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https://doi.org/10.1108/PAR-11-2018-0088

1

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

bronwyn.mccredie@qut.edu.au * Corresponding Author: kerrie.sadiq@qut.edu.au

2

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’.

3

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

4

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.

5

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]

9

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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