Diving Into a Tax Haven: Should Western California Life Move to Bermuda?
1- Do you feel that it is ethical for a company to channel income to a tax haven in order to reduce or eliminate taxation? Explain.
Ethics is mostly a matter of the culture you live in. What is ethical and normal in one country might not be ethical in another. The no taxation is totally ethical in Bermuda, and unethical in the United States. It all depends on the way the laws are arranged in each country. It is in your business' best interest to reduce costs in any possible way, as long as it is legal, in order to maximize profits. If moving your business out of the country is what it takes to reduce or eliminate taxation, you should do it. It might not be ethical for Americans, but is not illegal.
2- Are there any disadvantages to Western California Life in establishing a subsidiary in Bermuda? Explain.
One of the first disadvantages I see threatening West California Life Insurance is that there are about 1,500 insurance companies already operating in an island of only 57,000 residents. This means that there's going to be a very tight competition among all of them. Another disadvantage could be that the Organization for Economic Cooperation and Development listed Bermuda in its unfair tax practices' list. This would be very negative to Dan's business to the point that is not profitable enough and ends up closing the subsidiary. But even if this was the situation, I don't think Dan would loose too much money because as easy as he opened the office in Bermuda, he can close it. Everything in businesses is about risking situations.
3- What should Dan Richardson do?
I think Dan should take the risk. In order to be successful in business, you have to deal with the risks involved. In this scenario, Bermuda through its incentives to attract foreign investment happens to be the right place for Dan to subsidize his company. Also, we need to think about...
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