You are the accounting officer of two corporations of Dela Cruz family, a wealthy family in your locality. They own ABC Co. and XYZ Co. ABC Co. is a tax-exempt entity, and as such, it is not liable to pay income tax. On the other hand, XYZ Co. is a taxable company.

The products of ABC Co. are being used as raw materials for XYZ Co. Hence, ABC Co. sells its inventories to XYZ Co. The Dela Cruz family decided to charge XYZ Co. a very high price for goods delivered by ABC Co. In this case, even though sales revenue of ABC Co. will increase, there will be no increase in taxes since it is tax-exempt. On the other hand, the purchase cost of XYZ Co. will increase, resulting to higher deductible expenses and lower taxable income. The income tax of XYZ Co. will decrease. Overall, there will be a reduction in taxes for the businesses of Dela Cruz family.

1 is the action of the Dela Cruz family ethical? Explain.

2. As the accounting officer of the two companies, what will you do?