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McCredie, Bronwyn & Sadiq, Kerrie(2019)CSR and tax: a study in the transition from an ’aggregate’ to ’real entity’view of corporations.Pacific Accounting Review, 31(4), pp. 553-573.
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https://doi.org/10.1108/PAR-11-2018-0088
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CSR and Tax: A study in the transition
from an ‘aggregate’ to ‘real entity’ view
of corporations
Dr Bronwyn McCredie QUT Business School, Brisbane, Australia
Professor Kerrie Sadiq* Professor of Taxation, QUT Business School, Brisbane, Australia
Abstract
Purpose – The purpose of this paper is to empirically test whether corporates, via publicly
disclosed sentiment, and in response to government initiatives such as domestic corporate tax
reform measures that address transparency, are beginning to view tax as a fourth dimension of
of corporate social responsibility (CSR).
Design/methodology/approach – To determine whether corporate attitudes towards tax are
changing, representations about the corporate entity by a variety of stakeholders and through
numerous channels were analysed using Leximancer software. These representations were in
response to four distinct Australian domestic tax reform measures instituted during and
subsequent to the Australian Government Senate Inquiry into corporate tax avoidance. The use
of Leximancer, a data analysis and mapping software that automates the coding of document
text, delineates concepts, and identifies themes, is well-suited to the nature and size of the data
employed (Lodhia and Martin, 2011) and ensures the validity and reliability of the results
(Dumay, 2014).
Findings – This paper provides evidence on the efficacy of global and domestic tax reform
measures that target tax avoidance through transparency. This is demonstrated by a progressive
change in corporate attitudes towards tax and suggests a transition, albeit nascent, from the
aggregate view to the real entity view of a corporation. As such, this study provides evidence
of the inception of a corporate conscience when it comes to tax, whereby tax is instituted as a
fourth dimension of CSR.
Research implications – Using a theoretical framework which adopts the historically accepted
views of the firm, the authors argue that a shift from the aggregate view to the real entity view
of a corporation will have the following implications: an expansion of the dimensional factors
of CSR (economic, social, environmental and tax); a new standard or definition of corporate
responsibility which encompasses both legal and moral considerations and has transparency at
[email protected] * Corresponding Author: [email protected]
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its core (Narotzki, 2016); and a new outlook where consumers realise that they have the power
to influence and demand action from corporates.
Originality/value – This paper uses state of the art software to empirically test the efficacy of
global and domestic tax reform measures that target transparency, ultimately providing
evidence supporting the adoption of these measures and the recognition of a new dimension of
CSR, tax.
Keywords: Tax, Tax Transparency, Legitimacy of Tax Practices, Corporate Social
Responsibility (CSR), Corporate Tax, Leximancer.
Paper type: Research paper
The authors would like to acknowledge the contribution of participants at the Tax Research
Network Conference; the University of Padova; Griffith University and the Queensland Tax
Researchers Symposium where this paper was awarded ‘Best Paper’.
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1. Introduction
Most corporates acknowledge Corporate Social Responsibility (CSR), a self-regulatory
mechanism whereby corporations voluntarily conduct and communicate their business
practices in a socially responsible, ethical and environmentally sustainable manner (Islam,
2018, 1), as a legitimate activity. That is, corporates recognise that in addition to their legal
obligation of ‘maximising profits and value for their shareholders, they also have a (social)
responsibility to other stakeholders such as their employees and customers, as well as to
society’ (Avi-Yonah 2014, 31). This is evidenced by the number of corporates who engage in
and disclose activities that do not directly benefit shareholders, for example, donations to
philanthropic causes. What has yet to be fully recognised however is an extension of CSR
dimensions from the three traditional factors, economic, social and environmental, which
became universally accepted in the 1990’s when social activism against uninhibited and
irresponsible corporate behaviours captured the world’s attention through widespread media
coverage (Moura Leite and Padgett, 2011), to a fourth independent factor of tax where the
multifaceted role of corporates as good tax citizens is assessed and legitimised.
Similar in origin to the three traditional factors, the recognition of tax as a dimension of CSR
stems from increasing consumer backlash to tax practices and civil society advices (ActionAid,
2011) that assert corporates are not paying their ‘fair share’ of tax, opting instead to minimise
tax and increase profits. Such behaviour has been widely criticised as socially irresponsible as
it shifts the tax burden to others, propagates inequality and undermines confidence in the tax
system (Irvine, 2014). Typically, the consequences of these actions include reputational
damage, unwanted government and media scrutiny, and a reduction in consumer and investor
demand (for example Starbucks, Amazon, Google and Apple). Therefore, what was once
viewed as a private, ‘back office’ calculation is now up for scrutiny, and corporates are
changing their behaviours (McIlroy, 2018).
In addition to this anecdotal evidence, recent studies from Davis et al. (2016) and Zummo et
al. (2017) suggest that corporates are starting to institute tax as a CSR prompting an increase
in the number of voluntary communications regarding corporate tax practices. Reasoning for
the additional disclosures is proffered, with the former study suggesting they act as a substitute
for tax payments, and the latter that corporates are employing impression management
strategies to legitimise and promote their tax practices, consistent with principles of legitimacy
theory which acts as a precursor to CSR reporting. Taken together, these studies suggest a
nascent shift in corporate attitudes towards tax as conceived in the ‘theory of the corporation’
(Avi-Yonah, 2005;2014). This theory suggests as described in Section 2, that corporate views
evolve systematically over time due to stakeholder activism and state intervention: from an
artificial entity created by the state; to an aggregation of shareholders; and lastly to an
individual, a real entity separate from state and shareholders. At this point the corporation is
said to develop a social conscience and will therefore act in a legally and socially responsible
manner, which includes paying their ‘fair share’ of tax. Determining if corporate attitudes are
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evolving in response to global and domestic tax reform measures as theorised by Avi-Yonah
(2005, 2014) is the purpose of this paper, with results providing evidence on the efficacy of
extant legislation, the inception of a corporate conscience and the institution of tax as a
dimension of CSR.
