Tax Avoidance: A Matter of Legal or Moral Responsibility?

£3.3 billion in sales generated by Amazon in the UK last year.

£0 in corporation tax on profits paid by the company to its host country, according to a recent article by the Guardian.

Tax avoidance, technically legal, has played a part in many multinational corporations on the international stage. By basing their headquarters and tax calculations in places such as Ireland and the Caribbean Islands, which have relatively low tax rates, corporations such as Apple can end up paying only 2% tax rate outside the US.

Recently, the head of Google UK and managers from Amazon and Starbucks appeared before the Public Accounts Committee, a parliamentary committee of the British government. All three companies were accused of tax avoidance in the UK.

Starbucks, operating through the Dutch government, pays a low tax rate of 16% (the UK rate is 24%), while still receiving royalty payments from sales in its UK stores. Starbucks’ top managers deny that the Netherlands forms their tax haven, insisting instead that the country had better roasting plants. Similarly, Amazon’s sales are compiled in Luxembourg, while Google operates mostly in the Republic of Ireland. According to the Public Accounts Committee chair Ms. Margaret Hodge, “One of our concerns is that the ability of global companies to choose where they put their costs and their profits gives them an unfair tax advantage that damages UK-based businesses.”

Though these corporations are not legally responsible for their actions, one must consider the moral irresponsibility of tax avoidance. Companies operate within the letter, but not the spirit, of the law. According to Charles Fried, the first principle of liberal political morality is for humans to be secure, that their persons and property are not open to exploitation. Corporations violate certain moral principles when they try to manipulate loopholes and exceptions in the legal text for monetary gain.

The topic of tax avoidance brings up the question of legal and moral responsibility. Should companies such as Google be held legally responsible for moral issues of exploitation? Similar to the conversation on contracts, moral and legal responsibility often seem like they should be equivocal. Who else can protect the UK small business owners from competition by companies such as Starbucks that pay a significantly lower tax rate? At the same time, the same corporations argue that it is their moral duty to support the shareholders who supported them in their endeavors, in whatever way they can. Like all issues, tax avoidance is not a moral black and white. Arguments can be made in favor of both sides, placing the moral culpability of the corporations beyond legal jurisdiction. The separation between moral and legal responsibility necessarily should be upheld, lest the door be opened for arguments of the moral nature in other court cases. However, as the world economy becomes closer and closer, the issues of international agreements and goodwill will become more important. Perhaps global pressure will serve to place moral responsibility on multinational companies, where legal responsibility should not trespass.

For more information on the tax avoidance hearing, see

http://www.bbc.co.uk/news/business-20288077
http://www.bbc.co.uk/news/business-20197710
http://www.bbc.co.uk/news/business-17625874

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