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Compliance and Corporate Integrity: Ethical Considerations in State and Local Tax Planning
Abstract
State and local tax planning is a critical aspect of corporate strategy, yet it presents complex ethical dilemmas. This paper explores the intersection of compliance and corporate integrity in the realm of state and local tax planning. Drawing on ethical frameworks and real-world case studies, it examines the ethical considerations that arise when corporations engage in tax planning strategies to minimize their tax liabilities within the bounds of the law. The tension between legal tax minimization and ethical behavior is analyzed through the lenses of transparency, fairness, and social responsibility. We delve into the ethical implications of aggressive tax planning practices, such as tax avoidance schemes and jurisdictional arbitrage, and their impact on society, stakeholders, and public trust. Furthermore, the paper explores the role of corporate governance, leadership, and corporate culture in fostering a climate of ethical tax compliance. It highlights the importance of promoting a culture of integrity and accountability within organizations to navigate the complex landscape of state and local tax planning ethically.
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This research delves into the ethical dilemmas businesses face when attempting state and local tax planning, primarily concentrating on how these dilemmas impact their social responsibility commitments. By navigating through the complex interplay between seeking profit maximization and adhering to ethical standards, this research aims to uncover the challenges and opportunities in aligning state and local tax planning strategies with corporate social responsibility (CSR) principles. Employing a comprehensive review of existing literature, detailed case studies, and an analytical examination of current tax laws, this research adopts a multi-faceted approach to understand the ethical landscape of state and local tax planning. Through this methodology, the study aims to provide a holistic view of some moral dilemmas businesses face and the strategies they can implement to balance profitability and social accountability. The study identifies diverse strategies different companies have adopted to navigate these ethical difficulties, demonstrating how most businesses successfully maintain their status of "good standing" in various states they operate in by complying with these states' tax regulations. Drawing on the findings, the study proposes actionable recommendations for businesses aiming to refine their tax planning practices and minimize their taxes ethically. These recommendations underscore the importance of transparency, stakeholder engagement, and adherence to the spirit of the law as foundational elements of ethical tax planning. Corporations comply with state and local tax planning to keep a "good standing" status with the jurisdictions in which they operate. This prevents any heavy fines, penalties, and lawsuits.
The exploration was undertaken on the effect of moral conduct on tax management: Coherent perceptive. The objectives were to: determine the effect of tax equity on tax management in Nigeria; investigate how tax payers’ integrity influence tax management in Nigeria; ascertain the nexus of fairness and tax management in Nigeria; and examine the impact of honesty on tax management in Nigeria. The design adopted in this study was an ex post facto design. This is because the events had already taken place before the investigation is carried out. The ex-post facto design uses descriptive survey to scientifically collect data from a population and explores the relationship between the dependent and independent variables. The data for the study were analyzed with multiple linear regression technique to determine the nexus between the moral conduct of tax payers and tax management. The result revealed that tax equity, taxpayers’ integrity, tax fairness and tax honesty affect tax management in Nigeria. Therefore, the study ended by making the following suggestions; that great care should be taken in developing a code of best practice for tax managers to ensure that all the moral factors are effectively addressed within this code for efficient and effective tax structure. The public authorities and tax managers should encourage taxpayers’ knowledge and integrity through the provision of quality infrastructural facilities and other incentives to enhance its revenue generation. The motivation of tax payers through the provision of public goods and services will help to encourage them to remit their tax liabilities and hence improve on their moral conducts for efficient tax management. Individual tax laws need to adhere to moral internal and external standards, such as equal treatment and principles imminent to a given tax, derived from its legal character. The moral quality or fairness of tax law is important because it determines the reach of the obligation of the constituents to pay taxes and the level of voluntary compliance. The tax system should be fair and objective. High level of literacy and managerial capability should be enhanced through adequate sensitization and awareness on the part of the taxpayers, while the managerial competence of the tax collectors should be appropriately enhanced towards the development of efficient tax system. JEL: L20; L23
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Available for download at SSRN: https://ssrn.com/abstract=3021914
Multinational corporations’ tax practices are hotly debated nowadays. Multinationals are accused of not paying their fair share of taxes. Apparently, acting within the limits set by law is not sufficient to qualify as morally responsible behavior anymore.
This article offers ethical reflection on the current debate.The general public typically evaluates (aggressive) tax planning in moral terms rather than legal terms. Therefore, multinationals need to reflect on their tax planning strategy next to economic and legal terms also in ethical terms. This article addresses the relationship between society, morality and taxes. The concepts of tax planning, “aggressive tax planning”, “tax evasion” and “tax avoidance” are elaborated on to exemplify the difference between a purely legal and broader approach. In moral terms, aggressive tax planning may imply loss of integrity and trust which may entail certain costs for businesses, such as reputation damage. It will be argued that in order to improve corporate reputation and (moral) leadership, corporate social responsibility (CSR), endorsed by many corporations around the globe, is a helpful tool. Reflection on tax planning in the context of CSR – good tax governance – should foster a moral mind set and enhance accountability and transparency.
