Tax Havens and the Disclosure Aggregation - Myassignmenthelp.Com

Question: Discuss about the Tax Havens and the Disclosure Aggregation. Answer: Panama papers covered an unprecedented leak of over 11.5 million files from Mossack Fonseca, which is the fourth biggest offshore law firm across the globe (Harding, 2016a). These documents highlighted the different manners in which the well-off were exploiting the secretive tax regimes offshore. Among the 143 politicians revealed in these papers, 12 were national leaders, or had their close associates and families who were using these offshore tax havens. There was a $2 billion trail which led all the way to Vladimir Putin. The others included the Prime Minister of Pakistan Nawaz Sharif, the President of Ukraine Petro Poroshenko, the Prime Minister of Iceland Sigmundur Dav Gunnlaugsson, and a number of other prominent personalities (Harding, 2016b). Panama leak highlighted the manner in which there were hidden beneficial owners who used secretive companies. Due to the Panama leak, the issue of tax minimisations schemes were again questioned on whether these were ethical or whether s uch schemes were inherently unethical. This question resulted in another great question where the role of government in such schemes was questioned. This was in terms of government being required to take an action on such schemes, or to deem it as legitimate conduct (Akamah, Hope and Thomas, 2017). This discussion is focused on highlighting that such tax minimisation schemes are not ethical and that the government needs to take action on such schemes. A part of good governance practices is the companies working to minimize the tax liability which they have, by undertaken tax planning. In doing so, the companies use the tools and methods which have been allowed by the government. Even though tax planning is legal due to the tax compliant behaviour, in reality, it presents a grey area between tax planning and tax avoidance. Even though tax avoidance is categorized as legitimate, one cannot deny that it is an aggressive way of bringing down the tax liability by using certain arrangements or financial instruments which were not originally meant to be used in such manner. Based on the theme of this discussion, the use of overseas tax heavens is one of such modes. In order to avoid tax, the rules under the tax system are bent, which even though is not illegal, but does prove to be unethical, due to them following only the letter of law, in place of its spirit. So, even when the law is followed, the undertaken lowering of taxation is une thical (Back, 2013). The reason for saying that this undertaking is as unethical stems from a range of factors. The first reason in this context is that tax is a social responsibility. The government imposes and collects tax, which is then used to provide the daily base things to the public, in terms of the public infrastructure, public services, and for other different reasons. Due to the tough economic times, there are already cuts in the government spending, and where the multinational companies decide to avoid paying their share of taxes, the condition is set to worsen up. The systematic tax avoidance by the companies and rich individuals would definitely strike an ugly note in the already harsh times (Cable, 2009). Tax avoidance has been voted as the second most significant ethical issue as per the 2012 IBE survey (Ipsos, 2012). So, where tax is avoided, it is basically the social obligation being avoided. What starts with tax planning, transitions into tax avoidance, leading to the company becoming selfish and greedy and this ultimately destroys the trust of the public and damages its reputation. The leading example of this includes Amazon, Google and Starbucks who were not only vilified but also were boycotted due to their tax policies (Barford and Holt, 2013). It is the duty of the multination companies and the rich individuals to pay their fair share of tax in the nation where they operate, as it allows for the funding of public services like infrastructure, healthcare and education. And this also benefits the multinationals and rich people paying off the tax, be it in a direct manner or in an indirect manner. As a result of tax avoidance, the very integrity of the taxation system is undermined. One of the famous tactics used to avoid tax is to show that the company earned no profit. Where the company earns no profit, it would not be required to pay the corporation tax. So, even with high sales, the companies are able to show that they made no profits. HMRC recently made attempts to put the gap in corporation tax collected and the amount which should have been collected where the spirit of law in figures. This differencing figure stood at 4.1 billon (IBE, 2013). The other campaigners of this issue have estimated this value to be over 12 b illon (Murphy, 2012). 98 of the FTSE 100 companies, as per the ActionAid report of 2011 used tax havens as a mode of reducing their company tax bills (Action Aid, 2011). The companies play tax games where they shift their profits in between different jurisdictions in order to exploit the mismatches and gaps in the rules of taxation. The companies trade in an artificial manner with the shell companies which become a part of the same company group, and basically conduct business with them, in order to get the profits to disappear. As a result of this, the companies pay no or very little corporate tax. There were famous personalities like Bono, Lewis Hamilton and the Queen who had been criticized for avoiding the liabilities of tax by use of such schemes (Goff, 2017; Garside, 2017; Osborne, 2017). Even though there is a variation in their levels of culpability, they continue to be ignorant and aware of the manner in which such arrangements functions for their betterment (Lord, 2018). Where the focus is put on the ill-effects of tax avoidance upon the society, instead of defining it in a legal manner, it becomes clear that it results in growing inequality, which not only undermines the legitimacy of the state, but also increases the tax burden on the resident taxpayers (Alstadster, Johannesen and Zucman, 2017). Apart from this, the accommodation of the government, towards those structures which allow such instances of tax avoidance to take place, allows