Specifically, this paper will empirically test whether corporates, via publicly disclosed
sentiment, and in response to government initiatives, are beginning to view tax as a fourth
dimension of CSR. We propose that corporate views are changing in response to global and
domestic tax reform programs introduced through both direct legislation and indirect inquiries.
A theoretical framework which adopts the historically accepted views of the firm is applied to
evaluate the legitimacy of tax as a fourth dimension of CSR. To test the hypothesis that
corporates are beginning to regard tax as part of their CSR responsibilities, a case study
approach is employed to consider corporate attitudes during and subsequent to an Australian
Government Senate Inquiry into corporate tax avoidance.
2. Legitimacy of Tax as a Dimension of CSR
Prior literature suggests that the legitimacy of tax as a factor or dimension of CSR ultimately
depends on one’s legal view of a corporation and the theoretical construct adopted. As
explained by Avi-Yonah (2005, 2014), historically, three theories of the corporation have
emerged: the artificial entity theory, the real entity theory, and the aggregate (nexus of
contracts) theory, with each theory having different implications for the legitimacy of CSR.
Other theories of the corporation, which are not considered in this paper, include shareholder
primacy theory, stakeholder theory and more recently the entity maximisation and
sustainability model (EMS) (Keay, 2008). These models all subscribe to different views on the
objectives of a corporation and therefore the role of directors to maximise shareholder wealth,
to benefit all the stakeholders of a company or to maximise the entity’s wealth and financial
stability, respectively, but they do not discuss the implications for CSR. This paper therefore
investigates the legitimacy of tax as a factor of CSR through the lens of these traditional
theories of the corporation.
A corporation according to the artificial entity theory is an extension of the State and, as such,
simply paying tax fulfils the corporation’s CSR obligations to the State. On the other hand,
under the real entity theory, a corporation is an individual which is a separate entity from both
State and shareholders and has a legal responsibility to pay taxes and the social conscience to
not engage in overly-aggressive tax planning to minimise its tax obligation. Last, the aggregate
theory regards the corporation as the sum of its shareholders where CSR activities are
considered excessive as they do not maximise profits and value for those shareholders.
Similarly, minimising corporate taxes is perceived as an obligation of management.
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The dominant view of most corporates and academics alike in relation to tax and CSR is the
aggregate theory of the corporation. Authors such as Christensen & Murphy (2004), Davis et
al. (2013) and Dowling (2014) assert that paying taxes is not a function of CSR, it is a legal
obligation. However, the adoption of this view by corporates is currently being challenged
globally by the Organisation for Economic Co-operation and Development (OECD) and G20
through the Base Erosion and Profit Shifting Program and nationally by individual jurisdictions
institutionalising tax reform that shifts both the focus and onus of compliance from the
regulator to the taxpayer, a practice deemed necessary due to the growing power of
corporations and their ability to circumvent any changes in tax regulation (Narotzki 2016) by
following the letter of the law, not the spirit. This challenge is based on two considerations.
First, that CSR is no longer a question of philanthropy, but a fiduciary duty (United Nations
Environment Programme (UNEP) 2005) that addresses financial, compliance and reputational
risks borne by corporations who engage in tax aggressive behaviour for the benefit of
shareholders, stakeholders and society. The United Nations has gone so far as to suggest that
the fiduciary duty of a corporation has evolved beyond financial interests to CSR
considerations due to changes in societal norms and values (UNEP 2005). And second, that the
aggregate view of a corporation is self-defeating. Adoption of the aggregate view by the
corporate simply transfers the tax burden from the corporate to the shareholder as the State
attempts to recoup the shortfall in corporate taxes from other sources. In this scenario, the very
people the corporate is seeking to protect (shareholders) are the people they will harm. As such,
neither the corporation nor the State can fulfil their responsibilities to shareholders or society.
Implicit in global and domestic reform measures is a push towards CSR, transparency and the
alternate real entity view, advanced as the notion that corporations should behave and act like
individuals. That is, they should behave responsibly and within a moral framework by
complying with the letter of the law and not deliberately engage in behaviour designed purely
to minimise tax which is contrary to the spirit of the law. It is acknowledged that this view is
more nuanced than this and that some advocacy groups such as Citizens United and Public
Citizen oppose the transition of corporates to the real entity view, fearing corporations may
then be able to assert First Amendment Rights such as freedom of speech and rights to privacy.
However, as Greenfield (2015) delineates, it will be this transition, making single-minded
corporations more like people with a moral and legal compass, that will make “them better
citizens, and … their political participation less problematic” (Greenfield 2015, 312).
Examples of sanctioned reform measures include both direct and indirect ‘nudges’ by
governments aimed at steering corporations towards the disclosure of information about their
tax positions, along with providing accompanying explanations. Direct laws are those which
have been enacted to specifically target the transparency of tax practices such as legislation
already existing in Norway, Sweden and Finland, and recently passed in Australia, requiring
revenue authorities to disclose information about certain large corporate taxpayers. Indirect
nudges include reporting, inquiries and investigations into corporate taxpayer behaviour.
