Question

Is Tax avoIdance eThIcal?

Amazon, Google, Starbucks, and other multinational com- panies have found ways to use the intricacies of the U.S. and non-U.S. tax codes to avoid paying substantial amounts of taxes both domestically and abroad. Their complex tax- avoidance strategies are legal, but are they ethical?

The amount of tax revenue lost due to tax avoidance is staggering. Starbucks reportedly paid a “grand total” of $13 million in British corporate taxes over a fifteen-year period on revenue of more than $5 billion.167 Starbucks reportedly paid no corporate tax at all in Britain in 2012, even though its sales were $630 million.168 Apple is said to have avoided “bil- lions in taxes,” and Google reportedly paid only $16 million in British taxes on revenue of $18 billion during the period 2006 through 2011.169 In 2012, Google “funneled” $12 billion into Bermuda to avoid paying taxes in the United States.170

Tax avoidance deprives a country of much-needed tax revenue from multinational corporations. As a result, coun- tries must find other revenue sources, which can mean levy- ing more taxes on individuals and small businesses.

Companies often look for countries with low tax rates and “then find ways to book their profits there, even when much of the money is made elsewhere.”171 The term “state- less income” is used to describe revenues that are “beyond the reach of tax authorities,” both those in countries where

Even though the top federal corporate tax rate in the United States is 35%, companies in 2010 reported an average annual tax rate of only 12.6% in 2010.173 Verizon, Bristol-Meyers Squibb, and Eaton (a power management firm) reported effective tax rates of 0% in 2012.174 Because corporate taxes are payable only on foreign profits that are actually repatriated, firms can avoid paying taxes by keep- ing the funds abroad. In 2012 alone, the “largest American multinational corporations reportedly added $183 billion to their untaxed hoard of cash held overseas.”175 Nearly $2 trillion in profits earned by American companies are “‘per- manently reinvested’ abroad.”176

Certain countries also openly encourage firms to locate there by providing opportunities for tax avoidance. Examples include Ireland, which offers lower tax rates for firms like Facebook and Google in exchange for jobs.

Tax avoidance can taint a company’s reputation. Starbucks recently “‘volunteered’ to pay about $15 million a year, just to avoid a potential boycott” after word of its neg- ligible tax payments became public.177 On the other hand, paying less in taxes should mean, theoretically at least, more money for shareholder dividends, for reinvestment in the corporation, or for higher wages or lower prices. What, then, is the “right thing” to do?

Answer 1

No, avoidance of taxes is unethical. Business organizations have responsibilities towards the society and countries they operate in. Paying taxes helps in the upliftment of society and the process of nation-building. Hence, it can is considered as a corporate social responsibility of the company to pay its due taxes and help in the development of the country they are earning their revenue from