In most countries, both developing and developed ones, paying of tax is a social responsibility of everyone. Actually, taxation is one of the major source of income for most governments, and this enables them manage to run economic development projects as well as enhancing the wellbeing of citizens. For this reason, most governments do all means possible to encourage citizens and organizations to be ethical enough by paying tax. As a way of discouraging citizens and organizations from tax evasion, governments have embraced and implemented several punitive measures including paying of fines, imprisonment, or both. Despite the presence of these measures, some individuals and organizations embrace means tax avoidance. Actually, tax avoidance can negatively affect the performance of an organization, especially due to the fact that it makes the public perceive it as selfish and greedy, lack its trust, and ruin its reputation. Most rich individuals and corporations embrace a number of tactics of avoiding tax, including the use of Tax havens, accounting technologies, Dutch Sandwich, Double-Irish, contract manufacturing, and transfer pricing amongst others (Gravelle, 2015, 9-15). Apparently, some techniques of tax evasion such as the use of tax havens tend to be legal but morally wrong. This paper entails an argument of whether the use of tax havens and other tax avoidance techniques by wealthy individuals and businesses is morally justifiable or not.
In 2012, comedian Jimmy Carr`s action of using a legal tax avoidance technique raised numerous diverse arguments from various individuals, some criticizing him while others supporting his move (BBC News, 2012, n.p). His tax avoidance technique enabled him to pay as little as 1 percent of his total earnings. Those who criticized him argued that despite the fact that the tax avoidance scheme that Carr embraced was legal, it is morally wrong, and the latter is equated to a benefit cheater. The most interesting thing regarding the criticism of Carr`s action was that all the criticisms was on the morality of the tax avoidance scheme, rather than on its legality. For example, even the Times Newspaper which exposed Carr`s tax avoidance scheme acknowledged that the scheme is legal, but the problem is its morality, especially due to the fact that it promotes hypocrisy, which is unethical in every society. On the other hand, individuals who supported Jimmy Carr`s technique of tax evasion argued that it is wrong to condemn individuals who take advantage of the established legal tax avoidance schemes and instead, it better to condemn and blame the system and leaders who created it. The most interesting thing with this statement is that it aims to sensitize the top politicians who were among the very first individuals to criticize Jimmy Carr` actions on morality grounds, such as the British Prime Minister David Cameron and the chief secretary to the Treasury, Danny Alexander (BBC News, 2012, n.p). Stephen Pollard (one of those who supported Carr`s action) claimed that, “Let me be blunt, only a fool who would pay more tax than he has to.” Though it is important for rich individuals to consider the morality of the tax evasion measures that they embrace, leaders should be precise in terms of the provisions that legal tax evasion laws should encompass in order to prevent rich individuals from taking advantage of the law for selfish gains. Precisely, if the British tax evasion law that Carr used in order to evade tax was comprehensive enough, it could have considered the morality aspect as well.
When this scheme of tax avoidance was exposed, Carr apologized to his supporters and the members of the public claiming that he just thought that since the tax avoidance scheme that he used was legal, he did not bother to concentrate on the morality issue. In this regard, it is evident that that the issue of morality and legality are conflicting each in terms of the manner in which individuals and organizations are embracing them. In regard to the Carr`s issue, the major aspect that made him apologize was the disastrous impacts which could arise after concerning his morality. Precisely, most of his clients would have perceived him as selfish, hypocrite, and someone who does not value social responsibilities such as paying tax. However, it seems that morality and legality of tax compliance provisions must have a place regardless of the appetite of embracing tax saving schemes is considered. This is due to the fact that the institutions which enact tax compliance provisions interprets a tax scheme in two ways. For example, it’s the responsibility of the government to ensure that the tax compliance policy is legal, but it’s the mandate of an individual to ensure that the tax avoidance scheme that he or she embraces is both legal and moral. If he or she happens to issue the morality aspect of the scheme, he will not face the law since the scheme is legal, be he or she has to face the consequences of the morality issue. For example, in 2012, Starbuck Company received extensive criticism from the members of the public after it was revealed that it had only paid 8.6 million pounds in tax in a span of 14 years (Palmer, 2016). Apparently, this criticism is disastrous especially when it comes to the operations and the competitiveness of the company. Precisely, this criticism may stimulate most of its customers to boycott the company`s products due to its insincerity and hypocrisy. However, as a way of countering a situation where the company would lose its clients, the company`s managing director, Kris Engkov released a statement in December the same year claiming that his company would pay a significant amount of tax during the 2013 and 2014 financial years regardless of whether the company would make profit or not. This was a good move especially when it comes to safeguarding the survival and reputation of a multinational company like Starbucks. However, Mr. Engkov`s move sparkled another set of criticism especially from the top leadership. Precisely, most individuals started arguing that Mr. Engkov`s thinks paying of tax is voluntary rather than an obligation, while other perceived that his statement was more of an insult to the ordinary citizens and small, micro and Nano businesses.