Examining the impact and efficacy of both direct legislation and indirect inquiries will reveal
6
the extent of the damage due to the dominance of the aggregate view and allow us to assess a
transition from the aggregate view to the real entity view.
A move by corporates from the aggregate view to the real entity view requires a fundamental
shift in the attitudes of the corporates themselves. Such a shift in corporate view is evidenced
by representations about the corporate entity by a variety of individuals, from CEO’s to public
relations personnel, and through numerous channels such as submissions to regulatory
authorities, public appearances and disclosures. Taken holistically, an impression of the
corporate culture around CSR and tax can be determined, leading to a conclusion as to a
corporate’s ethical and moral stance on aggressive tax practices. Consequently, the purpose of
this paper is to assess the progression of extant sentiment concerning corporate tax practices.
To achieve this, an Australian case study is employed.
3. A Short History of Tax Transparency in Australia
The case study begins with a report produced by civil society groups entitled Who pays for our
Common Wealth? Tax practices of the ASX 200 (United Voice 2014). This report, released on
29 September 2014, examined the tax practices of the constituents of the S&P ASX 200,
posthumously suggesting that these corporations engage in tax minimising behaviour by
‘bend(ing) the rules to legally lower their tax obligations’ (United Voice 2014, 3). Specifically,
it reported that in aggregate over the last decade (2004-2013) these corporations paid an
effective tax rate of 23%, 7% below the statutory rate. Nearly one-third of corporations paid an
effective tax rate of 10% or less, 57% of corporations had subsidiaries in secrecy jurisdictions,
and 60% reported debt levels in excess of 75% which may be conducive to minimising taxable
profits. This report was summarily dismissed by the Corporate Tax Association and Australian
Taxation Office and disparaged by traditional media (Westacott and Drenth 2014) but heralded
a call to arms in the war on corporate tax avoidance in Australia.
On 2 October 2014, just one week after the release of the report, an Australian Federal
Government Senate Inquiry into tax avoidance and aggressive minimisation was announced
and referred to the Economics References Committee. What ensued was an inquiry which
comprised 127 written submissions and seven public hearings at which 120 witnesses and 34
companies were questioned. To date, these proceedings have culminated in three senate
reports: You cannot tax what you cannot see (August 2015), Gaming the system (April 2016),
and Much heat, little light so far (May 2018), which provided recommendations to the
Australian Government and reaffirmed the importance of increasing the transparency of
corporate tax practices to combat tax avoidance and minimisation, protect Australia’s revenue
base, and collect corporate taxes.
The Senate Inquiry was conducted over a four year period, reflecting the significance of both
the evidence deduced and its findings, and was extended eight times to 30 May 2018. The need
7
for increased transparency has been no more apparent than throughout these public hearings,
primarily due to a stark lack of it. For example, corporate representatives, when questioned
about their Australian operations and basic tax practices claimed ignorance or obfuscated their
response by overtly avoiding questions or providing nonsensical answers. Such corporations
called before the Senate Inquiry are familiar to all. They include the largest of the global
multinationals such as Google, Microsoft, Apple, Newscorp, Chevron, ExxonMobil, Pfizer,
Johnson and Johnson, Roche, Eli Lilly, and GlaxoSmithKline to name a few. The most publicly
reported of the testimony was provided by Mr Tony King, an Apple executive, and exemplifies
the initial sentiment of corporate taxpayers when he wouldn’t disclose how much of Apple’s
$6 billion Australian revenue went overseas:
Senator MILNE: What are you buying it for and what are you selling it for?
Tony King: We buy it for an arms-length price, which is determined in accordance
with our advance pricing agreement, which has been clearly worked for
many, many years on a consistent basis, transparent and open with the
Australian tax office.
Senator MILNE: What I am asking you is: what are you buying it for and what are you
selling it for?
Tony King: We buy it at an arms-length price.
Senator MILNE: Yes, I heard you say it is an arms-length transaction and your advance
pricing agreement. What I am asking you, though, is: what is the actual
dollar terms? What are you buying an iPad for and what are you selling
it for in Australia?
Tony King: We are buying it at an arms-length price, which would be the same
price—
Senator MILNE: I heard you say that. I said: how much?
Tony King: I do not have a specific dollar value for each one of our products here
today.
(Excerpt from the Senate Economics Reference Committee Transcript on 8 April 2015)
Mr King also testified that he didn’t know what a double Irish sandwich was. This is a
well-known and used technique which involves two Irish companies, a Dutch company and an
offshore company located in a tax haven. The first Irish company is used to receive large
royalties on goods such as iPhones sold to United States consumers. The United States profits,
and therefore taxes, are dramatically lowered and the Irish taxes on the royalties are very low.
Due to a loophole in Irish laws, the company can then transfer its profits tax-free to the offshore
company where they can remain untaxed for years. The second Irish company is used for sales
to European customers. It is also taxed at a low rate and can send its profits to the first Irish
company using a Dutch company as an intermediary. Correct structuring can mean that there
8
is no tax paid anywhere. The first Irish company now has all the money and can again send it
onward to the tax haven company. Questioning was as follows:
Senator MILNE: I asked you about the allegation that Antony Ting made in his
submission, which is that basically you have an international tax
avoidance structure—’a double Irish sandwich with Dutch
associations’. What is a double Irish sandwich with Dutch affiliations?
