporations, namely their U.K.-based subsidiaries, avoid paying taxes as it was assigned by legislation. Significant volumes of deductions were meant to facilitate public services paid through the distribution of financial resources by the national economy. The ethical side of tax avoidance by worldwide corporations in the U.K. depends on their position in current society. High tax rates the corporations should pay to the government may shape the corruption and illegal financial schemes. Thus, the tax avoidance may not rely on completely unfounded concerns of passing the national legislation. Ethics of tax avoidance invokes a range of dispute issues. Tax avoidance by large corporations is ethically recognizable phenomenon relating to both shaming and understanding.
Perspective of Normative Ethical Theories
Kant introduced the freedom of personality. Corporate conduct is the demonstration of business initiatives and entrepreneurship of a company’s leader. In addition, Kant highlighted the ideas of external influence on a person that makes the individual follow the debt in society and moral. Therefore, corporate leaders are drawn to pay their part of taxes. This is supported by the suggestions that all members of society including economic entities should act in the way that does not undermine their dignity and moral rights as rational beings (Louden, 2014). Therefore, these provisions of Kant’s theory make the corporations face the moral choice of whether to pay the taxes and meet the loyalty of community or to avoid taxation and be prepared for public reprobation and social unrest due to cheating. In this case, the ethical issue is in tax shaming. Moral image of such corporations is associated with the selfish and mercantile corporate attitude.
Egoism refers to the ethical side of business conduct in which profit is regarded as the primary goal of corporations. The moral actions of modern corporations are based on personal advantage that dominates over the community values and needs. Nevertheless, normative theory of corporations’ egoistic approach faced the contradiction in consideration of tax avoidance (Broad 2014). Starbucks considered this obligation as the imposed directive and indicated the financial independence. This attitude addresses the egoism theory that is contrasting to Kant’s vision of the moral duty. Egoism related to tax avoidance considers the action morally right if it meets the long-term interest of a company (Shafer-Landau 2010). Therefore, Starbucks, Google Incorporated, Amazon, and other large corporations do not pay taxes in order to save more money, they follow the egoistic intentions.
The theory of utilitarianism does not support the corporate egoism. Tax liability does not prevent the companies from performing ordinary operations in the U.K. Top Shop’s leader takes every advantages from the business, while the employees and other stakeholders do not share the advantages of the entire Top Shop’s business, especially through the distributed taxation (Barford & Holt 2013). The companies did not pay any taxes as it was required in the U.K. and satisfied the interests of their leaders ignoring the interests of the communities affected by them. The founders of utilitarianism Bentham and Mill designated that individuals should act in the way to avoid the harm and bring the pleasure and benefits to the surrounding people (Windsor 2006). Public boycotts and sentiments of the U.K. population are the manifestations of the corporate disregard of their needs. Tax avoidance shortens the economic benefits of the citizens as the employees and consumers of these corporations. Thus, tax avoidance does not contribute to welfare of the U.K. consumers and the representatives of modern corporations according to utilitarianism and equity principles (Grasso 2007). Nevertheless, the failure in corporate taxation should be equally considered with the rationales of such avoidance. If the economic mechanism of the country does not provide fair and clear taxation, large business prefers to ignore the national requirements. Consequently, the ethical issue needs to be analysed and observed from both sides of the conflict.
Tax avoidance by certain corporations located in the U.K. reflects the extent of their social responsibility. Business ethics of the worldwide companies contradicts their indifference towards the national economy and legislation. In terms of corporate citizenship, taxation refers to the areas that affect the social and economic conditions of the citizens as the stakeholders of particular large economic entity represented in these aeas (Crane & Matten 2007). Intensification of competition, global and national business growth, and the emergence of ethical issues enhanced the relationship between corporations and communities through various mechanisms of interaction, including taxation. Governments, communities, citizens, and investors considerably influence the corporate success due to their willingness to support the social initiatives and economic offerings of a corporation. Therefore, if they are aware of tax avoidance as ordinary business conduct, a corporation may suffer from their indignation.
Academic researches proved positive cause and effect connection between responsible social behaviour of a company and the profitability of invested capital, stock prices, preferences of consumers, and loyalty of personnel (Scherer & Palazzo 2008). Company ignoring social responsibility considers it as expensive luxury. However, corporations should show themselves and their activities as responsible and accountable to the citizens of the country where the companies prosper. As taxation is used to cover the costs of public services for the U.K. population, the corporate citizenship indicates tax avoidance as the business behaviour that runs counter to the goals of the government and society.
Enhancing the wealth of the society would create conditions for redistribution of this wealth through the fair tax system, charity, sponsorship, etc. In other words, in order to enhance the wealth of the country, corporations should consider taxes as the strategic way to improve their efficiency and certain marketing measures. Corporate citizenship should be a business strategy for interaction between a corporation and community in order to ensure the effective and sustainable development. It should also strengthen corporate reputation as a responsible “citizen” and a full participant in this development. Since every citizen pays taxes as the part of their income, public confusion has been caused by civil injustice and inequity that follows from the fact that global companies with profitability in several billion do not pay taxes in the country where a citizen with a significantly lower income is required to pay taxes regularly (Barford & Holt 2013). Therefore, this ethical issue relying on the concept of corporate citizenship revealed tax avoidance as a negative phenomenon for both a corporation and community.