Starbucks Company was just one of the companies that have received numerous criticism what it comes to tax avoidance. Precisely, the individuals who were condemning and criticizing the statement of this company`s managing director that the company would pay higher taxes during the next two financial years ought to understand that the company is doing a great favor since there are a number of companies which do not even both of making an effort of paying such taxes. For example, Google has been criticized for years concerning its tax avoiding tactics. Actually, the Chairman of Google, Eric Schmidt has been on record claiming that his company being criticized as a tax avoiding company is the right thing for him and for the company as a whole. Precisely, most individuals had been criticizing Google for embracing tax avoidance schemes while most of the poor and disabled individuals are left with almost nothing in their accounts due to taxation. It was revealed that Google company had paid only 10 million pounds as tax from 2007 onwards. At the same period, this company had managed to make approximately 11.9 billion pounds worth of revenues in Britain (Jones, 2013). Amazon follows in the list, but what all these companies have done is embracing tax havens, which is legal only that they lie within the grey area where the tax law cannot effectively stipulate what individuals and organizations ought to do in order to fully comply with the law, including the morality issue. However, it is very unfortunate for big organizations to hold the arrogant attitude that they should not pay taxes since they provide employment opportunities to most individuals in Britain. They perceive themselves as charities and to them, paying taxes is an act of corporate generosity.
In addition, any individual and businesses (small, middle sized and large corporations) can evade tax whenever an opportunity arises, the Small and Mid-Sized Businesses have been identified to be the leading group when it comes to tax evasion. In 2016, the HM Revenue and Customs conducted a qualitative study that aimed at encouraging Small and Mid-Sized businesses to adhere to pay tax (Quadrangle 2017, 3). The HM Revenue and Customs conducted forty-five in-depth interviews with Small and Mid-sized businesses from various sectors which had earlier been found guilty of deliberately engaging in tax evasion behaviors, and the findings were interesting. The study established a number of drivers for tax evasion, including sense of citizenship, perceived risks, perceive financial imperative, distinction between personal and business assets, as well as the willingness to create opportunities for tax evasion (Quadrangle 2017, 23).
The HM Revenue and Custom plays a fundamental role as the tax administration and collection body in the British society. In 2015, this body conducted a survey which aimed at establishing public perception towards the issue of tax avoidance. Precisely, the HMRC aimed at establishing the public`s perception concerning the widespread tax avoidance, how effective HMRC are when it comes to dealing with tax evasion, the perception on the likelihood that the HMRC will detect individuals who have evaded tax, the awareness of consequences and penalties of tax evasion, as well as the awareness concerning various tax avoidance schemes. The study had a number of interesting findings. For example, approximately 63 percent of the respondents were claimed that the use of tax avoidance schemes is widespread, while 61 percent claimed that it is unfair for individuals and organizations to use tax avoidance schemes (Shah, 2015, 17-23). They argue that when businesses and wealthy individuals use tax avoidance schemes, they leave the general public with the burden of paying their taxes, whereas they (wealthy individuals and businesses) ought to even pay more taxes since they have money. Moreover, when the respondents were asked concerning the effort s that the they think Her Majesty Revenue and Customs (HMRC) embraces in order to reduce the use of tax evasion, the respondents had varying responses. For example, 37 percent stated that the HMRC is doing very little concerning addressing tax evasion, 3 percent stated that this body is dedicating most of its efforts in dealing with tax evasion, while 30 percent stated that this body is performing on average level (Shah, 2015, 17-23). Moreover, most of the respondents (48 percent) revealed that they strongly believe that even if wealthy individuals and businesses happens to evade tax, the HMRC will eventually manage to get them. In addition, most of the respondents claimed that they are aware of most of the punitive measures that the British government embraces to individuals and businesses which are found guilty of tax evasion. Among the top three punitive measures that were mentioned were not limited to criminal record, prison sentence, and financial penalties.