Tony King: I have no idea what you are talking about.
Senator MILNE: Oh come on, you have not come here today to say that!
Tony King: What I can say is that all of our revenue is recorded in our books here,
all of our costs of doing business are reported in our books and we buy
products from affiliate companies outside of Australia.
Senator MILNE: So why does this money go straight to Ireland and then through the
Netherlands and then back to Ireland? What is going on with that?
Tony King: All of our business here is clearly reported in our books.
Senator MILNE: I am not asking what you are reporting. I am asking you about this
arrangement that you have.
Tony King: The arrangement that we have is very clear in the business that we do
in Australia. All the revenue and all of the costs of doing business are
clearly reported in our books here in the Australian market.
(Excerpt from the Senate Economics Reference Committee Transcript on 8 April 2015)
This reported behaviour, in the face of a parliamentary inquiry, exemplifies the aggregate view
of the corporation, the futility of extant legislation, and the lengths multinational corporations
will go to to conceal their tax practices. However, we predict that this initial sentiment has
changed. In this case study, to examine the progression of extant sentiment concerning
corporate tax practices over this turbulent period and ascertain whether public scrutiny of
corporate tax practices has aided the transition of corporations from the aggregate view to the
real entity view, a qualitative approach is adopted. Corporate tax communications are analysed
using Leximancer software to map the progression of corporate sentiment. These
communications come from sources involving corporate representatives expressing their views
in relation to both the Senate Inquiry and the subsequent voluntary tax transparency code (TTC)
which was first discussed by the Board of Taxation in 2015. Consistent with extant literature,
the nature and size of this stakeholder data (Milne and Grubnic, 2011; Lodhia and Martin,
2011) coupled with concerns about the validity and reliability of qualitative research when
manually coded, the result of technophobic research (Dumay, 2014), this study lends itself to
the use of Leximancer software. These events are chronicled in Figure 1.
[Insert Figure 1 here]
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This study provides evidence of a progressive change in corporate attitudes and a transition,
albeit nascent, from the aggregate view to the real entity view of a corporation. As such, the
viability of increased transparency as an effective weapon in the war on corporate tax avoidance
is confirmed. That is, transparency can be used to address the issue of overly-aggressive tax
planning that minimises tax obligations and to restore public confidence in the integrity of the
tax system. It is suggested however, that the efficacy of this legislation is impacted by the
manner in which it is approached by regulators and government. En masse, this study provides
evidence of the inception of a corporate conscience when it comes to tax, which may initially
appear forced and artificial until such time that consumer and societal activism force corporates
to evolve, to realise that the harm caused by socially irresponsible tax practice outweighs any
potential benefit (Fisher 2014), to fully subscribe to the real entity view of the corporation and
to let their conscience be their guide.
4. Data and Methodology
4.1 Data
The data used for this study consists of representations of corporate entities in response to four
distinct Australian domestic tax reform measures instituted since 29 September 2014, the date
on which United Voice published its report entitled Who pays for our Common Wealth? Tax
practices of the ASX 200 (United Voice 2014). This date was selected due to the report being
seen as a call to arms in the ‘war on corporate tax avoidance’. The four measures selected
were: (1) submissions to the Senate Economics Reference Committee’s Inquiry into Corporate
Tax Avoidance and Minimisation; (2) appearances at the same Senate Inquiry; (3) submissions
to the Board of Taxation in response to the TTC consultation paper; and (4) voluntary corporate
tax transparency reports adopted in line with the TTC.
One hundred and twenty-seven (127) submissions to the Senate Economics Reference
Committee’s inquiry into corporate tax avoidance and minimisation were obtained from the
Parliament of Australia website. These submissions consisted of opinion pieces from a range
of stakeholders including private citizens, academics, unions and corporates. For the purposes
of this study however, only corporate representations were required, reducing the sample to 70
submissions.
The Senate Inquiry into corporate tax avoidance and minimisation comprised seven public
hearings conducted over the course of a year, beginning in April 2015. Public hearings were
held on 8/4/15 (Sydney), 9/4/15 (Canberra), 10/4/15 (Melbourne), 22/4/15 (Sydney), 1/7/15
(Sydney), 18/11/15 (Sydney) and 21/4/16 (Canberra). These hearings involved the testimony
of one hundred and twenty (120) witnesses of which fifty-two (52) represented corporates,
including Google, Microsoft, Apple, Newscorp and Chevron. All hearings which included
10
corporate witnesses (8/4/15, 10/4/15, 1/7/15 and 18/11/15) and all dialogue pertaining to
corporate representations were included in this study for analysis. The original transcripts were
sourced from the Parliament of Australia website.
Eighteen (18) submissions were lodged in response to the consultation paper released by the
Board of Taxation on the TTC and, as at June 2017, fifty-two (52) voluntary corporate tax
transparency reports, adopted in line with the TTC, were lastly included in this study for
analysis. These submissions and reports were sourced from the Board of Taxation and the
Australian Government (data.gov.au) website, respectively.
