Corporate inversion is the strategy adopted by corporate organizations to reincorporate in foreign companies to escape the tax burden. In other word, corporate inversion is the strategy used by organizations to earn significant proportion of their income from foreign countries and leave the income in those countries in order to avoid the U.S. tax rate. In the United States, the government levy taxes on income realizes within the country and from foreign sources. However, organizations use corporate inversion strategy by incorporating in countries with less stringent tax requirements or corporate governance requirements to avoid the U.S. high tax rates.
The United States tax rate is the highest among the advanced countries where corporation pay corporate tax rate as high as 35%. Apart from taxing the income realized domestically, the government also taxes the income organizations bring into the United States from other countries. Thus, corporate inversion is the strategy employed to reduce the corporate tax burden.
Objective of this paper is to address the moral aspect of corporate inversions from role of manager of a company and from the perspective of the government taxing corporate earnings.
Moral aspect of Corporate Inversions from Company Perspectives
On May 2002, the Stanley Works stockholders voted unanimously to move part of its corporation to Barmuda. Although, the company headquarter would remain in Connecticut, however, the Stanley Works would no longer be the U.S Corporation, and its business would be run as usual. The aim of the Stanley Works is to engage in corporate inversion where the company income will remain in Bermuda to avoid the U.S. corporate tax rate. However, the company removed this decision from its agenda because of the public reactions and politicians labeling this action as immoral and unpatriotic. (McTague, 2002).
Using Kantian theory, a corporate inversion is immoral and unethical however, using the stakeholder theory; it is difficult to state that inversion is immoral because the primary goal of a business is to serve the interest of the shareholders. From the inversion perspective, shareholders will gain from the inversion method in the long-term. (Susan, Patricia, & Anne,2005).
Tax is a moral issue that all organizations must honor. In a contemporary business environment, organizations are required to pay income tax to assist government to implement the country's operations. Moreover, the corporate income collected assists the government to provide social amenities for her citizens. Despite the moral aspect to honor corporate tax, organizations have moral obligations for its stakeholders such as customers, shareholders, employees, creditors and other stakeholders. Thus, corporation organizations use the corporate inversion as the strategy to satisfy corporate obligations since organizations are required to satisfy their stakeholders if they want to remain in business. Essentially, corporate inversion is part of a business strategy that organizations use to increase their corporate income. In essence, the U.S. corporate tax is as high as 35%, thus, organizations use corporate inversion to reduce tax to increase in their incomes. For example, the U.S. pharmaceutical companies are merging with Irish drug companies to enjoy 13% corporate Irish tax rate. Other companies considering the corporate inversion are Pfizer, Salix Pharmaceuticals, Medtronic, Walgreen, Applied Materials, and Auxilium Pharmaceuticals. Typically, some CEO of big organizations is renouncing the U.S. citizenship to pursue their corporate inversion objective.
However, "Senator Charles Grassley (R-Iowa), the ranking Republican member of the Finance Committee, has called inversions "immoral." (Scott, & Lou, 2013 p 653). Moreover, member of congress has cries out the corporate inversion is an "Unpatriotic corporate behavior!." For example, Senator Charles has identified the inversion as immoral. Immoral in the sense, if a U.S. company takes over a company in Ireland for a tax purpose, the company will pretend being operating in the take-over country and enjoying the lower Ireland tax of 12.5%. These companies will act as if they are not operating in the United States because of tax purpose. In fact, these companies will continue to be run from the U.S. soil, receiving...
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