Ethical Tax Behavior

For years I always viewed the difference between tax accountants and GAAP accountants as a difference in objective. The objective of the tax accountant was to determine the best way to minimize the amount of legal tax owed. In a less kind way, one could say find every way to take advantage of the rules for your company. The CPA code of conduct even seemed to imply doing any less was not ethical. GAAP accountants, on the other hand, had to deal with a slightly different twist on the ethical view of their behavior. Ethics called on the GAAP accountant to not simply do whatever was allowed under the rules, but to also still ensure the answer actually reflected the underlying economics of the transaction (unless of course the rules didn’t allow that, but that is a topic for another blog).

This view of responsibilities is also rooted in a view that the company should put shareholders first in the decisions it makes; first above other stakeholders such as customers, employees and communities. That view is very much the 1980’s Wall Street greed is good mentality, but it has come under attack in the last three decades as being out of touch with what it really takes to create and sustain long-term value growth. Companies now issue sustainability reports and some are even moving toward integrated reports embracing the concept that a company exists to provide for all of its stakeholders even if the weighting may not all be the same.

It seems to be a natural extension then that the taxes a corporation pays to support the communities it operates in are coming under scrutiny. The question is becoming, are corporations weighting shareowner interests (pay the least tax legally possible) too heavily over community interests (pay a fair tax for where a corporation sells it goods) when developing their tax strategies. Just as corporations are already measured by customers and investors (ok, some, not all) on if they produce goods in sweat shops and exploit the environment, they are beginning to be measured on if they are paying their fair share of tax.

This new view of tax will create a whole new level of complexity for Boards, senior leaders and tax departments to deal with going forward. They are going to have to make strategic decisions on tax strategies that are no longer a single answer equation. Instead to simply looking to pay the least tax period, they are going to have to think about how to pay the least tax that seems fair to all of its stakeholders. The only thing I know for certain is that new decision is guaranteed to make an already complex task even more difficult.

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