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Business organizations are duty-bound to remit a certain percentage of their net profit to their respective governments in form of corporate tax. The rate of tax varies from one jurisdiction to another. Similarly, multinational enterprises also have a duty to remit corporate tax to the host government. However, some organizations collaborate with accountants and lawyers in devising tax avoidance plans. Over the past few decades, tax avoidance has become one of the most common white-collar crimes that governments across the world are facing.
This article illustrates the various tax avoidance methods adopted by multinational organizations, which is a major ethical issue in management accounting. Some of the multinational companies that have been accused of tax avoidance include Amazon, Google, Cadburys, Apple, and Starbucks. Due to tax avoidance, the organizations provide investors and stakeholders with falsified information regarding their performance. For example, they report a high level of profitability, while in the actual sense they are making losses. Such accounting manipulation has a negative impact on investors who rely on financial reports in making investment decisions.
One of the tax evasion methods that are increasingly being used entails aggressive tax avoidance. According to Lorinc (2014), most organizations exploit the opportunity provided by the law to invest in the international market as an avenue to commit tax avoidance. Subsequently, they are in a position to transfer a substantial amount of their money to offshore accounts. The author estimates that Canadian companies have currently stocked over $ 50 billion in Barbados. The perpetrators of tax planning schemes identify jurisdictions characterized by low tax regimes such as Switzerland, Barbados, and the Virgin Islands.
The ability of multinational companies to engage in tax evasion arises from existing legal contradiction amongst different jurisdictions. Furthermore, some governance experts are of the view that most multinational corporations abide by various taxation requirements such as property and payroll taxes as imposed by the host government. Additionally, the corporations also abide by the implemented anti-avoidance rules. Subsequently, they should not be categorized amongst international firms that engage in tax avoidance as it can affect their shareholders’ value adversely if they are to pay the hefty fines. Additionally, the corporations argue that such accusations could have a negative impact on their reputation, which can affect their long-term financial sustainability.
In an effort to eliminate the negative impacts associated with tax avoidance both to the corporation and the overall economy, the article highlights some of the efforts that countries are making. For example, the Organization for Economic Development and Cooperation [OECD] has invested a substantial amount of resources in an effort to devise an international tax treaty protocol that will deal with different tax avoidance methods effectively. One of the methods that the treaty will focus on involves minimizing the trend where companies stash a substantial amount of their profits in offshore accounts in order to reduce their taxable amount significantly.
As a management accounting student, I agree with the author’s opinion that tax evasion is a major ethical issue that respective governments in collaboration with organizations should eliminate. Failure to eliminate tax evasion may have a negative impact on organizations’ long-term existence because they may be subjected to pay hefty fines. Such fines may affect organizations’ ability to invest in growth strategies such as market expansion due to financial constraints. Conversely, corporate tax avoidance hinders the overall economic growth, and hence organizations’ profitability potential.
Reference
Lorinc, J. (2014). A corporate tax to grind. Web.
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