4.2 Methodology
To determine whether corporate attitudes towards tax are changing in response to domestic
corporate tax reform measures that address transparency, representations about the corporate
entity by a variety of stakeholders, from CEO’s to public relations personnel, and through
numerous channels such as submissions to regulatory authorities, public appearances and
disclosures, were examined over time. Taken holistically, this analysis was expected to yield
an evolving impression of corporate attitudes towards tax, which allowed us to determine
whether corporates are transitioning from an aggregate to a real entity view thereby instituting
tax as an additional dimension of CSR. Consequently, the hypothesis for this study is:
HA: In response to global and domestic tax reform measures that target
transparency, corporates are transitioning from an aggregate to a real entity
view.
The corporate tax reform measures identified, based on an Australian case study, include
submissions to the Senate Economics Reference Committee’s inquiry into corporate tax
avoidance and minimisation, the transcripts of the Senate Economics Reference Committee
hearings, submissions to the Board of Taxation in response to the TTC consultation paper, and
corporate voluntary tax transparency reports adopted in line with the TTC. Corporate
representations made in response to these measures were independently analysed for content
and sentiment using Leximancer, a data analysis and mapping software that automates the
coding of document text, delineates concepts and, based on proven algorithms, measures the
association or proximity of concepts to identify themes.
Primary analysis of the data was qualitative, with corporate representations thematically
analysed to specifically identify corporate attitudes towards tax. To accomplish this
Leximancer software was used to auto-code the text content and delineate concepts. The
concept of ‘tax’ was then flagged as the central concept in each Leximancer project to which
the association or proximity of all other concepts were mapped. As a result, major themes were
identified for each corporate tax reform measure, first, through a frequency distribution of those
concepts that co-occur with the ‘central concept’ of ‘tax’ and second, through the distinctive
11
Leximancer concept map, which associates the size of the ‘bubble’ with the pervasiveness of
the theme, and the distance between ‘bubbles’ (or clustering) with the strength of the
association between themes (using a concept theme size of 50%). The sense and significance
of these themes were then determined via excerpt analysis. The results of this thematic analysis
is reported using concept maps, concept frequency distributions and supporting excerpts. The
methodology employed in this paper is suitable due to the nature and size of the data and is
consistent with Lodhia and Martin (2011), thereby ensuring the validity and reliability of the
results through replication (Dumay, 2014).
5. Results
5.1 Corporate submissions to the Senate Economics Reference Committee’s
inquiry into corporate tax avoidance and minimisation
The first domestic tax reform measure we examined were submissions to the Senate Economics
Reference Committee’s inquiry into corporate tax avoidance and minimisation. This
submission process began on the 27th of October 2014, one month after the release of the United
Voice report, when letters were sent to stakeholders inviting comment on “tax avoidance and
aggressive minimisation by corporations registered in Australia and multinational corporations
operating in Australia” (Parliament of Australia, 2014, pg.1). Seventy (70) corporate
submissions had been received by the Committee when the inquiry closed on the 2nd February
2015. These submissions are used as evidence of corporate attitudes towards tax at this time.
The automatically generated Leximancer frequency distribution and concept map, depicted in
Figure 2, thematically represents corporate attitudes to tax in late 2014 – early 2015. These
attitudes are symbolised by the size of the ‘bubble’ on the concept map and the number of ‘hits’
in the frequency distribution indicating the pervasiveness of the theme, and the positioning of
the ‘bubble’ on the concept map indicating the strength of the association between themes. This
process summarily indicated three main themes entitled ‘avoidance’ (3,209 hits), ‘Australian’
(2,623 hits) and ‘Income’ (1,950 hits).
[Insert Figure 2 here]
Using excerpt analysis we determined that the themes entitled ‘avoidance’ and ‘Australian’
capture practitioner and industry views (respectively) on the adequacy of extant tax legislation
and their adherence to it. For example, excerpts of practitioner views allocated to the
‘avoidance’ theme demonstrate that at this time practitioners supported the current tax system
believing it to be both comprehensive and robust. Changes to the system were supported but
only in so far as strengthening the current one, not radically changing it:
“Australia’s existing tax system is already considered to be robust internationally in
preventing tax avoidance” Ernst & Young
12
“It is the view of KPMG that Australia has comprehensive tax laws dealing with
corporate tax and the robustness of these laws is widely recognised.” KPMG
“Our view is that the Australian corporate tax system in its current form is extremely
comprehensive and robust, is administered by a respected tax authority and generates
a high degree of voluntary compliance. In seeking to reform and improve Australian
tax system, it is important to appreciate and build on the strengths of the current
corporate tax system.” Deloitte
While excerpts of industry views allocated to the ‘Australian’ theme demonstrate that at this
time industry believed it was fully compliant with Australian tax laws, offering reasons for
“perceived abuses”. Changes to the tax system were strongly opposed with additional multi or
unilateral measures viewed suspiciously, believed to misdirect the public and complicate the
debate:
“Companies are complying fully with Australia’s tax laws” Pfizer Australia
“Stockland’s tax strategy is to ensure all its tax affairs are conducted in a
transparent, equitable and commercially responsible manner, whilst having full
regard to all relevant tax laws, regulations and tax governance processes, to
demonstrate good corporate citizenship.” Stockland
“OZ Minerals welcomes a robust factual debate on the corporate tax system and
