Comm1100 - Final Case Study Examination PDF

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1 are the stakeholders who impact and are impacted by managers’ decisions whether to use overseas tax shelters? Please use a rainbow diagram to rate each stakeholder on two dimensions and explain why you rate each stakeholder in such a way. You have a word limit of 250 words for this response. (9 ma...

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1.Who are the stakeholders who impact and are impacted by managers’ decisions whether to use overseas tax shelters? Please use a rainbow diagram to rate each stakeholder on two dimensions and explain why you rate each stakeholder in such a way. You have a word limit of 250 words for this response. (9 marks) 1.2 Impact: - Managers and individuals who make these decisions - Shareholders and managers hold the most power in making and influencing decisions on whether to use overseas tax shelters. However, they are very lowly impacted as this does not affect where they will be working, their wages or their general welfare as they are likely wealthy enough to fully provide for themselves. Are impacted: - General public - The general public are a stakeholder who are moderately impacted by managers’ decisions on whether to use overseas tax shelters as they are the citizens of the countries for which the managers are avoiding tax. This means that while the citizens (stakeholders) are accurately and obediently paying taxes to contribute to the society, they are not receiving their end of the bargain as the managers have chosen to not contribute tax money to the country through the use of the tax havens. Tax havens drive the global inequity problem. Security implications such as using funds for crime and terrorism . Therefore, I think that general citizens are impacted the most, and yet have the least influence on the managers decisions. -

Workers - Another stakeholder who is impacted are the workers lower in the hierarchy. Usually to avoid taxation, these companies will move jobs and real activities to places with less taxes, thereby removing jobs from their developed countries and thus shifting peoples geographical placements.

2. A legislative priority for policymakers worldwide has been curtailing the subversion of tax laws through multinationals’ aggressive tax planning and tax evasion activities. Costing around US$240 billion in tax revenues foregone each year, said strategies are often either within the ‘letter of the law’ or are escaping detection altogether, as evidenced by the torrent of data leaks over the past five years. Re-read the piece entitled “A historic global minimum tax has been agreed! But has it?“ by Oxford University Professors Devereux and Vella. With reference to this piece, critically analyse the implications for tax planning decisions that managers must make. You have a word limit of 350 words for this response. (12 marks) Corporate responsibility

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The manager must consider the action of tax planning against the ethics and responsibility of the company to the corporate world. They should assess the extent to which the action impacts all stakeholders involved, and not just the shareholders or themselves. The managers should consider whether the benefits of using a tax haven to the company outweigh the benefits to greater society. - Managers should also consider the movement of real activities and jobs to places with lower tax rate, thereby keeping the wages of underdeveloped countries low and removing jobs from developed countries. Economic - Tax planning results in the reduction of tax revenues domestically, leading to a lack of funds to finance the needs of the state such as education, heath, job creation and the like. As such, tax havens distort the function of the world and national economies. - However, this rarely applies to underdeveloped countries. For underdeveloped countries, they actually have comparative advantage over developed countries to provide lower tax rates as a way of attracting businesses to their country. This may actually increase jobs in their country. - However, it must also consider whether the new venture is helping stakeholders more than they are hurting the global economy in the long term. - This also brings in the prisoner's dilemma since if one underdeveloped country complies with the new minimum tax rate, there are still many other countries who are offering the lower rates, meaning that the country would be effectively losing business and revenue. Thus, the managers would be more likely to comply with the minimum if it could be guaranteed that all countries would follow. The same goes for the managers of individual companies. Business law - The manager will also have to consider the contracts, laws and regulations that provide licence for tax planning. 3. Consider the following hypothetical scenario. This scenario applies only to this question. For simplicity, consider a world with only two countries, Australia and New Zealand. Suppose that both countries must decide whether to set a corporate tax rate equal to 30% or 10%. Proceeds from the tax will be used to provide infrastructure and public education, which will benefit both businesses operating in the country and other stakeholders in broader society. A detailed analysis has projected that, compared to a situation where both countries set a 10% tax, if both set a 30% tax, it would generate $10 billion in additional benefits for businesses and broader society in each country. However, if the countries set different tax rates, the 30% tax rate will generate $10 billion in lost benefits in the high tax country, while the country with the 10% tax will gain $20 billion in additional benefits. This is because businesses that operate in both countries can use aggressive tax planning strategies to pay their taxes in the lower-tax country. The payoff matrix below illustrates these outcomes. (New Zealand’s possible choices and payoffs are in italics.)

Explain what is/are the Nash equilibrium/equilibria of this game between the two governments. Next, suppose that Australia and New Zealand are considering signing a treaty that would require both governments to set a 30% tax rate. (For the purposes of this question, you may assume that this treaty will be enforceable.) As the manager of an Australia-based business with operations in both countries, explain what key instrumental considerations would determine whether you would support Australia signing this treaty. Support your answer with reasoning based on the scenario above and examples from your research. You have a word limit of 350 words for this response. (12 marks) Fill in your answer here The Nash equilibrium of this game would be for both countries to choose the 10% tax rate. This is because of the payoff matrix, where Australia’s best option if New Zealand were to choose a 10% rate would be to choose 10%, whereas if New Zealand were to choose the 30% rate, Australia’s best option would again be to choose the 10% rate. This is the same for New Zealand. As a result, there is only one strategy that allows each player to best respond to the other in a way that is not revenue compromising, which is to both choose the 10% rate. Economic - If the treaty were enforceable, then it would benefit both Australian and New Zealand businesses and thus in turn, my business. Referencing the payoff matrix, it can be seen that if it could be guaranteed that both parties choose a 30% tax rate, that it would be equally beneficial to both parties. Article - Further, as referenced by the article in Question 2, a similar tax rate 4 4. Evaluate the decision of whether to use tax havens based on both utilitarian and deontological ethical principles. Describe a situation where utilitarian and deontological principles reveal contradictory answers. Why would this be the case? You have a word limit of 350 words for this response.(12 marks) Fill in your answer here Utilitarian - From an utilitarian approach, tax havens should not be used. To the taxpayer, using a haven would be seen as positive as a lower amount of tax is always desirable. Therefore, the use of a tax haven to avoid taxes is advantageous to the taxpayer, and

thus is the right thing to do in terms of the utilitarian approach. However, by reducing taxes, you directly reduce State revenue, and are thus limiting the money flow needed to pay for State equipment that is used to provide a better standard of life to its citizens. It is important to note however that there is also no guarantee that the State will use its tax revenues to create a better life for society. Deontological - The act of using a tax haven as a method of tax avoidance is permissible by the law, however, it is not a desirable loophole for many developed countries due to the reduction in State revenue. A universal rule that most taxpayers who use these havens would be that of: the lower the tax, the better. However, if all taxpayers were to follow this rule, the net benefit to the State would decrease as States revenues are reduced. If this were to happen, there would not be enough total revenue, which may force the state to introduce a new tax. Further, no one will have a competitive advantage if all taxpayers reduce their liabilities. Thus, the rule fails as a universal one as, if it were to be applied to all people, it would not benefit the market in any way. Thus from a deontological approach, tax havens should not be used. -

Contradictory -

A contradictory situation may arise if the State, whom the tax revenues are being paid to, fail to use the money to better the lives of their citizens. In this case, from a utilitarian approach, tax havens should be used as it is more advantageous to the taxpayer. HOwever, from a deontological approach, tax havens should still not be used....