The Two Ethical Frameworks Are Utilitarianism and Deontology

Benjamin Franklin once wrote that there are only two certainties in life, death and taxes. However, nobody likes paying taxes but we all know they are essential for the maintenance and growth of a society (Schaltegger, 2005). It is because of this that tax has always been a relevant and topical issue in today’s society. A particularly topical issue following recent events in Ireland is that of tax avoidance and evasion. The discussion below will highlight key ethical frameworks which can be applied to these tax concepts. Following this, there will be an insight into the role of taxes in our society. Though, the main concept that is continuously reinforced throughout the discussion below is whether the legality of one of these tax structures ensures its ethicalness. This debate will be accompanied by examples relating to multinationals in Ireland such as Google and Apple Inc. and how their actions may be deemed ethical or unethical. The discussion will then come to a close with a focus on changes to the Irish tax system following global pressure from the EU and the OECD.

In recent decades there has been much debate regarding the ethical issues associated with tax avoidance and evasion. Although one may assume due to the legality of one and not the other that one is ethical and the latter is not, but it stems much deeper than that. In order to grasp an understanding of the ethical arguments which convey whether tax avoidance and evasion is acceptable in society by individuals, we must first begin by understanding the ethical principles which apply in these situations. The two ethical frameworks which apply are Utilitarianism and Deontology.

According to Filho (2014) both of these ethical frameworks try to answer the same question, what is the right or wrong thing to do in a given situation. Firstly, utilitarianism is defined as a philosophy based on the principle of the greatest happiness for the greatest number of people (Mulgan, 2007). This framework with regards to tax avoidance depends on the specific country where the tax is being avoided (Filho, 2014). Thus, if a country tends to perform well with tax revenues then tax avoidance is wrong as it does not provide the greatest amount of good for the greatest amount of people. This tax avoidance is wrong as the revenue will bring more utility to the society, even though the individual will lose some of their utility (Filho, 2014).

The second ethical framework is deontology, this concentrates on the specific behaviours or actions of an individual and whether they are regarded as being right or wrong (Flew, 1979). This ethical framework is considered to be a non-consequentialist moral concept. A deontologist stresses that the completion of an ethical action is not solely dependent on maximising the good if, that action conflicts with what is regarded as being moral (Alexander, 2017). Therefore, according to deontologists, individuals are morally obliged to do/not do specific actions which could exploit particular rules or laws. Hence, within deontology if an action is deemed wrong then that act is always deemed wrong no matter what the circumstance (Lenz, 2018). In conclusion, under the deontologist framework tax evading and tax avoidance is wrong and is always wrong regardless of the consequences of not avoiding your taxes.

According to Dyreng et al. (2017) accounting researchers have been studying tax avoidance for several decades. Tax avoidance is classically defined in literature as, an extensive range of tax reduction actives. Theses actives range from benign tax-advantage investments to aggressive tax reducing strategies, some of such strategies may not be upheld if challenged in a court of law (Dyreng et al., 2017). However, tax evasion relates to illegal and intentional actions taken by individuals to reduce their legally due tax obligations (Alm et al., 2016). Following discussion of the definition by literature of these concepts it is clear that both can be connected, as they both can come about due to low levels in morales. Additionally, they both reduce the amount of overall revenue collected (Torgler and Schneider, 2006). Theoretically, the difference between tax avoidance and evasion can seem quite clean cut as one is legal and the latter is not. However, the main issue with regards to tax avoidance or evasion is their ethicalness, as previously stated, tax evasion is illegal and therefore unethical. In contrast, tax avoidance is legal however, its ethicalness can be argued. According to Hall (2015) tax avoidance can be perceived as evidence of greed and thus can damage a company’s public image. This will be particularly damaging for a company who may be perceived as ethical to the public.