Question

In: Accounting

Internet giant Zoidle, a U.S. company, generated sales of £2.5 billion in the United Kingdom in...

Internet giant Zoidle, a U.S. company, generated sales of £2.5 billion in the United Kingdom in 2013 (approximately $4 billion in U.S. dollars). Its net profits before taxes on these sales were £200 million, and it paid £6 million in corporate tax, resulting in a tax rate of 3 percent. The corporate tax rate in the United Kingdom is between 20 percent and 24 percent.

The CEO of Zoidle held a press conference stating that he was proud of his company for taking advantage of tax loopholes and for sheltering profits in other nations to avoid paying taxes. He called this practice “capitalism at its finest.” He further stated that it would be unethical for Zoidle not to take advantage of loopholes and that it would be borderline illegal to tell shareholders that the company paid more taxes than it had to pay because it felt that it should. Zoidle receives significant benefits for doing business in the United Kingdom, including tremendous sales tax exemptions and some property tax breaks. The United Kingdom relies on the corporate income tax to provide services to the poor and to help run the agency that regulates corporations. Is it ethical for Zoidle to avoid paying taxes? Why or why not?

Describe how you would advise the company to act in the following situation. Please be sure to describe your ethical reasoning process.

Solutions

Expert Solution

There is a huge difference between Tax avoidance & Tax Planning, While the Tax avoidance is unethical and illegal, Tax planning is something the corporates and even the individuals do to ensure they don't end up paying huge tax on their hard earned income.

The Shareholders invest their money in anticipation of company doing its business to finest method and also do their tax planning accurately, So that the wealth of the share holders increases. The company is not avoiding any tax payments or not circumventing any rules or regulations. They studied their process correctly and also do analyse their tax liabilities and planned for identifying the loopholes in the act, or enjoyed all the benefits provided in the rules.

The company has paid 6 million pound as tax, the needs of the government and the departments/agencies will never finish, even the company pay full profit as tax. So it's immeterial  that the tax is being used to provide services to the poor and to run the agencies. The company is very much ethical in following the rules and finding the loopholes and doing the tax planning.

Actually it might not be a loophole, It's the governments intention while drafting the Act. had the govt intended to tax those transactions they would have worded the act accordingly. The Government had not intended to tax those transactions, and the govt had provided those tax benefits. its foolishness not to avail the benefit provided by the government. So the company policy is correct.


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