Question

1. The Internet company Google managed to avoid $2 billion in international income taxes in 2011 by moving a hefty sum of its revenues to subsidiaries in Bermuda, according to CNBC, which cited a report by Bloomberg.[1] The search giant reportedly stashed $9.8 billion in revenues to its shell company in Bermuda — which doesn't have a corporate income tax — last year allowing the company to shave its overall tax rate by almost 50 percent. Google's Bermuda move was disclosed in a Nov. 21 filing by a subsidiary in the Netherlands. While the company's move to shift funds to the country was legal, it could spur the growing global criticism of corporate tax avoidance. What do you think? Is Google’s action ethical? Why or why not?

2.What is “the agency problem?”

Answer 1

1) It is absolutely unethical for a large and a profitable company such as Google to avoid tax by parking profits in tax haven such as Bermuda. This is because had Google paid the correct amount of tax by not indulging in tax avoidance practices, they could have contributed to societal development program undertaken by the government through the taxes. Also the general burden of taxes on general public would have come down which would have led to greater prosperity for the society and community as a whole.

2) Agency problem is when the management of a company takes decision to maximize gains for themselves without taking into account the best interests of the shareholders or the owners of the company. Since management are best agents for the owners and if they act to maximize their benefits, then this lead to agency issues.