Pros And Cons: The Ethics Of Corporate Inversion

The United States has a “high tax rate on foreign earned income” compared to other countries (Yang & Lauricella, 2015, p. 214). This leads corporations to the concept of corporate inversion, where they “avoid [the] tax rate by causing foreign corporations owned by U.S. shareholders to earn income through a chain of corporations that does not include a U.S. corporation” (Yang & Lauricella, 2015, p. 214). In other words, a corporation is reducing their U.S. tax liability by going through a foreign corporation that has a lower tax rate. To corporations, corporate inversion is seen as “a valuable strategy” because a corporation’s taxing authority changes from a country with a higher tax rate to a country with a lower tax rate (Yang & Lauricella, …show more content…
2). Utilitarianism could be seen through John Stuart Mill, who believed that “an action is morally right insofar as it tends to produce the greatest happiness for the greatest number of people affected by it” (Godar, et al., 2005, pp. 2-3). Therefore, the ethical viewpoint is from the result of something occurring. On the other hand, deontological ethical “theories require that actions be evaluated as morally right or wrong depending on how closely they adhere to a moral rule or principle” (Godar, et al., 2005, p. 3). Kant believed that “an action is morally right only if its maxim can be willed as universal law” (Godar, et al., 2005, p. 3). In contrast to Mill, Kant looks at the action and reasons behind the action in terms of the ethical laws put into …show more content…
4). To decide on whether corporate inversion creates “the greatest happiness for the largest number of those affected by the action…a cost/benefit analysis must be [completed] for all those affected” (Godar, et al., 2005, p. 4). Corporate inversion could affect five groups of stakeholders: “employees, customers, investors, the current home government, and the prospective home government” (Godar, et al., 2005, p. 4). Appendix 4 shows the effects of corporate inversions on stakeholder groups, which identifies the beneficial and harmful, economic and psychological effects of corporate inversion. Creating this list of pros and cons allows a company to “decide whether reincorporation would result in the greatest benefit to the greatest number of those affected by the action” (Godar, et al., 2005, p. 5). According to Appendix 4, there are harmful psychological effects for four out of the five stakeholders, providing evidence that there is not a great deal of happiness for the idea of corporate inversion. However, for four out of the five stakeholders, there are favorable economic effects that prove corporate inversion to be beneficial. In this case, a corporation may view inversion as unethical because of a majority of unfavorable results. These effects, economic and psychological, have to be weighed out by