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. (shrink)

In contrast to many aspects of the social responsibility of business, CSR scholarship has been largely silent on the issue of the payment of corporate tax. This is curious because such tax payments are often considered a fundamental and easily measured example of a company’s citizenship behavior. However, because the payment of corporate tax can often be legally avoided, this activity represents a boundary condition for CSR. If the law and CSR suggest that a company should pay its fair share (...) of tax, yet many successful companies actively avoid this social obligation, should they be considered socially irresponsible. This paper explores the issue of tax avoidance and the implications it has for any credible definition and measure of CSR. It also highlights an aspect of corporate practice that is deliberately hidden from public view. (shrink)

We examine whether a taxpayer’s decision to choose a taxpayer-favorable characterization of income is associated with contextual and individual dimensions of that decision. Using a 2 × 2 factorial experimental design, we manipulate the prevailing social norm on whether there is a general belief that a specific form of income should be characterized as a capital gain or as ordinary income, and the group affiliation on whether the individual is making a tax characterization decision as a sole proprietor or as (...) a member of a group practice. Moreover, we measure participants’ fairness perception of characterizing the income as capital gains versus ordinary. We study the decisions of 180 graduate business and accounting students from two US business schools to explore these dimensions using a tax-ambiguous income situation. Results indicate that both contextual and individual dimensions impact taxpayer decisions. Specifically, the social norm and fairness perception of characterizing income as capital gains affects the likelihood of choosing such a characterization. Being a sole proprietor or a member of a group practice does not have any significant main effect. However, relative to all other conditions, taxpayers are most likely to characterize income as capital gains when both the social norms are for capital gains characterization and when the taxpayer is a member of a group practice. Results remain largely robust to a variety of alternative explanations. We conclude the paper with a discussion of our findings and their implications for tax policy, enforcement, and research. (shrink)

The techniques that some large multinational corporations use to reduce their tax liability have come under increasing public scrutiny in recent years, alongside governmental investigations and international commitments aimed at curbing opportunities for tax avoidance. Although discussion of tax avoidance activities, and their regulatory responses, is often conducted with reference to moral concepts, philosophical analysis of the ethics of multinational tax avoidance remains limited. In particular, the virtue ethics tradition that emphasises the agent and the performance of specific roles has (...) not been considered in detail. This paper examines how the contemporary virtue ethics of Alasdair MacIntyre can be applied to the issue of multinational tax avoidance, and considers the role that accountants play in these activities. It argues, firstly, that MacIntyre’s approach provides a more useful philosophical analysis of the issue and, secondly, that the main parties involved are likely to agree with the main tenets of this approach. The paper also contributes by reconceptualising, using MacIntyre’s scheme, the issue of tax avoidance in relation to Donald Cressey’s ‘fraud triangle’. (shrink)

This is the conundrum that gives rise to the issue of tax avoidance: Although governments always seem to lack sufficient funds to support the needs of society, tax codes are often written that offer “a way out” of paying taxes for some but not all constituents. The ways out are referred to as loopholes that allow taxpayers to avoid taxes. This paper first defines the basic terms of tax avoidance and tax evasion and then offers an ethical review of the (...) morality of aggressive tax avoidance. Aggressive tax avoidance is then addressed in relationship a corporate entity’s tone at the top. The conclusion is drawn that use of the letter of the law to avoid payment of taxes sorely needed by governments for the good faith provision of public goods and services is ethically unacceptable. Several suggestions for change are provided, including a new financial statement disclosure and the possibility of a published corporate ethics report. (shrink)

Abraham’s “leadership by example” provides a template for business leaders to implement a tone at the top based on a balance of tzedek (righteousness) and mishpat (legal judgement). The former expresses the generosity of spirit required of leaders, while the latter expresses the sound judgement in conformity with both ethics and enacted law. We relate the two constructs to several contemporary theories of justice and jurisprudence. We also relate the development of Abrahamic Justice in the Jewish tradition from antiquity through (...) Maimonides in the middle ages. We draw insight from this tradition to answer a contemporary business ethics question: Do corporate managers violate their fiduciary duty to shareholders if they refuse to engage in legal tax avoidance? (shrink)

With the rise of globalization, the debate around free trade versus fair trade and liberalism versus protectionism has become increasingly complicated. At times, the regulations of the World Trade Organization seem to pit developed markets against emerging markets as governments attempt to expand international trade while at the same time protecting local industry. To this end, antidumping measures have been extensively developed as a way to block foreign low-cost goods from entering domestic markets. In response, some exporters have begun to (...) circumvent these antidumping measures using strategies such as transhipment, assembly operations, and slightly modified products. While previous studies have addressed the ethical aspects of antidumping measures, this study will focus on the ethics of circumvention strategies with a special focus on the theories on legal compliance and, specifically, civil disobedience and conscientious evasion. (shrink)

