Hemel: Does Apple Have A 'Duty' To Minimize Taxes?

Following up on last week's post, Apple CEO Calls Overseas Tax Rap 'Political Crap':  University of Chicago Law Faculty Blog:  A "Duty" to Minimize Taxes?, by Daniel Hemel:

CNBC’s Jim Cramer came to the defense of Apple CEO Tim Cook yesterday, arguing that Apple’s CEO has a duty to minimize the company’s corporate tax liabilities. Cramer said on CNBC’s “Squawk on the Street”:

“One of the things I did take seriously when I was in law school was taxes. The main thing you learn is that tax avoidance is everybody’s . . . duty. You’re supposed to try to avoid.”

Cramer graduated from Harvard Law School in 1984, and it’s perhaps unfair to hold him at fault for misremembering what he learned in a tax course more than 30 years ago. But Cramer seems to be confusing “right” and “duty” here. Justice Sutherland famously said in Gregory v. Helvering that “[t]he legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted.” 293 U.S. 465, 469 (1935). The claim that directors and officers have a “duty” to minimize a corporation’s taxes, though, can indeed be doubted. In fact, the Delaware Chancery Court recently rejected such a claim [in Freedman v. Adams]. ...

As a normative matter, the rule in Freedman strikes me as the right one. A fiduciary duty to minimize taxes would force directors and officers to navigate between the Scylla of tax law and the Charybdis of D&O liability: a tax strategy that’s too aggressive might trigger penalties, while a tax strategy that’s not aggressive enough might give rise to shareholder lawsuits. If shareholders think that courts are competent to engage in after-the-fact review of managers’ tax-related decisions, they can seek to insert provisions in corporate charters imposing a duty to minimize taxes on managers. Perhaps some courts would say such provisions are unenforceable on grounds of public policy. More likely, shareholders will decide that it’s not in their best interest to try.