Ethics in Finance (AQA A Level Business): Flashcards
Exam code: 7132
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Define tax avoidance.
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Define tax avoidance.
Tax avoidance is the legal use of tax rules to reduce the amount of tax a business pays.
True or False?
Because tax avoidance is legal, it cannot be considered unethical.
False.
Many argue tax avoidance is unethical because it deprives governments of revenue that would otherwise fund public services such as schools, hospitals and roads.
Define profit shifting.
Profit shifting is routing profits through subsidiaries based in countries with very low corporation tax rates (tax havens), even when most revenue is generated elsewhere.
Creating networks of holding companies, subsidiaries and ___ companies makes it difficult for tax authorities to determine where profit has genuinely been earned.
Creating networks of holding companies, subsidiaries and shell companies makes it difficult for tax authorities to determine where profit has genuinely been earned.
Define transfer pricing.
Transfer pricing is artificially setting the prices at which different parts of the same company sell goods or services to each other across borders, in order to move profit to lower-tax countries.
How does tax avoidance create an uneven playing field?
Smaller businesses without the resources for complex international structures pay their full tax liability, while large multinationals reduce theirs significantly. This distorts competition.
How does tax avoidance by large businesses shift the burden onto others?
Governments must either cut public spending or increase tax on individuals and smaller businesses to compensate.
Why did the UK government introduce the Diverted Profits Tax?
It was designed to tax profits that multinationals had moved out of the UK using artificial arrangements.
Define payment terms.
Payment terms are the conditions agreed between a business and those it buys from or sells to, determining when invoices must be paid.
Why are excessively long supplier payment terms considered unethical?
Making small suppliers wait 90 to 180 days forces them to fund the large business's working capital at their own expense. This often creates serious cash flow difficulties.
True or False?
Retrospectively changing payment terms means extending payment periods for existing suppliers without their agreement.
True.
Suppliers are not asked to agree in advance, leaving them little choice but to accept the new terms or lose the contract.
How can a business behave unethically in the payment terms it sets for customers?
It may impose very short payment terms on smaller customers, charge disproportionately high penalty interest on late payments or use restrictive contract terms that make invoices hard to dispute.
Some large businesses pressure suppliers with the threat of _______, implying that refusing unfavourable terms will mean losing the contract.
Some large businesses pressure suppliers with the threat of delisting, implying that refusing unfavourable terms will mean losing the contract.
What is the UK's Prompt Payment Code?
The Prompt Payment Code is a voluntary commitment for businesses to pay suppliers within 30 days.
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