Sample Essay On Understanding The Ethical Issues In Tax Systems

The article’s central ethical issue revolves around debates on whether or not company inversions can be termed unethical. Inversion depicts the act of one company carrying out business dealings with other countries in a bid to take advantage of possible low tax rates. Through inversion, a company merges itself with business already existing in low tax rate countries and records high profits as the government takes a small percentage of the same.
The arguments on the taxation of multinational companies emerge in the form of how companies decide on the amount of tax for each country. First, countries impose corporate tax on the capital or income of the legal companies within their borders. Consequently, in the case of a multinational corporation, said company has to pay the corporate tax to each of the governments in which it has invested. As a means to show the dilemmas faced by such a group, speakers quoted in the article analyze a hypothetical scenario. In the case of an enterprise carrying out its operations in fifteen different countries, each country claims a certain percentage as tax. However, the contributions of each country to the profits cannot be equal; one state might give the highest workforce whilst another produces all the materials utilized in production processes. Therefore, there is no guarantee that paid taxes are sufficient to meet the stipulations of a government’s tax imposed on investors. Next, whilst answering calls for companies to concentrate on the shareholders; other arguments emerged. According to the speakers, instead of imposing corporate tax, governments ought to look at other forms of levies. Good illustrations are income taxation where companies pay tax to foreign governments and consumption taxes where levies originate from points of production and consumption. In other words, through narrowing down the sources of revenue, states stand a better chance of ensuring all companies pay taxes. If companies ventured towards the other smaller forms of taxpaying, then the corporate tax will be unethical, and businesses seeking to reduce the same will be morally correct.
The provided points of view find basis on two ethical principles, that of justice and that of beneficence. Based on justice is the issue of tax policies and fairness of investing companies to workers and the host country. As means to ensure the sustenance of its economy, the country will rely on collected revenue. Workers expect proper salaries to compensate for the energy invested in their work. If a company fails to determine the right rates of tax payable to their host governments then, there is no guarantee that they can ensure fair pay for the employees. A company facing such a situation will most likely prove to be unjust to their workers, as well as the involved countries. On the grounds of beneficence, when companies merge with corporations in other countries for the sole purpose of exploiting low tax rates, they cause more harm than good. A good illustration is the fact that, they deny the businesses of the host countries an opportunity to benefit from capital and raw materials garnered towards production. Furthermore, the author reports of economic patriotism where governments expect business owners to invest and create jobs in their countries. As per the expectations that most countries have over their patriotic citizens; all people should have the country's best interests at heart. Hence, when a businessperson forgoes his or her country and chooses to empower the economy of another country, said person is untrustworthy and a waste to the people.
Conclusively, inversion violets the principles of ethics and in turn, avoids or reduces the rates of tax. Consequently, there is evidence of ethical dilemmas in the determination of payable tax for multinational companies. However, said ethical issues do not necessarily mean that American companies will cease from carrying out inversion. Consequently, countries ought to put in place rules and regulations pertaining to foreign investors. A good illustration is the United States, which according to the article, has made it impossible for companies to merge and evade taxation.