Enterprise, Ethics And Compliance: Networks Of Influence And The Corporate Governance Of Taxation In

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Enterprise, Ethics And Compliance Networks Of
Influence And The Corporate Governance Of
Taxation In Small And Large Businesses
Gregory Rawlings
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Introduction

• Presentation based on interviews with 21 people
  in SMEs and large businesses.
• Networks of influence in tax management.
• The role of business ethics.

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Overview

• Talking About Tax Methodology
• Selecting and Finding Participants Recruitment
• Narratives of Compliance

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Overview (cont)

• External Advisers and Internal Management
  Functions The Role of Intra and Inter Firm
  Networks of Influence in Tax Compliance
• Ethical Compliance and Parallel Stories HR
  Policies, Environmental Standards and Good
  Corporate Citizenship
• Conclusion Promoting Tax Compliance Through
  Encouraging Business Ethics

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Talking About Tax Methodology

• Qualitative Research
• Open ended questions and interviews
• Erving Goffman (1975) Every telling, every
  narrative, is made from a specific vantage point.
  
• This research considers such vantage points and
  what they may tell us about the management of tax
  compliance in Australia today

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Selecting Finding Participants Recruitment

• 204 SMEs
• 123 large businesses
• 134 contacted either by letter, telephone and/or
  email
• 21 people in 20 firms interviewed 19 in person,
  two on the telephone.
• Nine in LBI Segment 12 in SME segment

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Narratives of Compliance

• High levels of self-reported compliance.
• Decisions seen as proscribed rather than made.
• Belief in the Tax System.

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Evaluating Tax

• My husband and I very much believe that we must
  pay our way, that is why I say we live in such a
  good country, that is well equipped with sporting
  facilities, with medical services. All that is
  because our tax dollars are spent wisely
  (Interview Sydney, October 2004).

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• Lets face it, everybodys got to pay tax. There
  are a lot of business owners out there, who
  think, Ive got a business and Im going make a
  huge profit and pay no tax on it, but you cant
  do that. I mean the tax is there for everyone,
  how else are they going to pay for the hospitals
  and the like (Interview Canberra, November 2004)

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• you cant measure the social value of
  taxationat the end of the day we very seldom
  think about ways of getting around tax
  liabilities (Interview Sydney, June 2004).

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External Advisers and Internal Management
Functions

• The role of intra and inter firm networks of
  influence.
• SME firms that did most of their own tax
  compliance at the top of the segment. Internal
  dynamics equally important as external.

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Large Business Tax Governance

• Finance Departments responsible for tax
  management and compliance.
• Boards and directors have broad supervisory
  authority.
• Independent Tax Judgements.

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The Story of Tier One Capital

• T1 Capital. Used by banks for reserve
  requirements, includes hybrid debtequity
  instruments
• Deductible or frankable depending on the line
  taken

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• As things currently stand, there is no
  universally accepted view as to how best to
  distinguish debt from equity for tax purposes
  or how to tax hybrid (part debt and part equity)
  instrumentsthere are a number of different
  definitions of debt in the current tax law and
  an unacceptable level of uncertainty at the
  debt/equity borderline (Australian Treasury,
  2004).

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• Stock settlement of principle through conversion
  into ordinary shares could create synthetic
  maturity issues in extremis, although we believe
  this is a corporate governance issue, not a
  regulatory one (British Bankers Association,
  2003 1)

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SME Influences

• Nothing like the same level of complexity as with
  large businesses.
• Small business doesnt have the clout, it
  doesnt have the money to spend on advice on how
  to reduce taxes like big business does. We dont
  have the money to employ the expertise like big
  business does (Interview Sydney, October 2004).

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• At the end of the year, the accountant will say
  youve got too much stock, youll have to reduce
  it otherwise youll have a big tax bill Stock
  management is very important. We will have a
  stock-take every year, every little bit of stock,
  every item has to be counted, put into the annual
  stock take figures. And so at the end of the
  financial year, if we have too much stock things
  just walk. When doing a stock take, well you see
  out there on the street, on display, we have
  about 200 pens on display, but like anything they
  go missing. People take them, we never notice,
  the girls are on the counter and never see it
  go.

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• Interviewer So people steal from the front
  display?

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• Yes, its a problem for every business, you can
  only imagine how bad it is for shops in malls,
  people just walk by and stuff disappears.
  (Interview Sydney October 2004).

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• I dont think there are any tax issuesmy
  philosophy is to make money, pay tax thats it.
  I pay 90,000 a year in company tax and have
  always had to pay tax on ityou have to pay what
  you have to pay (Interview Sydney, October 2003)

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• He the accountant says these are your
  options. For example, hes suggested that we
  cut back on staff. But with staffing, I really
  have moral issues with putting people off. I
  wont put people off if I can help it, I wont
  restructure in a way that makes people loose
  their jobs. This is a very youthful industry run
  by twenty-some things who think they know what
  theyre doing, but they dont. Look Im old, and
  a lot of the people weve employed, especially
  the reps, are old, but what else will they do? It
  would be my last option to put people off
  (Interview Blue Mountains, October 2004).

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• Driscoll, Hoffman and Murphy, in their 1998
  article, show that good ethics and good
  compliance are interdependent each is
  incomplete without the other (Driscoll, Hoffman
  and Murphy, 199839).

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Ethical Compliance and Parallel Stories

• HR Policies, Environmental Standards and Good
  Corporate Citizenship

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• as a working mother, I made a conscious
  decision that I would create a working
  environment that was friendly to mothers. Its a
  working environment that is flexible people can
  take time off form family reasons (Interview
  Blue Mountains, October 2004).

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• at the end of the day I dont make that much
  money, thats not what its all about, you get
  satisfaction out of giving a job to somebody, out
  of starting out with people who when this
  business was started had nothing, and now they
  have a life, they have a good life, theyve got
  families, a house, a car, own things, its seeing
  that, thats what you get out of it, not money
  (Interview, Wollongong, October 2004).

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Large Businesses

• Good Corporate Citizenship
• Sustainability
• The risk management of reputation a move away
  from tax based transactions

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Conclusion

• Promoting Tax Compliance Through Encouraging
  Business Ethics.
• Profiling for meta risk management.
• Two companies, two different tax management
  styles.