Although the managerial practice of cheating spans complex and heterogeneous situations, most business ethics scholars consider that the very idea of cheating is indefensible on moral grounds, and quickly dismiss it as wrongdoing. This paper proposes to fine-tune this conventional moral assessment by arguing that some forms of cheating can be justified—or at least excused. To do so, it starts with a value-free definition of cheating that covers a wide diversity of situations: “breaking the rules while deliberately leading or allowing (...) others to think they have been respected.” While using this definition at the metaethical level, the paper contends that the moral assessment of cheating depends on the obligation to comply with the rules. There are rules which do not entail moral obligations, and there are special circumstances where other more important obligations override the obligation to comply with the rules. Furthermore, the paper argues that respecting the penalty rules also influences the moral assessment of cheating on the rules. The key interest of this endeavor lies in contributing to building a more solid theoretical framework for the study of cheating in management, which may replace our common prejudices and basic intuitions on this matter. (shrink)

The paper focuses on the consumer side of consumption tax evasion (CTE), a subcategory of the shadow economy. The ethical dimensions of tax evasion have been effectively captured by the existent literature on tax morale, yet it fails to address the role consumers can play in CTE. Further, there is a shortage of tax morale studies that explore ethical decision making as a process composed of multiple steps and determinants. To bridge these gaps, we turned to the consumer ethics literature (...) and Jones’ issue-contingent model of ethical decision making. We developed the conceptual model of consumer ethical decision making for CTE by incorporating four key elements from the issue-contingent model, i.e. moral recognition, moral judgement, moral intention and moral intensity, while personal moral philosophies were introduced as an antecedent to the consumer ethical decision-making process. The study was conducted on a sample of consumers from Slovenia, where CTE is a widespread phenomenon. The findings confirm that consumers’ recognition of CTE as a moral issue is influenced by their moral philosophy and perceptions regarding the magnitude of CTE’s consequences, their visibility, probability, and temporal immediacy. These perceptions also play an important role in determining consumers’ moral judgements and intentions regarding CTE. Moreover, through the process of moral recognition and moral judgement, consumers form intentions to participate in, or avoid CTE. The study holds important implications for public policy makers who are trying to reduce the tax gap in times of economic instability and fiscal crisis. (shrink)

In this paper, we consider the relationships among corporate accountability, reputation, and tax behavior as a corporate social responsibility issue. As part of our investigation, we provide empirical examples of corporate reputation and corporate tax behaviors using a sample of large, U.S.-based multinational companies. In addition, we utilize corporate tax controversies to illustrate possibilities for aggressive corporate tax behaviors of high-profile multinationals to become a reputation threat. Finally, we consider whether reputation serves as an accountability mechanism for corporate tax behaviors (...) among other mechanisms for holding firms accountable for corporate tax behaviors. Our conceptual work points to a complicated relationship among shareholder, stakeholder, and civic responsibilities in the development and execution of firm’s corporate tax strategies. Building on those insights, our empirical illustration considers corporate reputation data alongside data which reflects corporate tax behavior. Based on this work, we find no clear trend or pattern indicating that reputation is associated with or affected by certain types of corporate tax behaviors. That is, our exploratory empirical illustration suggests that corporate tax behavior does not produce broad reputational consequences that would motivate a change in firm behavior. Drawing from celebrity and strategic silence research, we then suggest that reputation may not be a well-functioning mechanism for holding corporations to account for contributing their fair share of the resources used by government for the benefit of society and offer-related theoretical insights. (shrink)

The growing importance of the cryptocurrency phenomenon has raised concerns about the ethical implications of a hypothetical widespread use of these new forms of digital money. In this paper, we undertake an ethical assessment of cryptocurrencies drawing upon two specific ethical theories: private property ethics and utilitarianism. Particularly, we focus on three distinctive aspects. First, we examine the advantages and disadvantages of cryptocurrencies vis‐à‐vis central bank fiat money. Second, we analyze cryptocurrencies as facilitators of tax evasion and the ethical implications (...) arising therefrom. Finally, we explore the use of cryptocurrencies for nefarious consumption. We conclude that, were cryptocurrencies to become widespread media of exchange, governments capacity to undertake monetary, fiscal, and drug policy would be undermined. We argue that this would be an ethically desirable outcome from both a private‐property‐rights and a utilitarian perspective since it would force governments to reduce their size and scope in these three areas. (shrink)

This paper focuses specifically on how religions shape attitudes towards ethics of tax evasion. Firstly, the paper begins with an overview of the four views on the ethics of tax evasion that have emerged over the centuries, then goes on to review some of the theoretical and empirical literature on the subject. The empirical part of the study examines attitudes toward tax evasion in 57 countries from the perspectives of six religions using the data from Wave 6 of the World (...) Values Survey. The sample population is more than 52,000. More than a dozen demographic variables were examined. The results study found that attitude toward cheating on taxes does differ by religion. (shrink)