for the misuse of these in order to conceal criminal monies. An example of this is UK where there are a number of investments from such multinational companies which are based in the offshore tax havens in the property market, where there is suspicious wealth being made use of for purchasing the high end properties in UK (Allin, 2017). Tax avoidance basically shifts the funds from the public purse, which become more crucial in times of economic uncertainties and undermines the perceived social fairness. Due to thes e reasons, there is a need for the governments to bring out some measures which could restrict such activities. One of the manners of doing this is by adopting the unitary tax regime, in which the multinational businesses are deemed as single entity when it comes to the tax terms (Picciotto, 2017). Though, till the time the legal requirements for the avoidance schemes are formally approved by the state, before these are being used, instead of these being ended once they are discovered, there continues to be scope for the tax entrepreneurs to escape their tax liability (Lord, 2018). In order to further highlight how the tax minimisation by the multinational companies in unethical, there is a need to apply the leading ethical theories. The utilitarian ethics in business is the key theory which is of assistance. As per this theory, which was given by John Stuart Mill, such actions are deemed as right which help in promoting happiness for the majority. And where an action produces the reverse of happiness, it would be deemed as wrong. Tax avoidance is clearly classified in the wrong area of this theory. This is because the taxes are imposed with the intention of helping in the redistribution of earnings in a nation by taking a profit portion and then making use of it for forming the requisite programs which follow the common good theme. Where such happens that a company or an individual takes away this very liability for redistributing as a result of their tax practices, it shows that they act in an unethical manner, when the same is analysed through the lens of a utilitarian (Hall, 2015). The next ethical theory useful for present instance is virtue ethics. Virtue ethics determine that an action is to be taken as ethical, where it upholds certain virtues like honesty, integrity, justness and fairness (Winter, 2011). When the tax avoidance schemes are looked at, they reveal that there is no honesty or integrity in such acts. The purpose of indulging in such acts is merely to deceive the general public and the tax departments by showing that no profit is earned, which could be taxed; but the reality is that the profit is being diverted to shell companies, and retained for person use. This also shows the greed of the companies and individuals indulged in tax avoidance. The companies avoid paying their fair share of tax, which ultimately hurts the general public as the government is left with limited funds to work towards the betterment of such public members. It is not fair for the general public that the top cater make use of the tax avoidance schemes in fancy ways, whi ch ultimately takes away from them the things and facilities they require. Coming to the Kantian view, the need is to look at the actions undertaken by the multinational companies in order to avoid or limit their liability of tax. The Kantian view requires the undertaken actions to be ethical, instead of the result of such actions (Bowie, 2017). The multinational companies indulge in the schemes, which had been created for some other purpose by the government, just so that they do not have to pay high taxes. The actions too are thus immoral in cases of tax avoidance. So, the three leading ethical theories demonstrate that neither the undertaken actions, nor their results in the tax avoidance process is ethical, along with the absence of virtues like honesty and integrity, which is expected from such multinational companies. The large figures of the estimated loss owing to the instances of tax avoidance further strengthen the view that tax avoidance is not ethical. Panama papers were just one of the various leaks which have highlighted that tax avoidance is a real menace. The Panama leaks had 2.6 terabytes of information which was drawn from the internal database of Mossack Fonseca (Harding, 2016b). It is time that more attention is paid to the matters revolving around tax avoidance and for drawing up ways through which such unethical tasks is given the tag of being illegal as well. Only then can this menace be cured. Instead of raising arguments in favour of, or against tax avoidance is not needed as already a lot of time has been wasted in this context. It is high time that governments acts on this topic, and hides the responsible individuals, thereby bringing transparency to the tax planning process. To conclude, the Panama papers highlighted the problems of tax avoidance again, and this is not the only leak which contributed to this disclosure. There have been a number of instances which prove that these tax avoidance practices ultimately hurt the general public. This is the reason why it becomes crucial to examine the tax practices again, analyse all the issues related to the tax planning, from both legal and ethical standpoints. This is the need of time if the interests of the general public are to be secured, and for stopping such instances from happening again. There is a need to put stop of the multinational companies and the rich individuals making misuse of the schemes provided for other causes; and for bringing in the measures through which not only the letter of law, but the spirit of law is adhered to as well. Thus, from the discussion undertaken earlier, it can be concluded that tax minimisation by the multinational companies is unethical, due to these being against t he social responsibility, and being unethical based on the ethical theories. References Action Aid. (2011) Addicted to tax havens: The secret life of the FTSE 100. [Online] Available from: https://www.actionaid.org.uk/sites/default/files/doc_lib/addicted_to_tax_havens.pdf [Accessed 26/02/18] Akamah, H., Hope, O., and Thomas, W.B. (2017) Tax Havens and Disclosure Aggregation. Rotman School of Management, Working Paper No. 2419573. 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