Tax & Ethics Issues in the UK - Essay Example

?Tax & Ethics The morality of corporate tax avoidance has been a bone of contention in UK for the last few months. The UK government is planning to take a firm stance against corporate tax evasion. The British Prime Minister David Cameron denounced corporate tax avoidance as the act is “morally wrong”. However, many people, including business executives and some economists, argue that tax avoidance is ethically right. Recently, there has been much controversy over the amount of corporate tax international companies such as Starbucks, Google, and Amazon have paid on their UK operations. This paper will evaluate the role of companies, their professionals, and HM Revenue and Customs and will discuss whether ethical principles should be applied to the payment of tax. The four major sources used for drafting this paper are BBC, The Guardian, KPMG, and HMRC, because these sources were found potential for providing analytical information about the topic under consideration. However, only facts and figures have been mainly taken from such sources, for news reports tend to be biased depending on the reporters’ personal outlook. A BBC report dated on 21st November 2012 reflects that UK lost billions in lost revenues as a result of corporate tax avoidance by multinational corporations. The report points out that new tax avoidance schemes are emerging each year and the situation makes it difficult for HM Revenues and Customs (HMRC) to curb this issue. According to National Audit Office, taxation authorities identified nearly 2,300 avoidance schemes between 2004 and 2011 (ibid). Since the actual figures of tax avoidance are not available, the UK government cannot estimate the accurate amount of loss. It has been identified that specialist tax advisers suggest best tax avoidance schemes for their clients; and this practice significantly contributes to the issue. Recently, Margaret Hodge walloped the big four accounting firm for helping companies avoid corporate taxes (as cited in Toynbee 2011). According to another BBC report dated on 3rd December 2012, some leading multinational companies including Starbucks, Amazon, and Google were severely criticised by UK government authorities for paying little or no tax. The UK government officials point that it is unfair for these companies to practice different schemes to avoid corporate taxes despite the fact that their UK operations account for hundreds of millions of pounds (BBC 2012). UK Prime Minister David Cameron states that international co-operation is necessary to tackle this issue because some forms of tax avoidance are very difficult to address (David Cameron). In order to publicly express UK’ stance on tax avoidance, the HM Revenue & Customs publicly named top tax dodgers for the first time (as cited in King). Reportedly, Starbucks, Google, and Amazon are the three major multinational corporations that have practiced schemes to avoid corporate taxes. In addition, small businesses including Cheshire wine merchant, Menemis, and Brian Clifford Tattersall were also criticised for tax avoidance. Yet another BBC report says that Starbucks sold goods worth ?400m in UK in 2001 but paid nothing in corporate taxes (BBC news Business 2012). Starbucks managed to avoid corporate taxes by transferring some of its funds to a sister company in the form of royalty payments, buying coffee beans from Switzerland, and paying high interests rates other parts of the business in the account of borrowing (ibid). Similarly, on the strength of some well structured schemes, Google also notably reduced the amount paid in corporate taxes. As per reports, Google could trim down its tax bill by approximately $1bn a year by transferring profits to subsidiaries having low tax rates (O’Carroll 2011). A subsidiary located in Bermuda assisted Google to save nearly $3.1bn over a period of three years because corporate tax rate is zero in Bermuda (ibid). In response to this criticism, a Google spokesperson said: “we have an obligation to our shareholders to set up a tax-efficient structure, and our present structure is compliant with the tax rules in all the countries where we operate” (Ibid). These words give an explicit view that Google emphasises more on contributing to shareholder values. These words represent the view of all other companies that have attempted corporate tax avoidance. Arguably, the prime role of every company is to increase their shareholder values and to enhance long term sustainability. As discussed already, the UK government argued that professional tax advisers like the big four accounting firms are unfairly helping companies to avoid taxes. However, tax advisers like to call its ‘tax planning’ or ‘tax efficiency’. Evidently, tax professionals have an obligation to their clients to help them improve their tax efficiency. Therefore, it is the duty of the tax advisers to assist their clients to cut down tax amounts maximum as possible. At the same time HMRC has the responsibility to persuade companies to pay corporate taxes fairly because it is a governmental authority obliged to do so. HMRC has introduced a Patent Box regime to provide companies with an opportunity to reduce their UK tax burden significantly (KPMG). In addition, HMRC is developing better strategies to address the issue of tax avoidance (HM Revenues and Customs 2012). While analyzing the ethical concerns over corporate tax avoidance, it seems that this practice is not ethically wrong. It is clear that the government allows all companies to practice lawful money management. Undoubtedly, the so called corporate tax avoidance is nothing more than lawful money management. More precisely, a company has the right to transfer profits to its subsidiaries or to borrow money relatively at higher interest rates. Evidently, corporate taxation is a practice of forcing rich companies to pay more taxes. However, the government does not consider the huge and risky efforts taken by those organisations to achieve their current prosperity. From the view point of The Telegraph reporter Young (2011), corporate tax avoidance is not ethically wrong but it is just a perfectly sensible behaviour. In order to justify this view, it is better to cite an example suggested by the Conservative thinker Andrew Lillico who speaks in favour of tax avoidance. According to him, “if you buy freshly squeezed orange juice, the price includes VAT. If you buy standard concentrated orange juice, there is no VAT. So if a key reason you buy concentrated orange juice is that it is cheaper, you are avoiding paying VAT. Is that wrong?” (as cited in Young 2011). Sensibly, the answer for the question is ‘no’. In short, corporate tax avoidance is not morally wrong and hence ethical principles should not be applied to this practice. References BBC news. (2012) ‘UK Politics: Tax avoidance schemes costs UK billions in lost revenue’ [online] available at [accessed 4 March 2013] . BBC news Business. (2012) ‘Tax paid by some global firms in UK ‘an insult’ [online] available at [accessed 4 March 2013]. BBC news Business: Cameron, D. ‘Tax avoidance must be tackled’. Jan 24 [online] available at [accessed 4 March 2013]. HM Revenues and Customs. (2012) Annual Report and Accounts 2011-12 [online] available at [accessed 4 March 2013]. King, M. (2013) ‘Tax dodgers publicly named in HMRC crackdown’ The Guardian, Feb 21 [online] available at [accessed 4 March 2013]. KPMG.(2011) Patent Box [online] available at [accessed 4 March 2013]. O’Carroll, L. (2011) ‘US investigates Google tax strategies’. The Guardian [online] available at [accessed 4 March 2013]. Toynbee, P. (2013) ‘Accountancy's Big Four are laughing all the way to the tax office’. The Guardian [online] available at [accessed 4 March 2013]. Young, T. (2011) The Telegraph: ‘Tax avoidance isn't morally wrong. It's perfectly sensible behaviour’ [online] available at [accessed 4 March 2013]. Read More