Available for download at SSRN: https://ssrn.com/abstract=3021914
Purpose
– The purpose of this paper is to document relationships between accountants’ socioeconomic beliefs and attitudes and their professional commitment and ethical decisions in a domain-specific context. Specifically, it investigates the relationships among Chinese tax accountants’ level of belief in the importance of corporate ethics and social responsibility, affective/normative professional commitment and ethical judgements/intentions in a case involving client pressure to commit tax fraud.
Design/methodology/approach
– The study employs a survey of tax practitioners employed by public accounting firms in China. The data are analyzed using linear regression and structural equation modelling.
Findings
– The stakeholder view, representing both normative and practical support for the importance of corporate ethics and social responsibility, was strongly and positively associated with professional commitment among tax practitioners. The stakeholder view also exhibited a strong negative association with intentions to engage in tax fraud. Tax accountants who possessed higher levels of professional commitment judged tax fraud as more unethical, and such ethical judgements were associated with a lower likelihood of intending to engage in fraud.
Originality/value
– The associations between: first, professional accountants’ beliefs in the importance of corporate ethics and social responsibility and their level of professional commitment; and second, professional commitment and tax professionals’ ethical judgements have received little attention in the prior literature. The findings of this study suggest that the integrity of public accounting services may be influenced by relatively broad socioeconomic attitudes, and that this effect may operate partially through commitment to professional values.
Taxpayers have to plan their tax affairs to plan their life or develop their business strategy. Often tax planning is encouraged and intended by tax legislation but sometimes it is not. By way of tax incentives, the tax legislator often tries to steer citizens’ behaviour to achieve all kind of policy goals. This way the tax legislator stimulates taxpayers to adopt a calculating attitude towards the tax system, breeding a rule-based mindset focused on tax planning. This rule focus crowds out ethics. Taxpayers turn around the rules to their advantage. The tax legislator usually reacts with refined or new rules that add to the existing complexity of tax law. Companies endorsing corporate social responsibility (CSR) accept ethical obligations beyond compliance with the law. It is argued that these companies should agree that the interpretation and use of tax rules are based on a moral choice that rules out strictly complying with the letter of the law. CSR companies should even take one more step in endorsing the view that tax is a body of rules, which itself is grounded in principles that make up the internal morality of law. Therefore, they should take these principles seriously when engaging in tax planning.
In this article we argue that puzzle of tax compliance can be explained, at least in part, by recognizing the typically neglected
role of ethics in individual behavior; that is, individuals do not always behave as the selfish, rational, self-interested individuals portrayed
in the standard neoclassical paradigm, but rather are often motivated by many other factors that have as their main foundation
some aspects of “ethics.” We argue that it is not possible to understand fully an individual’s compliance decisions without
considering in some form these ethical dimensions. Specifically, we argue here that there is much direct and indirect evidence
that ethics differ across individuals and that these differences matter in significant ways for their compliance decisions.
We then put this in the larger context of the inability of the standard neoclassical paradigm to explain compliance of at
least some individuals, and we suggest several possible avenues by which theory can be expanded to incorporate ethics. We
conclude by arguing that a full house of compliance strategies is needed to combat tax evasion, strategies that include the
traditional “enforcement” paradigm suggested by and consistent with neoclassical theory, a less traditional “service” paradigm
that recognizes the important role of a “kinder and gentler” tax administration in encouraging compliance, and, importantly,
a new “trust” paradigm that is built on the foundation of ethics, in which the tax administration must recognize that it can
erode the ethics of taxpayers by its own decisions.
Keywordseconomics-of-crime–ethics–expected utility theory–tax evasion
This chapter examines the manifestation of the principle of ethical conduct in revenue agencies as part of the principles of good governance applied in public sector institutions. Criteria for assessing the integrity of the tax administration are systematized. Special attention is paid to tax morality and its role in compliance with tax legislation and voluntary fulfillment of tax obligations. These issues have been studied in connection with the current trends for tax reforms and the pursuit of sustainable development of the tax system. The motives and behavior of the taxpayers related to the observance of the tax laws, as well as the factors influencing in this direction are considered. On this occasion, attention was paid to administrative efficiency, taxpayers’ perceptions of fair taxation and treatment, the likelihood of audits and sanctions, the impact of social norms and law enforcement. The possibilities for counteracting the corrupt practices in the tax sphere, which destroy the trust in the revenue agencies, have been studied.KeywordsTax moralityIntegrityEthical behaviorPrinciples of good tax administrationTaxpayer behaviorTax auditSanctionsSocial normsVoluntary compliance with tax legislationTax systemTax reformsAnti-corruption
Ethical standards for tax planning by corporations
- A G Jallai
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