Question

1. Do you think management accountants are involved in tax planning decisions such as those referred to above?
2. Do you think tax avoidance is ever ethical? Is it sustainable?

 

Across Europe, just how much – or little – US multi-national firms are paying in taxes is coming under intense scrutiny according to an article published in the Washington Post. Most of the investigations revolve around the issue of ‘transfer pricing’, when one part of a large company sells goods or services to another part of the company. While the US companies say they are paying what they owe, European authorities have argued that many firms have developed complex tax strategies to lower their tax bills, sometimes with the help of countries hungry for the jobs they can bring. Many US multinational corporations have established European headquarters in low-tax countries. Apple runs its European operations from Ireland, which has a 12.5 percent corporate tax rate. In 2005, Amazon set up its European operations in Luxembourg, which is known for striking generous tax arrangements. It is argued that the profits have often been routed through low tax European countries, potentially cheating others nations in which the companies operate. The European Parliamentary Research Service estimates that corporate tax avoidance results in a loss of tax revenue to the EU of about €50 billion to €70 billion each year.

Answer 1

1.  

Management accountants are involved in many decisions, either directly or as information providers. Consider for example the decision by a global firm to invest in a particular country. It is quite likely that taxation concerns will be taken into account. Additionally, management accountants are likely to be involved in transfer pricing decisions and will encounter tax issues.

2.  

Tax avoidance is legal, but the debate on ethics is on-going. There is an argument that a company which takes resources from any economy must pay for those resources – in the form of taxes normally. Sustainability of businesses is increasingly a focus for investors, and consuming resources without replacing them, or at least compensating in the form of taxation, is likely to become more unacceptable. Thus, it could be argued that from a sustainability view that tax avoidance is unethical.