Tax Avoidance: Distributive, Compensatory And Retributive Justice

Introduction

West (2018) describes ethics as someone’s moral principles of good or bad behaviour where it’s not based on consequences of these actions. Another view of ethics involves having a sense of duty to do the right thing as a company and for others (Hoover and Pepper, 2015).

Tax avoidance is understood as deliberately sidestepping taxes to lower the tax paid to governments, this method is legal but not predicted by the government involved (www.ibe.org, 2013).

There are questions around the ethics of companies avoiding paying taxes where they can, some deem this practice as unethical due to the results on society when taxes are avoided. This Analysis will look at the professionalism of accountants, Justice in tax avoidance methods of Apple and how it can affect societies.

Professionalism

The role of the accountant in relation to company tax avoidance is outlined by IFAC (2020). They state that the accountant’s role has 5 main principles: Integrity, Objectivity, Professional Compliance and due care, Professional Behaviour and Confidentially.

This means that accountants should engage in these areas when accounting and should consider the implications for society and the company they work for. Accountants need to be honest, be professional and skilful, to not show bias and comply with all laws and regulations that an accountant and business should follow and lastly they should be confidential with the information they require to do their job effectively (IFAC,2020).

It’s the job of the accountant to confirm the correct taxes are paid by companies and determine that no company is illegally avoiding taxes (World Market Intelligence News, 2016). Accountants have a moral duty to deliver the correct information about taxes to not only the companies they work for but to society as well. This is because the actions of the accountants and companies regarding taxes will affect the society in which they are in (Stiglitz et al, 2020) and (Peston, 2013). It’s estimated that $100 billion annually has been taken away from developing countries due to corporate tax avoidance every year, this will affect the growth of these areas and therefore affects society(The Irish Times, 2019).

Regarding Apple in Ireland, the EU Commission claimed that €13 billion is owed to Ireland because of tax avoidance. However, it has been ruled that there was no illegal state aid and had in fact paid valid taxes due to the low tax rates Apple pays in Ireland at 12.5% (Stiglitz et al, 2020). The Apple accountants have therefore been honest in how to pay as low taxes as is legal, they have kept confidentiality, followed laws and been overall professional.

Justice

In this section I will analyse the justice of multinational tax avoidance in Ireland and in relation to Apple. Justice is a form of Teleological Ethics and applies that what is good depends on just how much of a good result is achieved (Hoover and Pepper, 2015). According to Gunnell and Walsh (2012), it’s widely viewed that companies shouldn’t pay more than they legally owe. It is because of this general rule that tax avoidance occurs, meaning that companies try to minimise the amount of taxes they owe in order to pay the least amount legally. This is essentially ‘The Duke of Westminster Approach’, although some people believe this should be modernised (Gunnell and Walsh 2012).

Apple are undergoing tax avoidance by setting up subsidiary companies in tax haven areas and transferring funds to these subsidiaries or they are also getting these subsidiaries to buy their own products from china and then upselling them in tow tax countries such as Ireland to then pay the lower corporation and income taxes here (Peston, 2013).

Distributive Justice

Distributive Justice is defined as highlighting equal allocations of outcomes (Chen, 2018) or as Brouwer and van der Deijl (2017), states it can be described as getting what we deserve from the community. Therefore, we should consider the justice and how it should be equally distributed throughout an area or community.

Today, taxes are not being distributed equally in individual countries due to global tax avoidance. This can be clearly seen in America, where corporation tax represented 32.1% of taxes (1952) but today, only 8.9% is represented in corporation taxes (Peston, 2013). Today, 40% of MNC’s profits are moved to low tax countries such as Ireland (Stiglitz et al, 2020). This indicates that there is tax avoidance occurring by moving money to offshore areas or low tax countries.

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Apple has clearly done this in Ireland by only paying 0.005% of annual tax in some years (Stiglitz et al, 2020).

An important factor to consider is whether the countries economy is being affected. If some companies are taking advantage of the tax havens, then this leads to income inequality and can create a bigger income divide in society (Stiglitz et al, 2020).

Peston (2013), Argues that the MNC’s are causing poor growth in the area they expect to thrive in by avoiding taxes and therefore in turn diminishing funding that will help community growth. The Irish Times (2019) agrees that tax avoidance diminishes revenue for countries therefore, there is not enough funds for infrastructure and other government funded investments in society. Some people claim that if all corporation taxes where lower world-wide that it would encourage companies to invest back into society they are a part of by creating jobs and invest in community projects (Stiglitz et al, 2020).

Apple claims to pay all the taxes due in each country they are involved in and while they have received criticism for apparently reducing taxes paid in America, they claim to pay billions of dollars in overseas income at the American rate of 35% and also say they paid over 35 billion dollars globally on corporation tax in the last 3 years (www.Apple.com, 2017). Apple claims to have followed all laws regarding taxes and haven’t done anything illegal. They claim to have paid a world-wide income tax rate of 26.1% in 2016 (Guider et al,2016).

Compensatory Justice

Compensatory justice is when an unjust has occurred and the people are looking to correct something that has made them unequal to the rest of society (Asal and Sommer, 2019).

The EU Commission has brought the case against Apple and Ireland and they believe compensation is due (Guider et al, 2020). Apple owes Ireland more tax as well as other countries possibly having a claim on some of the taxes owed due to apple moving money earned elsewhere to offshore accounts. While the EU Court of Justice ruled on behalf of Apple and Ireland, the commission has vowed to repeal this decision because they believe Irish Society and government are owed compensatory justice (Guider et al, 2020)

Retributive Justice

Retributive justice is the idea that anyone who commits some form of a crime should be punished accordingly (Avraham and Statman, 2013).

It has been estimated that developing countries lose $100 billion annually due to corporate tax avoidance every year. This then in turn limits these countries spending on areas in need of revenue growth such as roads, healthcare and education (The Irish Times, 2019). Should these countries receive distributive justice for the loss of revenue?

In relation to Apple the deal they have with Ireland has been deemed legitimate by the EU Court of Justice, who state it is a sweetheart deal but not an illegal one (Guider et al, 2020). It can possibly been seen to be more of a punishment for society if Apple left Ireland because they were forced to pay back €13 billion, this would cause job losses in Ireland and reduce taxes paid to the Irish government significantly therefore, poorly affecting Irish society (Guider et al, 2020).

Overall, Apples tax avoidance is ethical because the EU Court of Justice has found no wrongdoing and no distributive, compensatory or retributive justice has taken place.

Conclusion

In conclusion, I believe Apple is acting ethically when they participate in multinational tax avoidance. They are not breaking any laws by paying the least amount of tax legally allowed and they still pay large amounts of taxes to various countries that they reside in. By being a part of so many countries Apple contributes to each society by job increases, taxes and community supports. Apples accountants, while helping them to avoid taxes where possible are being professional by keeping Apples affairs private and not disclosing information to outsiders. The accountants are keeping in mind the interests of the company while also following all laws and regulations in each country. There is also no distributive, compensatory or retributive justice shown because Apple have not broken any laws on tax.