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Enterprise, Ethics And
Compliance: Networks Of
Influence And The Corporate
Governance Of Taxation In
Small And Large Businesses
Gregory Rawlings
Introduction
 Presentation
based on interviews with
21 people in SMEs and large
businesses.
 Networks of influence in tax
management.
 The role of business ethics.
Overview
 Talking About
Tax: Methodology
 Selecting
and Finding Participants:
Recruitment
 Narratives
of Compliance
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
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
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 LB&I Segment; 12 in SME
segment
Narratives of Compliance
 High
levels of self-reported compliance.
 Decisions
seen as proscribed rather
than made.
 Belief
in the Tax System.
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).
 “Lets
face it, everybody’s got to pay tax.
There are a lot of business owners out
there, who think, ‘I’ve got a business
and I’m going make a huge profit and
pay no tax on it’, but you can’t 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)
 “…you
can’t measure the social value of
taxation…at the end of the day we very
seldom think about ways of getting
around tax [liabilities]” (Interview
Sydney, June 2004).
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.
Large Business Tax
Governance
 Finance
Departments responsible for
tax management and compliance.
 Boards and directors have broad
supervisory authority.
 Independent Tax Judgements.
The Story of Tier One Capital
 T1
Capital. Used by banks for reserve
requirements, includes hybrid
debt:equity instruments
 Deductible
or frankable depending “on
the line taken”
 “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)
instruments…there 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).
 “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)
SME Influences
 Nothing
like the same level of
complexity as with large businesses.
 “Small business doesn’t have the clout,
it doesn’t have the money to spend on
advice on how to reduce taxes like big
business does. We don’t have the
money to employ the expertise like big
business does” (Interview Sydney,
October 2004).

“At the end of the year, the accountant will
say ‘you’ve got too much stock, you’ll have to
reduce it otherwise you’ll 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”.
 Interviewer:
So people steal from the
front display?
 Yes,
it’s 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).
 “I
don’t think there are any tax
issues…my philosophy is to make
money, pay tax that’s it. I pay $90,000
a year in company tax and have always
had to pay tax on it…you have to pay
what you have to pay” (Interview
Sydney, October 2003)

He [the accountant] says ‘these are your
options’. [For example], he’s 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 they’re doing, but they don’t. Look I’m
old, and a lot of the people we’ve 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).
 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,
1998:39).
Ethical Compliance and
Parallel Stories
 HR
Policies, Environmental Standards
and Good Corporate Citizenship
 “…as
a working mother, I made a
conscious decision that I would create a
working environment that was friendly to
mothers. It’s a working environment
that is flexible; people can take time off
form family reasons” (Interview Blue
Mountains, October 2004).

“at the end of the day I don’t make that much
money, that’s not what it’s 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, they’ve
got families, a house, a car, own things, it’s
seeing that, that’s what you get out of it, not
money”
(Interview, Wollongong, October
2004).
Large Businesses
 Good
Corporate Citizenship
 Sustainability
 The
risk management of reputation = a
move away from tax based transactions
Conclusion
 Promoting
Tax Compliance Through
Encouraging Business Ethics.
 Profiling
 Two
for meta risk management.
companies, two different tax
management styles.