Multinational enterprises and transparent tax reporting

143 Pages·2020·1.485 MB·English

by  Alexandra Middleton, Jenni Muttonen

Multinational Enterprises
and Transparent Tax Reporting
T his book examines tax transparency as part of multinational enterprises’
corporate social responsibility (CSR). It considers revelations like the Panama
and Paradise Papers that shed light on corporations’ tax practices and the growing
public dissatisfaction, resulting in legislative projects, such as the Organisation
for Economic Co-operation and Development (OECD) base erosion and profit
shifting. Tax transparency is defined as companies’ voluntary disclosure of
numerical tax data (e.g. taxes paid by country) and other tax-related information
(e.g. tax policies). It is set apart from tax avoidance and tax evasion to clarify the
often-blurred concepts.
In this book, tax transparency is placed in a historical context and possible
drivers and hindering factors to tax transparency are investigated. Tax transparency
is discussed in the light of socio-economic theories (stakeholder, legitimacy,
institutional theory and reputation risk management), as well as economic theories
(agency theory, signalling, proprietary costs) and information overload theory.
The book provides examples of tax transparency development of the largest
multinational enterprises in five countries (France, Germany, UK, Finland and
USA) in six years, 2012–2017, a period featuring increased media coverage of
tax matters and legislative movement in the OECD and the European Union. The
future of tax transparency is discussed in light of quality characteristics, assurance
of information and potential use of artificial intelligence.
C ompanies’ managers and tax and CSR specialists benefit from the book
by gaining insight into how to design transparent, high-quality tax reporting.
Assurance professionals can use information about the quality criteria of tax
transparency. Regulators can track historical development and see examples
of voluntary tax transparency in companies’ reporting. Scholars and students
obtain theoretical framework for analysing the tax transparency phenomenon
and the ability to distinguish between the concepts of tax transparency, planning,
avoidance and evasion.
Alexandra Middleton is an assistant professor with a PhD in financial
accounting from the University of Oulu, Finland. Her research interests include
tax transparency, CSR and sustainable business development in the Arctic.
Jenni Muttonen is an assurance professional working in financial and
sustainability audits. She holds a master of science in economics and business
administration from the University of Oulu, Finland, and a master of arts in
international relations from the University of St Andrews, UK.
Routledge Studies in Accounting
27 Interventionist Management Accounting Research
Theory Contributions with Societal Impact
Jouni Lyly-Yrjänäinen, Petri Suomala, Teemu Laine,
and Falconer Mitchell
28 Accounting, Innovation and Inter-Organisational Relationships
Martin Carlsson-Wall, Håkan Håkansson, Kalle Kraus,
Johnny Lind, and Torkel Strömsten
29 A History of Corporate Financial Reporting
John Richard Edwards
30 Public Sector Accounting, Governance and Accountability
Experiences from Australia and New Zealand
Edited by Robyn Pilcher and David Gilchrist
31 Managerial Accountant’s Compass
Research Genesis and Development
Gary R. Oliver
32 Institutions and Accounting Practices after the Financial Crisis
International Perspective
Edited by Victoria Krivogorsky
33 Corporate Environmental Reporting
The Western Approach to Nature
Leanne J Morrison
34 Cost Management for Nonprofit and Voluntary Organisations
Zahirul Hoque and Tarek Rana
35 Multinational Enterprises and Transparent Tax Reporting
Alexandra Middleton and Jenni Muttonen
For a full list of titles in this series, please visit www.routledge.com/
Routledge-Studies-in-Accounting/book-series/SE0715
Multinational Enterprises
and Transparent Tax Reporting
Alexandra Middleton
and Jenni Muttonen
First published 2020
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
52 Vanderbilt Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2020 Alexandra Middleton and Jenni Muttonen
The right of Alexandra Middleton and Jenni Muttonen to be identified as
authors of this work has been asserted by them in accordance with sections
77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in
any information storage or retrieval system, without permission in writing
from the publishers.
Trademark notice : Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
A catalog record for this book has been requested
ISBN: 978-0-8153-7256-1 (hbk)
ISBN: 978-1-351-24515-9 (ebk)
Typeset in Times New Roman
by Apex CoVantage, LLC
Alexandra Middleton: To my family
Jenni Muttonen: To my parents

