Sometimes companies move their corporate headquarters out of their home countries to countries with more favorable tax treatment. Which duty do you believe is higher, the duty of corporations to pay tax to government or the duty of corporations to pay dividends to shareholders? Be sure to explain your answer.

Should the concerns of stakeholders other than shareholders be taken into account by corporations?Why are taxes often more of an issue with corporations than with other business entities?

• Q: Which duty do you believe is higher, the duty of corporations to pay tax to government or the duty of corporations to pay dividends to shareholders
  • Corporations move out their corporate headquarters out of their home countries to tax havens due to favourable taxation laws. This practice is known as tax avoidance
  • In my opinion, duty of corporations to pay tax to government is much higher than duty of corporations to pay dividends to shareholders.
  • Corporations are morally bound to pay tax responsibly as avoiding taxes may be legal, but it’s not ethical
  • Corporate tax avoidance is advocated by tax advisers as a matter of duty towards shareholders, however it is largely about personal Gains
  • It is a flawed argument to imply that there is a legal obligation on directors to minimize the tax companies pay
  • On the contrary, aggressive tax avoidance can cause significant reputational damage, accusations of greed which can be detrimental to the share holders in the future thus destroying the public trust
  • At a time of fiscal austerity, it is duty of corporations to pay their share of taxes

• Concerns of Stakeholder vs shareholder
  • Owners of companies are called shareholders.
  • Stakeholders refers to other entities such as employees, customers and the local community
  • Shareholder theory states that managers primarily have a duty to maximize shareholder returns
  • Stakeholder theory states that a manager’s duty is to balance the shareholders’ financial interests against the interests of other stakeholders, even if it reduces shareholder returns.
  • As per Shareholder theory , a company’s managers, can spend corporate funds only in ways that have been authorized by the shareholders
  • Stakeholder theory asserts that managers have a duty to both the corporation’s shareholders and other stake holders
  • In my opinion, Managers have two primary responsibilities: to ensure that the ethical rights of no stakeholder are violated and to balance the legitimate interests of the stakeholders
  • The objective should be to balance profit maximization with the long-term ability of the corporation stakeholder
  • Stake holer and Share holder relationships are not a “zero-sum game” but a mutually reinforcing and complimentary

Tax issue of corporations

• Since corporations have a separate legal existence and have many legal and constitutional rights, they must be formed in compliance with corporate law.
• Taxing authorities consider them as taxable persons, just like ordinary human beings.
• The taxation system of corporations is different from that of other business entities and have to deal with concerns like double taxation
• As a separate legal entity, corporations must pay federal, state, and local tax on net income