With the view of maximising shareholder wealth, controlling a company’s outgoings is surely one way to do this? In a multinational company the management of tax payments is one strategic decision that is looked in to, and with the content this issue has in recent news it is evidently done. Despite being beneficial to the company involved, but judging by the amount of protests against it, it is not accepted or seen as being ethical by the general public.
This process involves looking into the structure and strategies of the organisations in order to minimise its exposure to tax. The introduction of the ‘Double Taxation Treaty’ between two countries does enable this and prevent a company being taxed twice on the same profit. For example, having a subsidiary in a country with a tax rate of 20%, you would be taxed on the 20% then when brought over to the U.K you would only be taxed the remaining 8% of the U.K. 28% tax rate. However the new U.K. option suggested by the Government is if you are taxed in one country and bring it back to the U.K you will not be taxed at all in this country.
Suspected examples of this involve the like; Boots, Topshop (Arcadia Group) and Vodafone. Boots were expected of moving entities over the Switzerland to take advantage of their lower tax rates. However, they responded by saying that “If we had registered in Switzerland purely for tax reasons there are many other countries that we could have considered.", for example the likes of the Cayman Islands who have a 0% tax rate.
Regarding Topshop, with Sir Phillip Green, the figure head of the group, his wife and owner of the Arcadia Group is a resident of the ‘tax haven’ Monaco, which has flared the confrontation, since in previous years this has allowed her to receive around the £1billion mark in dividends (BBC News). This company faced further scrutiny when Sir Phillip Green was appointed as an advisor to the Government regarding the efficiency of the Public Sector; The Guardian reported the public’s outrage regarding this appointment, since the possibility that a proportion of the U.K’s debt could be paid back If it wasn’t for the likes of Arcadia exploiting the loop holes within taxation law.
This is the issue that is causing disruption amongst the public. This is because during the current financial crisis within the U.K. the public are facing pay freezes, inflation increases and even job cuts to pay back the countries debt. Whilst this is happening, large corporations are moving operations abroad to take advantage of lower tax rates and then not paying any to this country, contributing to the tax gap being estimated to be £120bn, £25bn being due to tax avoidance (BBC News).
Surely, the actions of companies although not illegal can be seen as unethical when corporations are dodging tax in the country that they make most money? Do they not have a moral duty or are they just capitalising on the options available to them?
Companies can be seen as unethical if they dodging tax in other countries, as they make lots of money but pay nothing to those country’s governments. But maybe we should stand on the other side without consider the tax benefits to those countries. Countries that have a 0% tax rate still can be the beneficiary, as they could improve their home country’s employment rate from absorb other country’s business.
ReplyDeleteI agree that it is not ethical that companies avoid paying taxes for the countries it mainly operate and gain biggest profits in (which contribute towards the welfare of the local society).
ReplyDeleteShareholders vs. society? or better yet - business vs. society? Since as discussed in previous weeks, agents do not always DO BUSINESS for the sole wealth of shareholders...
As I commented on Jonny's post, if each individual within the local working society pay tax (with no legal way of getting around it), why should multinational organisations (who earn millions!) not?
In my opinion if a company is performing with the law then what they are doing should be seen as acceptable. Yes, companies can avoid paying tax but it should be the responsibility of the government to do something about it. It has been reported in the news on various occasions and yet no legislation has been put in place to prevent this, there must be a reason for this?
ReplyDeleteMaybe it’s because they don't want the country to seen hostile to potential businesses operating in this country...
Andrew, I completely agree that it should be up the government to enforce correct tax payments and having legislation in place would be a better solution. However, like Diana says if the general public have to pay tax on what they earn without getting round it why shouldn't MNC's do this also, just because they can get away with it doesn't mean they should?!
ReplyDeleteBut thats the point they can get away with it and are! If individuals could get around not paying tax they would! It's as simple as that! I know if I could (and it was legal!) then I would. I certainly wouldn't be thinking about the ethics behind it. 100% agree the government should enforce laws, if they are not in place, companies do not have to abide by them.
ReplyDeleteIn fact... is this not similar to cheaper labour? Companies move their production abroad to take advantage of lower minimum wages abroad therefore cheaper labour bills. Yes this can be seen as unethical by some but is generally accepted. Are they not just doing the same by taking advantage of lower tax rates elsewhere?
ReplyDeleteI agree with Ashely, I know if I could find a way of saving money within the law then I would do.
ReplyDeleteTaking the example of cheap labour I could justify it to myself by saying if I wasn't paying them even the small wages that I do then those people would be on the streets, if they didn't want to work in these cheap labour environments then they don't have to. I know you could say they have no other choice as they would starve without working in these factories hence the exploitation.
However you can't pay the same wages as you would in countries like the UK to these people as then you would have everyone in the country queuing to work in these factories including the people with good educations impacting on the future development of the country.
No I understand that us paying income tax that they would find a legal way to not pay it we would. But the general public as individuals are not making multi millions in profits so I personally don't think this comparison is really applicable
ReplyDeleteWhilst I can agree that it is morally wrong, if the government is to lazy to draft up legislation to close the gaps allowing companies and other tax payers to avoid paying the correct rate of tax, then I am of the thinking that if its not illegal I don’t see why you shouldn’t.
ReplyDeleteThe below article provides further information as to the governments lack of urgency, the amount of money this side of society should be paying in tax is astronomical, however the government is showing little urgency to ensure they do. So why should I?
http://www.timesonline.co.uk/tol/sport/football/article2116217.ece
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