MORAL ETHICS V TAX ETHICS - THE CASE OF TRANSFER PRICING AMONG MULTINATIONAL-CORPORATIONS

In recent years there has been an increased awareness with regards to ethics in business. More specifically, the abundance of well-publicized examples of cheating, greed, and hypocrisy has created some alarm about the general state of personal ethics (Josephson, 1988). Recent examples include the Oliver North, Ivan Boesky, and Jimmy Swaggart cases. The tax practitioner probably has little direct concern for matters of misconduct and ethical improprieties as mentioned above. Adherence to a code of conduct appears to circumvent the ethical conflict typically found in the business environment. The tax practitioner's ultimate goal is tax minimization for clients. This goal has the blessings of the courts and the writers of tax law. The present day dynamic global economic system includes organizations which have extensive international activity. In an effort to enhance the performance of these organizations, there is typically decentralization of operations. When decentralization exists it is necessary to evaluate the decentralized units. Profit centers are commonly used for this purpose. With profit centers comes the need for transfer pricing between profit centers. The transfer price should be determined in some objective fashion. However, tax minimization often is the driving force in the transfer price decision. This paper examines the compatibility of tax minimization goals, following a code of professional conduct, with moral ethics, using the transfer pricing problem in a multinational environment. A case that presents a common scenario for international firms is used as a vehicle to discuss the underlying tax and ethical ramifications.