Business Ethics: Star Bucks Company
Introduction:
The issue of ethics in business has become an issue of controversy and
conflict of interests for many corporations. It has become quite difficult to
determine what is ethically acceptable and what is not. In the case of the Star
Bucks Company, there have been various allegations directed its way for the
failure to pay taxes in the United Kingdom with the major problem being illegal
tax avoidance (The guardian 2013). In the essay, the writer seeks to offer an
insight on the company and to analyze the tax avoidance issue in order to
familiarize the reader with the content. The writer also seeks to incorporate
academic literature and relevant data in analysis of the issue in question. In
the same regard therefore, the writer will explore the theory relevant to the
context, particularly in regards to the utilitarian theory of ethics. It is
through the analysis of this theory that the writer hopes to explain to the
reader why the society was outraged with Star Bucks failure to pay taxes. It is
also through the theory that the writer explains why tax evasion/avoidance is
actually an integrity issue that is ethically questionable. The essay will also
have a conclusion part where the writer will give a brief over view of the
ideas as analyzed.
Analysis
The star bucks company is an American based company with its
headquarters in Seattle, Washington. The company is a coffee company and is so
far the targets in the distribution and the making of coffee in the world. The
company has been the best performer in regards to the ownership of the coffee
houses that it owns (The guardian 2013). One of its coffee houses is located in
the United Kingdom and was doing very well until it was confronted with the
issue of tax avoidance. Following reports that emerged from Reuters regarding
the company’s tax arrangements, politicians from the United Kingdom, Germany
and France called fro further probe into the matter. It was reported that the
firm had alleged to its European investors that even though they had made returns
worth over 40 million dollars the firm had filled contradictory reports to
stare that they had in fact made losses amounting to 60 million dollars in the
year ending 2011 (The guardian 2013).It is reported hat the co0mpany has so far
never paid taxes in the united kingdom for the past there years and that it has
only paid accumulative of about 8.6 million pounds since 1998 compared to the
1.3 billion pounds worth of sales (The guardian 2013). However, when confronted
with the matter, the company’s European president, Madam Michelle stated that
the company had never on any one occasion avoided d to pay its taxes. The
president also commented that the company was more than willing and open to
discuss the issue in order to clarify their position to the public (The
guardian 2013). Reuters continued to allege that the company has not paid any
taxes in the UK subsidiary, citing that the company was continuously making annual
losses until a recent discovery was unveiled regarding the issue over the
telephone when the company was communicating with its investors and cited that
the UK business was indeed profitable for them. Since these allegations and
claims were unveiled, the company has continued to be the focal point of the
united kingdom uncut, a group that continues to protest over companies and banks not paying their
taxes as desired by the state. However, the management of the company has
continues to refute the claims that they have being underpaying their European
tax bills (The guardian 2013). The prime minister of the country, Mr. David
Cameron has however expressed disappointment and concern over the issue stating
that despite that foreign investors are to be encouraged in the country, there
is also the need to ensure that proper tax payments are carried out and
strictly enforced (The guardian 2013).
Tax evasion is described as the practice through which individuals or companies
devise illegal means in order to avoid the payment of their respective taxes (Allingham and Sandmo 1972). In tax evasion, the parties
involved usually deliberately misrepresent the issue of affairs regarding their
companies’ profitability or loss structure in order for the authorities to
reduce their tax liabilities (Jovanovic and Wood 2007). Such companies therefore devise
means through which they can state lower income figures or actually
misrepresent the true financial positions of their companies in order to
warrant an exemption. In the case of the Star Bucks company, through
deliberately misrepresenting the information regarding the financial position
of the company qualifies them to have evaded their tax liability (Allingham and Sandmo 1972). This is because in the
true essence the company had actually ascertained profits worth 40 million
pound s yet they stated to the authorities that they were continually making
losses up to 60 million dollars.
