New Tax Scandal Blooms

PepsiCo was arguably the largest company involved in this scandal.

Reuters has reported a brand new shocking development that over 300 companies, including PepsiCo Inc. and AIG Inc. had secured deals with Luxembourg to have their tax bills slashed. The companies involved have reportedly saved billions of dollars in taxes and it is said that Luxembourg provided hundreds of private tax rulings to corporations seeking favorable tax treatment.

 

As we all know, this is a case of financial fraud, which is a topic we covered in class 5 (financial accounting). The biggest question asked when most people read this story is why would the companies commit such a crime? Well, based off an article on the CGA PD net, there are normally three things that drive a company to organize such a scheme. First is pressure, which prompts honest people to commit illegal acts. Second is opportunity, which gives individuals the perception that they can get away with the act, and lastly is rationalization, which gives the person the ability to justify why their action was dishonest.

 

In my opinion I strongly believe that those three points are the main cause for financial fraud. Furthermore, I feel that this case is no exception, as the 300+ companies involved in the deals must have faced the need to make more money (pressure), saw a low risk easy way to do it through Luxembourg (opportunity), and had the excuse that hardly anyone would expect Luxembourg to assist in such an act (rationalization). Thus, proving that those three points are indeed the foundation and justification for any company to commit financial fraud.

 

Sources:

http://www.businessinsider.com/300-companies-including-pepsi-and-aig-are-securing-secret-deals-to-slash-taxes-2014-11

https://www.cga-pdnet.org/Non_VerifiableProducts/ArticlePublication/FinStatFraud/FinStatFraud_p1.pdf

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