recommends that Australia should avoid unilateral action to deal with perceived
abuses of the tax system, particularly in the light of the current OECD BEPS agenda”
OZ Minerals
“Lend Lease’s ETR is largely a function of different approaches taken by accounting
standards and tax laws, legislated tax incentives and exemptions, differing corporate
tax rates in offshore jurisdictions and, since 2013, the impact of earnings from LLT6”
Lend Lease
“AGL believes that the current level of transparency and tax disclosure imposed on
listed companies should be adequate. The publication of corporate tax data is
complicated and can easily be misinterpreted.” AGL
Similarly, using excerpt analysis, we determined the third theme entitled ‘Income’ captured
practitioner and industry attitudes on their treatment in the media and in the deficiencies of the
civil society report that incited the Senate Inquiry, with the former more vocal as depicted by
the overlapping ‘Income’ bubble. These comments epitomise corporate frustration and disgust,
13
with many corporates communicating their offense at the unwarranted attack that had been
launched against them:
“ETR’s are being distorted” Lend Lease
“The TJN (Tax Justice Network) computations and conclusions drawn, in substance,
lack accuracy or reasonableness” Toll Group
“The report released by United Voice and the Tax Justice Network in September 2014
(the “Report”), erroneously calculated the effective tax rate for Stockland by dividing
the tax paid by Stockland Corporation Ltd by the combined accounting income of
Stockland Trust and Stockland Corporation Ltd. In doing so, Stockland’s effective
corporate tax rate was significantly understated.” Stockland
“In our view, this debate has incorrectly and unhelpfully confused the normal
calculation of taxable income and tax payable according to the tax law (noting that
taxable income will always differ from accounting profit) with arrangements aimed at
avoiding tax.” Deloitte
“The Tax Justice Network report does not correctly calculate companies’ “effective
tax rates”…By excluding these items from the denominator in the equation but not
excluding the tax effect of these items in the numerator inappropriately distorts
downwards the percentage calculated by Tax Justice Network.” Asciano
“It is just comparing an apple with an orange and not being about fruit.” Ernst &
Young
“There has been recent press coverage and claims made about various defects in the
Australian corporate tax system, particularly in regards to ASX listed companies,
which we believe were not accurate and which could without correction taint any
consideration of this matter.” Ernst & Young
Taken together, these three themes suggest that corporate attitudes towards tax comprised in
the submissions to the Senate Inquiry is one of suspicion, frustration and disgust. Suspicion of
the inquiry given corporate support for and adherence to Australian tax law, and frustration and
disgust at their treatment in the media and by stakeholders in general. This attitude, focused on
adopting the letter of law, is indicative of the aggregate view of a corporation.
5.2 Transcripts to the Senate Economics Reference Committee’s inquiry into
corporate tax avoidance and minimisation
14
The discontent of corporations comprised in the submissions to the Senate Inquiry not only
extended to but were seen to intensify when the second domestic tax reform measure, the
transcripts of the Senate Economics Reference Committee’s public hearings were examined.
The transcripts of fifty-two (52) corporate witnesses questioned at these public hearings were
obtained from seven public hearings conducted over the 2015-16 year, beginning in April 2015,
two months after submissions closed on the inquiry, and ending in April 2016. These transcripts
are used as evidence of corporate attitudes towards tax at this time.
The automatically generated Leximancer frequency distribution and concept map, depicted in
Figure 3, thematically represents corporate attitudes to tax from April 2015 to April 2016.
These attitudes were determined by examining the pervasiveness of the theme (determined by
the size of the ‘bubble’ on the concept map and the number of ‘hits’ in the frequency
distribution), and the strength of the association between themes (determined by the positioning
of the ‘bubble’ on the concept map). This process summarily indicated three main themes
entitled ‘paid’ (488 hits), ‘Australian’ (398 hits) and ‘operating’ (98 hits).
[Insert Figure 3 here]
Using excerpt analysis we determined that the theme entitled ‘paid’ captured the brusque,
defiant and often vague explanations submitted by corporations with regard to their tax
obligations and operations, as depicted by the overlapping nature of the ‘operating’ bubble.
Corporate discontent was also seen to escalate from the first domestic tax reform measure as
evidenced by the obfuscation, rather than clarification, of corporate responses in the Senate
Inquiry hearings and by an insolent and contemptuous corporate attitude. This attitude saw
questions from Senators defiantly dismissed or patronised:
“It is a large business, and the figures are in the submission in front of you” BP
“As we are a private company, I am unable to disclose the amount of profit that we
reported in 2014” Airbnb
“We declare all of our income in accordance with Australian tax law and we pay all
of our taxes that we owe. It is very simple—no offshore billing, no corporate debt, no
fancy hybrid structures—a very simple business model.” Apple
“I know I do not need to explain this to you people, but the public at large, and I
suspect some of the people that have been making comment about this in recent days,
do not understand the complications. And there is a difference, of course, between the
accounting treatment and the tax treatment.” News Corp Australia
15
“I understand, however, that you are interested not in the total tax payments or
effective tax rates, but in areas where large corporations are allegedly avoiding
paying their share of tax.” ExxonMobil Australia Group of Companies
“A reduction in capital and repatriating cash is not a tax avoidance scheme; it is a
perfectly acceptable transfer mechanism for cash. We pay tax on the profits that we
produce in Australia. We do not pay tax on cash; we pay tax on profits.” News Corp
Australia
“To come back to the point, we firmly believe in the position that we have adopted.
