The paper "Smoke and Mirrors: Corporate Social Responsibility and Tax Avoidance by Sikka" is a delightful example of an article on finance and accounting. Sikka focuses on identifying gaps in the organizational talk, decisions, and actions by outlining how companies promise responsible conduct but engage in tax avoidance and evasion. The author outlines that major corporations rarely provide detailed information on their taxation plans, but offer reports that have promises of socially responsible conduct. US government estimates indicate that 66 percent of domestic and 68 percent of foreign corporations did not pay any taxes between 1998-2005.
Although corporate tax rates have declined in the UK from 52 percent to 28 percent in 2008, tax avoidance is still high. Developing countries that receive financial aids such as Africa lose about 8 percent of their GDP through transfer pricing and tax avoidance schemes that transfer profits to developed countries. Despite their claim to integrity and transparency, the author demonstrates that various corporate including professional accounting firms indulge in tax avoidance due to lack of moral compulsion. The hypocrisy is perpetuated by the pursuit of remuneration, profits and media accolades and has led to imprisonment and of executives and corporate fines.
Companies engage in social responsibility hypocrisy through corporate talk while their actions indicate disparities in ethical conduct and tax disclosures. My point of view In my opinion, big corporations have failed to be socially responsible since it is evident they engage in tax avoidance and evasion in order to report higher profits and high share prices. I believe the accounting framework has loopholes that allow firms to avoid or evade taxes through transfer pricing, offshore tax havens and royal programs that are perpetuated by the inconsistencies in their accounting across the globe.
In my opinion, the lax corporate governance framework and greed by executives encourage tax avoidance in order for the business to report higher profits and ensure a higher return to shareholders. Professional Accounting firms have failed in their public responsibility of protecting the public interest through ensuring financial records are correct. The accounting firms collude with corporation executives to report higher profits in order to attain higher remuneration and status in society.
The big corporations must have the moral obligation to pay taxes and disclose their tax plans in their financial statements. The taxes help in building the economy through providing the necessary infrastructure thus paying taxes should be both a legal and ethical expectation of any business.