In order to ascertain the level of tax evasion the tax authorities
usually compare the amounts of the incomes that have not been reported to the
amounts that ought to have been legally reported to the authorities (Allingham and Sandmo 1972). In matters regarding
tax evasion, the United States government gas stated that in order to determine
the level of tax evasion, it is also very important to assess issues like
fiscal equation. In most cases most companies and people evade the payment of
their taxes when they are not very aware of the next due date for which they
are supposed to submit their tax returns. It is also stated that the factor of
evasion is highly dependent on the effective administration the tax officials. In
most cases the tax officials are very corrupt and thus the control of tax
evasion is made very difficult (Allingham and Sandmo
1972). It is the same level of complacency that has affected the United
Kingdom tax administrators for over the years. This is why there is a very
accommodative policy of the companies in the United Kingdom. Most of them with
base in the European continent are allowed to base themselves in the country
and therefore enjoy the tax rates as other local companies in the country. They
can also enjoy the rates as stipulated by any of the countries in the 27
European Union countries. The fact the Star Bucks Corporation had chosen the
Netherlands means that it would enjoy the same rates in the United Kingdom when
it chose to operate in the country (The guardian 2013). However, due to the
redundancy in the law, the company has been able to transfer most of its
revenue to the Netherlands and only pays it tax to the united kingdom after all
these transfers have been made to the Dutch country.
Despite the recent trend of many companies avoiding the payment of taxes
with the example of companies such as Amazon and Star Bucks, the issue can be largely
attributed to the fact that there is a recession in the world that is making
the public to foster and device means to reduce in spending (Buller, Kohis and
Anderson 1991). The fact there is a very sever financial crisis today is making
more and more companies susceptible to the crime. It is due to such incidences
that the relationship between tax avoidance and ethics has been questioned (Nova Scotia Business
Journal 2009). In the analysis of the star bucks company it is still
not clear whether they are willing to pay back the tax that they are alleged to
have avoided fro the three years in their operations in the United kingdom. The
fact that the company recently announced that they will pay and pre pay the
tune of about 20 million pounds in advance to the exchequer for the next two
years is significant in the illustration of the consumer’s power to the
behavior of a company’s brand (Lindsay 1995).
This means that tax issue should not only be treated in regards to backroom
issues but should be considered with a lot of importance depicting a company’s
responsibility to the public, the community and in the county as to where it
conducts its business operations (Schwart 2012). Other multinational companies that use the
same tactic to avoid paying taxes around the world are also warned of the
possible effects of their practices.
However, there have been issues that have been raised by other companies
claiming that the issue of tax payments is simply a philanthropic issue and not
a matter of necessity or legal duty (Wolfe 1991). However, it has been cited
that we cannot rely on the companies to align their own behaviors in regards to
being tax compliance and in the payment of taxes. However, it should not be neglected
that we are in an era where payment of taxes especially to the multinationals
is simply a voluntary corporation matter and not a minimum requirement (Ferrell
and Fraedrich 1997). In African countries,
the issue is simply depressing as most if the countries have not yet enforced
clear laws that tackle tax avoidance matters due to the overstretched nature of
the tax inspectors. Whether it is an issue that we consent with or not, the
issue of tax payment and tax restructuring for multinational companies is
simply a matter of ethical choice. It is essential that proper legislative action
is put into place top ensure that the issue of corporate tax is not trusted as
simply being a bonus issue or to be paid at the dispense of companies but as a
legal and ethical aspect (Forsyth 1992).
To better illustrate the ethical issue, the writer seeks to use an ethical
theory related to the subject topic. The most a appropriate type of ethical
theory in the analysis of the star bucks tax avoidance issue is that which
according to the writer, would incorporate the conduct of the individual in
regards to the action the is performed
in order to offer positive good to all the parties concerned (Robert 1976). In
analysis of this issue therefore, the utilitarianism theory is the best theory
to relate to the incidences of the case as analyzed above. In regards to the
theory, it mainly bases it analysis on how to achieve one’s goal while still
enforcing what is good. It evaluates the rationality of ones actions against
that which they are required to do (Nyaw, and I. Ng 1994). The fact that the
theory analyses the decision vs. the outcome is a best illustration of the case
in question (Paley 2002). In regards to star Bucks
Company, it may have seemed logical that they state the financial position
their company in a rather contradicting way so as to promote their own
profitable interests (Heller and Heller 2011).
