The U.S. tax law is complex. Sometimes the line between tax avoidance and tax evasion is not clear. Discuss the legal and ethical implications of the following two capital investment decisions:
a. A company invested in an asset that it expects to grow rather than decline in value. Nevertheless, the tax law allows the company to deduct depreciation on the asset. Therefore, the company depreciated the asset for tax purposes using an accelerated MACRS schedule.
b. There are often tax advantages to investments “offshore.” For example, in Bermuda there are no taxes on profits, dividends, or income, and there is no capital gains tax, no withholding tax, and no sales tax. A U.S. company decided to invest in a manufacturing plant in Bermuda and use transfer prices to move as much of the company’s profits as possible to the Bermuda plant.