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|What is meant by the term “Tax Morality”?
Eiteman, Stonehill and Moffett define tax morality as “the consideration of conduct by a Multinational Enterprises to decide whether to follow a practice of full disclosure to local tax authorities or adopt the philosophy, “When in Rome, do as the Romans do” (Eiteman, Stonehill, & Moffett, 2016). Tax morality means that taxpayers have to pay for their taxes morally, ethically, and responsibly by paying for their fair share of taxes voluntarily. They have to submit full disclosures to the local tax authorities. Some multinational enterprises fully disclose all information and some do not keep their competitive edge. Taxes are a way for the government to gain capital for projects that need to be taken care of.
If for example, your company has a subsidiary in Russia where some believe tax evasion is a fine art, should you comply with Russian tax laws or violate the laws, as do your local competitors? Why or why not?
If my company had a subsidiary in Russia where some believe tax evasion is a fine art, I personally would comply with Russian tax laws instead of violating the laws as my local competitors are doing. I would not want to bring any bad publicity onto my company even if it is located in a different country where my competitors are getting away with tax evasion. I morally could not partake in tax evasion. That is just bad business. Businesses have ethics and morality to live by. I would not want my company in Russia to have respect for another country’s laws. I would want to abide by the laws of Russia just as I would want a company coming to American to respect our tax laws. The last thing I would want on my business is tax penalties on my company in Russia for violating tax laws. On the other hand, what if “When in Rome, do as the Romans do” would save my business from the competition. If the local competitors are partaking in tax evasion by getting ahead of the competitors, I might just have to say, “Do as the Romans do”. I do not believe there is a right or wrong answer to this question. Again, I am back to the solution that I would comply with the Russian tax laws because my morals would not allow me to cheat and steal to push my way to the top of the competition. With the company that I am currently working for, we made a huge change and sacrifices to make our shareholders happy. Yes, my company in Russia may lose some to the competitors by overall, it would be best for my company in Russia to follow the tax laws in Russia and do what is right by my shareholders of the company.
Jess Eiteman, D.K., Stonehill, A.I., & Moffett, M.H. (2016). Multinational business finance, (14th ed.). Upper Saddle
River, NJ: Pearson Education, Inc.
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Kelly Brinkel(Oct 24, 2018 12:38 PM)– Read by: 1
What is meant by the term “tax morality”?
The term tax morality can be defined as the decision a firm makes in regard to their taxes. For multinational firms, tax morality can be much more complicated since different nations that they operate in will have different laws and regulations surround taxes and tax paying. In this situations, the firm is faced with a tax morality issue of whether they should abide by the laws and regulations of that nation, or if they should follow suit of other competing firms who may not be following all of the laws and regulations. If the firm were to choose to follow along with other competing firms, they would be following the phrase “when in Rome, do as the Romans.” This means the firm would disregard the law in order to better compete in their given market and/or industry.
If, for example, your company has a subsidiary in Russia where some believe tax evasion is a fine art, should you comply with Russian tax laws or violate the laws as do your local competitors? Why or why not?
If I owned a company that was in this situation, I would have to weigh the pros and cons of each scenario in order to make the best business decision. While it may be unethical to participate in such tax evasion, you also have to look at it from a business standpoint where others in the industry are not only doing it, but getting away with it. In a situation of “doing as the Romans do”, the firm would be on a more even playing field. Like competitors, the firm would be evading taxes and therefore coming up with more overall income on their financial statements. The downfall to this, however, is that it is unethical and there is no promise of not being caught. Should the company be caught for evading taxes, it could result in bad publicity for the company, heavy fines and possibly even putting the company out of business. In a situation of abiding by tax laws, there are also pros and cons. The cons involve less income on financial statements as compared to competitors because competitors are not paying taxes. This is offset, however, by eliminating the risk of being caught for breaking the law which could result in poor publicity or heavy fines. The company who chooses to abide by tax laws and regulations may seem to be at a disadvantage at the beginning, but in the long run they are probably better off because of this decreased risk overall. In this situation, it seems as if the risk of evading taxes does not outweigh the ‘reward’. If I owned a company in this situation, I would choose to NOT do as the Romans and would abide by the tax laws and regulations in each country my business operated in.