And secondly, can we not lose sight of the fact that a large proportion of the profits
that we earn in Singapore are actually taxed back in Australia” (BHP Billiton)
In addition, we determined through excerpt analysis that the third theme entitled ‘Australian’
captured corporate attitudes towards Australian tax law, declaring either corporate compliance
with or contempt for these laws based on complexity and uncertainty:
“The disadvantages that we see are when there is more risk created for the business
because of the uncertainty … of the Australian tax regime.” Origin Energy
“At any given time in the ordinary course (of business), I would expect that we would
be in discussions with the tax office as regards our interpretation of the law. That is
particularly because of the complexity of the Australian tax laws” BHP Billiton
“The disadvantages that we see are when there is more risk created for the business
because of the uncertainty—the perception of the uncertainty of the Australian tax
regime.” Origin Energy
“Apple Australia is in compliance with all of its Australian tax obligations.” Apple
“We are open and transparent in our dealings with the ATO. We comply with all
relevant tax laws and we always meet our obligations based on the requirements of
Australian law.” Johnson & Johnson
Taken together, these corporate attitudes again demonstrate the aggregate view of a
corporation, where the letter of the law alone is followed. As such, inquiries which delve into
private ‘back office’ calculations and adherence with the spirit of the law prompt an
obfuscated or brusque response and are viewed with contempt.
16
5.3 Submissions to the Board of Taxation’s voluntary tax transparency code
(TTC) consultation paper
The proposal of the TTC by the Board of Taxation in December 2015, incited a stark change
in corporate attitudes towards tax. These corporate attitudes are represented by our third
domestic tax reform measure, submissions to the TTC consultation paper which opened in
December 2015 and closed in January 2016. At this time eighteen (18) submissions were
received by the Board. These submissions are used as evidence of corporate attitudes towards
tax at this time.
The automatically generated Leximancer frequency distribution and concept map, depicted in
Figure 4, thematically represents corporate attitudes to tax from December 2015 to January
2016. As explained previously in Section 5.1, these attitudes were determined by examining
the pervasiveness of the theme and the strength of the association between themes. This process
summarily indicated four main themes entitled ‘affairs’ (471 hits), ‘public’ (327 hits),
transparency (273 hits) and ‘income’ (253 hits).
[Insert Figure 4 here]
Using excerpt analysis we determined that the main themes entitled ‘affairs’ and ‘public’
capture corporate willingness to disclose information about their tax affairs, while the outlier
theme ‘concessions’ (5 hits) illustrates that this willingness may be subject to certain
conditions. This attitude contrasts with earlier attitudes to tax reform measures which advocate
for no change and limited disclosures due to issues of complexity, uncertainty and privacy.
This time corporate submissions to the Board of Taxation were proactive and conciliatory:
“We welcome the introduction of a TTC in Australia as we believe that transparency
is critical for the public to have trust and confidence in the integrity of the Australian
tax system” BHP Billiton
“Viva Energy recognises the importance of the wider community having trust in the
tax system, and consistent with that, Viva Energy has been, and will continue to be,
actively engaged in an open and transparent dialogue with relevant stakeholders”
Viva Energy
“The model put forward by the Board appears to strike the right balance between
promoting community confidence in the system through the release of appropriate
information, commercial sensitivity of taxpayer information and compliance costs.”
Property Council of Australia
17
“Over time, it should improve community confidence in the business tax system, the
environment for tax reform and enable more informed debate about tax policy.”
CAANZ
Similarly, excerpt analysis of the main themes of ‘transparency’ and ‘income’ captures
proactive corporate attitudes, reflecting commitment and counsel respectively, to develop the
Tax Transparency Code (TTC). This is suggested to be undertaken progressively, in
conjunction with other jurisdictions and initiatives. Further counsel is provided in terms of
what corporate tax information should be disclosed and how this information should be
interpreted, with multiple recommendations for guidelines or rules for interpretation:
“The voluntary TTC code should be developed progressively, and consistently, with
transparency initiatives in other countries” Brambles
“The reputational integrity of companies is critical to their commercial purposes.
Accordingly, in our view the information should enable users to evaluate and
understand the approach of a company to meeting its obligations in the context of the
taxation system.” Price Waterhouse Coopers
“KPMG broadly embraces the Board’s approach under the proposed Code to balance
end user expectations of greater tax transparency with the additional compliance
burden for businesses.” KPMG
“The Board should be commended for developing a set of recommendations that
reflects considered and sensible compromises to accommodate the competing
interests in greater transparency of corporate tax information.” Greenwood &
Herbert Smith Freehills
“We believe there is greater end user benefit (as well as greater clarity for the
impacted businesses) if guidance was provided on both the numerator and
denominator for any ETR disclosures.” CAANZ
“One possibility, if it were considered that the Board, Treasury or Taxation Office
was somehow too close to the government, a recommendation that large media outlets
be requested to publish an explanation document written by a specified party. For
example, a university professor’s brief summary of why tax rates will often be less
than the headline rate with a guidance to the public on what to look for to assess the
tax behaviour of corporates.” Ernst & Young
“Businesses should disclose an Australian effective tax rate (ETR) and a global ETR”
Minerals Council of Australia
18
“We support the disclosure of a rate reconciliation and an explanation of material
temporary and non-temporary differences by all impacted medium and large
businesses.” KPMG
When considered en masse the evidence from this thematic analysis indicates a transition from
the aggregate view of a corporation to the real entity view in response to domestic tax reform
measures. This is demonstrated by a nascent shift in corporate attitudes, which acknowledges
both the letter and spirit of the law. That is, the legal obligation to pay tax and the social
responsibility (or conscience) to provide details on this process to end users which will enable
them to assess and legitimise the role of corporates as good tax citizen. To wit, tax is instituted
as an independent dimension of CSR.