Marketing observers explain the taxation avoidance by the local customers. If a corporation takes care of its consumers and demonstrates responsible and economically equal behaviour, customers adequately respond to its market offerings through demand growth. Corporate citizenship also indicates the reputation and treating damage by the public perception of irresponsible civil conduct of a company (Boatright 2008). Therefore, financial burden of taxation will end up with financial losses in this national segment. Persuasion of the highest profits instead of their cutting due to taxation makes the company more detached from their stakeholders and reduces the number of interactions with them that negatively affects long-term perspectives of a business. The mechanism of taxation is such that it contributes to a positive increase in consumer demand. Therefore, tax treatment does not only reduce the possibilities of consumers but also demonstrates the ethical side of the business.
Nevertheless, accurate coincidence of the situation with the concept requires absolutely clear taxation, economic legislation, and economic system that are questioned by corporations (Barford & Holt 2013). For example, Starbucks indicated that the company does not owe anything, but they will pay in any way. Such decisions are guided by the willingness to demonstrate the reputational value and independent business vision. Thus, the business ethics recognizes the conflicts of business mission (satisfaction of consumers’ needs) and goals (to maximize the profit).
Reflection on the Ethical Issue
Avoiding taxes, companies pay a high price for the saved income in medium term. Consumers observe the behaviour of companies in the market and their relations with stakeholders. Through taxation, society understands the mission, goals, and motives of a company. If a corporation carries out social activities but does not pay any taxes, the quality of social programs and opportunities to facilitate the tax burden on business should be considered. If the corporation expands its market segments in the U.K. but does not make any investments in public welfare, mercantile aspirations dominate the social mission of the company.
General principles of business ethics moral claim that the personnel of a corporation is responsible for balancing the following companies as the economic interests of the company and the interests of stakeholders. These social and ethical approaches presuppose that corporations shoould fulfil voluntary commitments to the society and direct a part of their funds to its development, regardless of the mechanism of taxation. If there are particular problems with the tax system of the country, charities or any other social activities can fill this gap in the way of the public good.
Considering the role of the ethical factor in the economy, Berle highlighted the need of individuals-businesspersons to work and make particular sacrifices for the goals beyond their private benefits (Bratton & Wachter 2008). It is not the benefit of advertising a company but well-understood and clear meaning of donations that motivate people to succeed in business and therefore, support a large-scale material charity. However, even along with probed charity, some corporations pay taxes that enhance their image among stakeholders and potential partners.
Due to its influence and economic might, business is able to significantly change the social condition of the national economy and citizens’ welfare. International experience shows its positive consequences and results. Key provisions of the ethical codes of modern civilized corporations are focused on a work in conditions of fair competition for mutually beneficial cooperation for improving the living standards of all the community. However, tax avoidance may lower the value of a corporation as a socially responsible entity (Dyreng, Hanlon & Maydew 2008).
The charity policy of the majority of corporations is closely linked with the strategy of their development. Therefore, several departments such as marketing, advertising, and PR are engaged in corporate philanthropy (Somerville & Wood 2008). Thus, philanthropy becomes an additional factor that increases company’s competitiveness. This is attributed to the fact that the rate of corporation tax may be zero if it prefers an active social policy. Thus, the issue of tax avoidance by large corporations should be raised and analysed from different points of view.
The ethical issue of avoidance of taxes is based on the development of constructive relations with stakeholders including citizens, communities, and organizations involved in the activities of the corporation. Except the personnel of companies, stakeholders include local communities and authorities a corporation cooperate with in addressing their industrial, commercial, and political objectives. In order to become a responsible citizen, a corporation strives for its integration into civil society. Therefore, such desire is accompanied by minimization of legal conflicts and avoiding taxes.
On the contrary, the value of socially responsible behaviour and full payment of taxes decrease the revenues of a company (Desai & Dharmapala 2009). Consequently, the cost of taxes eventually transfers to the consumers in the form of higher prices, making it difficult to satisfy their needs in affordable prices. In addition, moral and responsible attitude to taxes reduces payroll, dividends, R & D investments in the renewal and improvement of production capacity, accounts payable, etc. The adoption of the full tax load may mislead the members of corporations with respect to its main goals, especially in the various national markets.
Nevertheless, it should be noted that the ethical image of corporations relieves them from full responsibility for the welfare of society, which should be within the competence of state and municipal authorities as corporate executives are not competent in dealing with macro-economic issues. The most common reason for ignoring local taxes is that they violate the principle of profit maximization. At the same time, pursuing only economic goals and respecting the laws and government regulations, corporations are involved in a close social interaction. They contribute to social and economic areas due to creation of new jobs, meeting consumer demand, provision of a certain level of return capital in dividends, and creation of a new public wealth and value.
Ethical issue of tax avoidance invokes disputes and can be regarded as completely negative. Social responsibility appeals to the necessity to perform fair and clear economic activity as required by the U.K. legislation. Ethical theories regarding Kant’s position, egoism, utilitarianism, and the concept of corporate citizenship confirm that the corporations do not follow the moral obligations to meet the public interests through the taxation mechanism. Along with ethical resistance to tax avoidance, certain ethical issues coming from economic background appear in contrast to relatively one-sided ethical approach. Acting in accordance with common welfare was the vision of Kant, Bentham, Mill, and the provisions of egoism and corporate citizenship. Nevertheless, their standpoints are built on balance of corporate and public interests that should also include economic aspects.