Moreover, a number of individuals had been condemning the aspect of tax havens, claiming that the presence of such tax evasion techniques are the major contributing factors for depression. Precisely, the impacts of tax havens cannot be felt in the short run, but they can be felt effectively in the long run, especially when economic depression happens to occur. In addition, the presence of tax havens allows wealthy individuals and companies fail to pay taxes in countries where they operate. According to a report that was compiled by Oxfam, approximately $170 billion of revenue gets lost through tax havens (Booth, 2016). Actually, most of the individuals who are against tax havens claims that its secrecy is synonymous to a double-edged sword. On one side tax havens allows the corrupt individuals to hide their illegally acquired money from tax authorities. On the other hand, tax havens allow honest and ethical individuals to shelter their wealth from oppressive and corrupt politicians and regimes. Apparently, a number of individuals supported the presence of tax havens claiming that it helps wealthy individuals and businesses to avoid double taxation. Precisely, there are numerous situations where individuals are taxed in their monthly income and their investments are at the same time taxed, and this amounts to double taxation (Green, 2016). Moreover, this report also negates claims that individuals who put their money in tax havens do not pay taxes in the countries where they reside. Precisely, the report claimed that most honest individuals put their money in tax havens and at the same time pay taxes in the country where they reside. For example, the Panama Papers showed that the British Prime minister, David Cameron at one time put money in tax haven and paid UK tax. In addition, most of the companies that do avoid taxes in the offshore financial centers but they end up paying dividends, which are taxed in the hands of investors in the nations that they reside.
These sentiments were also echoed by Mohindra (2016), who claimed that the only way in which investors and wealthy individuals can ensure that their hard-earned money is safe is by embracing tax haven. He gave an example with most of the African governments which are characterized by money laundering and corruption. Actually, besides the aspect of safeguarding individuals and corporate finances, most of the tax treaties are even contemplating on how individuals can be safeguarding tangible properties as well. In addition, the argument that individuals and businesses which keep their revenues in tax havens do so in order to avoid paying tax in their home countries is just absolutely a way in which most of the tax hungry governments use in order to discourage individuals from embracing tax havens (Mohindra, 2016). Precisely, most of the tax hungry governments are using wealthy individuals who embrace the aspect of tax havens as scapegoats, especially due to the fact that very few (if any) of these governments discourage this trend out of being honest and ethical.
Actually, most of the developed nations are embracing more competitive jurisdictions in order to keep profits, as well as creating numerous regulations including the OECD`s Automatic Exchange of Information Initiative which will enable nations to review the reams of taxpayer files at one another without the requirement of an official request. Apparently, it is sad and surprisingly for some Western countries to be in the forefront of condemning tax havens. A good example is Canada, which have been in the recent past blaming tax havens. Precisely, the Canadian Minister of revenue had been arguing that the presence of tax havens is the major contributing factor to tax avoidance. Apparently, the Canadian Minister of revenue seems to be misleading the public through this statement. This is due to the fact that tax avoidance is legal not only in Canada but also in numerous developed and developing countries, such as the United States and the United Kingdom (Tax Research UK., 2012, 1). Tax avoidance is not the same as tax evasion, since the former is legal while the latter is not. actually, tax avoidance entails a situation where individuals and businesses seek loopholes and discrepancies between accounting and tax laws in order to avoid being heavily taxed (Tax Research U.K., 2012). Though this practice is legal in most developing and developed countries like the U.K, most individuals perceive it as tax evasion, and that’s why they heavily criticize individuals and organizations which are found to have taken advantage of these loopholes.
References
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Green N., (2016). In defence of ‘tax havens’: offshore banking is not the same as dodgy dealing. Retrieved from, https://www.theguardian.com/commentisfree/2016/apr/13/offshore-panama-papers-murky-investors
Jones O., (2013). The moral case on tax avoidance is overwhelming - and we all know Google wants to do the right thing. Retrieved from, https://www.independent.co.uk/voices/comment/the-moral-case-on-tax-avoidance-is-overwhelming-and-we-all-know-google-wants-to-do-the-right-thing-8622565.html
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Quadrangle (2017). Understanding evasion by Small and Mid-Sized Businesses. HM Revenue and Customs. Retrieved from, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/647346/Understanding_evasion_by_Small_and_Mid-Sized_Businesses.pdf
Shah P., (2015). Exploring public attitudes to tax avoidance in 2015. Retrieved from, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/500203/Exploring_public_attitude_to_tax_avoidance_in_2015.pdf
Tax Research U.K., (2012). Why tax avoidance and morality are inextricably linked. Retrieved from, http://www.taxresearch.org.uk/Blog/2012/12/05/why-tax-avoidance-and-morality-are-inextricably-linked/
Tax Research UK., (2012). Tax Briefing: Tax avoidance, evasion, compliance and planning. Retrieved from, http://www.taxresearch.org.uk/Documents/TaxLanguage.pdf