5.4 Voluntary corporate tax transparency reports adopted in line with the Tax
Transparency Code (TTC)
The nascent shift in corporate attitudes previously suggested in Section 5.3, from discontent to
proactivity, is demonstrated to extend beyond the submissions to the Board of Taxation to the
introduction of the TTC. This fourth and final domestic tax reform measure is represented by
voluntary corporate tax transparency reports from May 2016 when the final report on the TTC
was issued by the Board of Taxation, to June 2017. At this time fifty-two (52) reports, adopted
in line with the TTC, were available for review. These reports are used as evidence of corporate
attitudes towards tax at this time.
The automatically generated Leximancer frequency distribution and concept map, depicted in
Figure 5, thematically represents corporate attitudes to tax from May 2016 to June 2017. As
explained previously in Section 5.1, these attitudes were determined by examining the
pervasiveness of the theme and the strength of the association between themes. This process
summarily indicated three main themes entitled ‘tax’ (2,746 hits), ‘paid’ (847 hits) and
‘expense’ (949 hits).
[Insert Figure 5 here]
Using excerpt analysis we determined that the main themes, entitled ‘tax’ and ‘paid’, capture
the progressive and transparent nature of disclosures made by corporations in their tax
transparency reports. These disclosures provide information on corporate tax strategies, report
objectives and various computations. Further, captured in the ‘expense’ theme, are narratives
and reconciliations of income tax expense. Taken together, this analysis indicates a positive
and open corporate attitude towards tax which is reiterated across all other themes by the central
and overlapping position of the ‘paid’ bubble:
“On behalf of the Board, I am very pleased to present the inaugural Tax Contribution
Report for Wesfarmers Limited for the 2016 financial year … including transactions
19
with international related parties, along with our approach to tax strategy and
governance” Wesfarmers
“Further information is provided in the tables below to enhance transparency” BTIM
Group
“This table shows the total of all tax payments for each of the main countries where
the Rio Tinto Group has revenue generating operations or projects.” Rio Tinto
“The objective of Tabcorp’s tax strategy is to ensure that shareholders’ best interests
are served by the correct amount of taxes being paid at the right time in the countries
in or through which Tabcorp group members operate.” Tab Corp
“The report goes into further detail than the statutory disclosures required for
financial statement reporting, and that required under the EU Accounting Directive”
Rio Tinto
Consequently, this thematic analysis provides supporting evidence for the conclusions reached
in Section 5.3, that corporate attitudes towards tax are evolving in response to domestic tax
reform measures, albeit nascent, from an aggregate view to a real entity view as theorised by
Avi-Yonah (2005, 2014). These combined results provide evidence on the efficacy of extant
legislation, the inception of a corporate conscience and the institution of tax as a dimension of
CSR.
5.5 Summary of results
The results suggest that corporate attitudes towards tax have changed, from the call to arms on
corporate tax avoidance in September 2014 to today. What once was viewed with frustration,
disgust, insolence and contempt is now viewed proactively, positively and openly, leading to a
conciliation between regulators, corporates and society. While assumptions could be made that
the manner of communication, mandatory versus voluntary, would affect corporate attitudes,
we argue that if corporations are (not) acting within the letter and spirit of the law their
communications would always be conciliatory (provocative).
This change in corporate attitudes towards tax provides evidence of a transition, albeit nascent,
from an aggregate view of the corporation to a real entity view. That is, a transition from
viewing the corporation as simply the sum of its shareholders, where tax aggression and
minimisation is an obligation of management; to a view where corporations see a legal and
moral responsibility to pay taxes (Avi-Yonah, 2005;2014) motivated by a social conscience.
As such, under this ‘real entity’ view, tax is instituted as a corporate social responsibility, an
additional dimension of CSR. Finally, the findings support the efficacy of extant domestic tax
reform measures that target corporate transparency.
20
6. Conclusion
By examining representations of corporate entities during and subsequent to a Senate Inquiry
into corporate tax avoidance using Leximancer software, this study provides evidence of a
progressive change in corporate attitudes towards tax and a transition from the aggregate view
to the real entity view of a corporation in Australia as theorised by Avi-Yonah (2005, 2014).
As such, the efficacy of domestic tax reform measures which impose self rather than external
regulation and the viability of increased transparency as an effective weapon in the war on
corporate tax avoidance is supported. That is, transparency can be used to address the issue of
overly-aggressive tax planning that minimises tax obligations and to restore public confidence
in the integrity of the tax system.
Taken together, this study provides evidence of the inception of a corporate conscience when
it comes to tax, demonstrated by the nascent institution of tax as a fourth dimension of corporate
social responsibility (CSR). Supporting this shift in corporate identity will require an expansion
of the dimensional factors of CSR (economic, social, environmental and tax), and a new
standard or definition of corporate responsibility which encompasses both legal and moral
considerations and has transparency at its core (Narotzki 2016). Actions of the corporate in this
initial phase may appear forced and artificial until such time that consumer and societal
activism force corporates to completely evolve, to realise that the harm caused by socially
irresponsible tax practice outweighs any potential benefit (Fisher, 2014), to fully subscribe to
the real entity view and to let their conscience be their guide. Perhaps however, the greatest
challenge in this new world will be consumers realising that they have the power to influence
corporates, to bring to light their tax practices and demand a new way of doing things.
Investigating whether such a transition is progressing across all corporations is a question
reserved for future research.
21
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