Tax avoidance—legal, but ethical?

Who wants to pay more tax? No one. I think it’s fair to say that most people, including the body corporate, want to pay as little tax as possible. And it’s probably also fair to say that most of us want to pay as little tax as possible legally–not just within the letter of the law but also within the spirit of the law.

That’s possibly where ethics comes into play—where we draw the line between the letter and the spirit of the law.

Take that apple of the techie’s eyes, Apple Inc., for instance. From 2009 to 2012, it avoided paying US $44 billion in taxes—including tax on product sales in Australia. Legally, of course.

Let’s say you spend $6 on an apple that cost $1 to produce. The store that sells you that apple has ‘purchased’ the apple from another apple store in Ireland for $5.50, leaving the Australian seller the meager profit of 50 cents (on which to pay tax) and the Irish ‘seller’ the lion’s share of the profit (on which to pay tax). (Of course, that apple never was in Ireland; in fact it was produced in China and shipped directly to Australia.)

Now, why would an apple producer want such a convoluted set up? Because it saves them paying a lot of tax: 12.5% in Ireland vs 35% in the US and 30% in Australia. And the savings add up fast.

Of course, governments collude in allowing this to happen and not surprisingly, lots of global companies take advantage of tax loopholes, including Amazon, General Electric, Google, Hewlett-Packard, IBM, MasterCard, Microsoft and Pfizer pharmaceuticals.

All very confusing, and all very legal. But is it right?

Discussion questions

Where do you draw the line between following the letter of the law and the spirit of the law? Where do you think a corporation should draw that line? Which stakeholder groups do you take into account when deciding where that line is? What, if any, is the relationship between, say, ensuring humane working conditions in overseas suppliers and paying the ‘right’ amount of taxes?