However, they did not consider the impact of their decision to the general
public in regards to the fact that it would have on the revenues to the United
Kingdom country, to their coffee brand and the reaction that it would stir from
the public (The guardian 2013). If the company would have applied the
sentiments of the theory, the first thing that they would have considered to
evaluate would be the potential good of their outcome and its impact to the
people of the society in which it operates.
Utilitarianism categorized as one of empirical theories in explaining
ethics (Stieghorst & Marcel 2010). The basic principle in which the theory
operates is in the acceptance of morals, utility with the implication of the principle
that advocates fro the greatest happiness with the justification that any
action done in the right manner with an intention to promote general happiness
are ethical while those that are done in order to cause unhappiness are wrong
and not ethically acceptable. Through happiness therefore, people can derive
pleasure and avoid the element of pain. The theory emphasizes that it is
important to understand that happiness in this context dose not only refer to
the happiness of the agent but in fact the sense of happiness achieved by doing
an action that derives general pleasure and collective gain.It is therefore under
this aspect that the nobility of individuals is assessed in the derivation of other
people’s honors. In this theory, Mill noted that the basis or standard of
morality is the impact of joy that is created for the ultimate good of the majority.
This means that the greatest good is the ability to do an action that offers a
general good to a general number of people.
The Star Bucks Company seems to have been confronted with the underlying
issues in the utilitarianism theory, It was highly essential that the company
evaluated the good of paying taxes versus the good of paying taxes not for
them, but for the general society (The guardian 2013). It was necessary that
the company compares the material gains it would have achieved in relation to
monetary terms versus the satisfaction the community would have derived through
their payment of taxes (Tronto 2011). In this case, regardless of the profits that
the company was making or their desire to reduce in the effects of the economic
recession to their company, it was vital that they pay up their taxes. It does
not matter if along the way their productivity would have been affected but
basing on the fact that payment for their taxes would have gone a long way,
they were therefore obliged to pay (Driver 2009).
This is just the case in the theory. It does not evaluate whether
through doing a positive good for the society your rights are being infringed on
(Penslar 1995). It necessitates that if the general outcome is positive for the
society versus for you, them the society should come first. In whole some perspective
the rule dose not consider the initial good of the agent if they fail to fulfill
their required present good. In this case, despite the fact that the service of
star bucks as a coffee café had been excellent for the development of the United
kingdoms’ economy through avoiding pay to their tax, their initial good was erased
and did not count. It should be noted that under this context, through the payment
of taxes, the company was not only funding the government but was also allowing
the government to fund other societal areas that were not doing very well (Bredeson 2011). This way the resources that
would have been obtained from the company would have generated a social good to
many individuals of the state. It should be noted that the United Kingdom and
the other E.U member states reacted negatively to the fact that the company had
been avoiding to pay their taxes since to them it was their duty to ensure that
they operate to foster the general good of the society and not just their own.
In brief they though in the utilitarianism way
Conclusion:
Through the analysis of the above case study of the Star Bucks Company the
issue of business ethics in taxation is emergent. It as been noted that there
was a discrepancy over the records stating the financial position of the
company in order for the company to avoid on its responsibility to pay taxes in
the United Kingdom. It is also noted that there have been various reactions to
the subject matter with even the public feeling cheated. On the other hand, the
government relays its disappointment with companies that exploit good will to
invest through failing to pay their taxes. Through the utilitarianism approach
in regards to the ethical matter, it is analyzed that it is important for
companies or individuals to act in conduct that fosters their moral good and
general productivity of the society in which they operate in. With analysis of
the Star bucks company. it is noted that through their deviation to payment of
taxes, they aware failing in their responsibility to give to the society general
good. This therefore means that with this approach they failed in the
responsibility. Otherwise, there would be no complaints from all angles of the
society. Instead the society felt cheated by the company with their desire to
make more profits at their expense through not paying taxes as allocated.
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