Horizon Trading Company: John Smith’s dilemma
Ethic’s Case found on Babson College website
John Smith is a new Regional Supervisor for Horizon, an American based company, in their Russian operations sector. Early in his introduction to these on-going operations he is presented with the “fact” that the company alters its sales accounts to avoid what are said to be the exorbitant state and local taxes imposed by different Russian agencies. He is asked to comply with the ongoing obfuscation by everyone involved with Horizon company management that he meets during his orientation. One day, a week after his arrival, when he is visiting a profitable Horizon retail outlet in Moscow he discovers that sales registers are turned off and paper sales receipts are used to lower the traceable income generated. He does nothing to alter this practice, but he stays to observe the activities in the store. While the store manager is at lunch a Russian agent from the state tax authority enters the shop and asks why the registers are turned off.
John Smith is met with the immediate challenge of whether or not to lie to the tax agent, and if he avoids this immediate situation he must decide what to do about the unofficial company tax avoidance policy. He has been told that if the company pays all of the taxes required that they will not be profitable and people will lose their jobs, information he took at face value. He feels a new manager’s sense of responsibility and does not want to jeopardize company operations or American personnel, or the livelihood of the Russian employees. He did not do any independent research to verify the information he was given.
Questions: What should John Smith tell the Tax Agent? What could John Smith have done to prevent his getting into this situation? If the tax situation in Russia is as corrupt as he has been told, is John doing anything wrong by following expressed company policy?
Submitted by John White
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