Contents
List of figures x
List of tables xi
Acknowledgements xii
Preface xiii
List of abbreviations xv
1 Overview of the corporate social responsibility (CSR)
and tax landscape 1
Introduction 1
1.1 CSR landscape 1
1.1.1 Evolution of CSR 1
1.1.2 Legal enforcement of CSR reporting 2
1.1.3 CSR reporting standards 5
1.1.4 Tax as part of CSR 7
1.2 Tax regulation reforms worldwide 10
1.2.1 Industry-specific tax transparency initiatives 11
1.2.2 OECD base erosion and profit shifting 12
1.2.3 EC tax transparency initiatives 12
1.2.4 National-level tax transparency reforms 14
1.2.5 EU blacklist of tax havens 16
1.3 Tax scandals and changing public opinion 16
Summary 20
References 21
2 Defining tax transparency 26
Introduction 26
2.1 Differences between tax evasion, tax avoidance, tax
aggressiveness, tax planning and tax transparency 26
2.1.1 Tax evasion 29
2.1.2 Tax avoidance and tax aggressiveness 29
viii Contents
2.1.3 Tax planning 31
2.1.4 Tax transparency 31
2.2 Tax transparency and CSR 32
2.3 Measuring transparency in tax reporting 33
2.3.1 International standards 33
2.3.2 Tax transparency measurement in existing
research 34
Summary 35
References 36
3 Drivers and theories behind tax transparency 39
Introduction 39
3.1 Stakeholder theory 39
3.1.1 Defining and identifying stakeholders 39
3.1.2 Application of stakeholder theory 41
3.1.3 Stakeholder approach in CSR reporting practice 41
3.2 Institutional theory 43
3.2.1 Institutional theory applied to CSR 44
3.2.2 Institutional theory and tax transparency 45
3.3 Legitimacy theory 47
3.3.1 Defining legitimacy 47
3.3.2 Legitimation strategies 47
3.3.3 Legitimacy and CSR 48
3.3.4 Empirical research on link between legitimacy and
CSR 48
3.3.5 Tax and legitimacy 49
3.4 Reputation risk management 51
3.4.1 Defining reputation 51
3.4.2 Differentiating between reputation and legitimacy 52
3.4.3 Implications of reputation risk management to
CSR 53
3.4.4 The relationship between CSR, corporate reputation
and consumer behaviour 55
3.4.5 Tax and reputation 56
3.5 Agency theory 57
3.5.1 Agency theory and CSR 57
3.5.2 Agency theory and tax 58
3.6 Signalling theory 58
3.6.1 Signalling theory and CSR 60
3.6.2 Signalling through tax transparency reporting 61
Contents ix
3.7 Proprietary costs theory 62
3.7.1 Proprietary costs in CSR context 63
3.7.2 Proprietary costs and tax transparency 64
3.8 Information overload theory 64
3.8.1 Quantity vs. quality debate 65
3.8.2 Information overload and CSR 67
3.8.3 Information overload related to tax transparency 67
3.9 Summary of theories and their application to tax matters in
CSR 68
Summary 73
References 74
4 Current status of tax transparency in CSR reporting 82
Introduction 82
4.1 Measuring tax transparency 82
4.1.1 Tax transparency scale 82
4.1.2 Choice of companies 86
4.1.3 Empirical evidence 88
4.1.4 Tax transparency after tax scandals 93
Summary 96
References 97
5 Future of tax transparency 99
Introduction 99
5.1 The role of CSR standards in changing tax transparency 99
5.2 Designing tax transparency and best practices 104
5.2.1 Quality characteristics 104
5.2.2 Accountability and tax transparency 113
5.2.3 CbC reporting – critique and benefits 115
5.3 CSR and tax transparency in the age of AI 117
5.3.1 CSR in the light of AI 117
5.3.2 What AI means for different tax stakeholders 118
Summary 120
References 122
Index 125