How are multinational corporations operating in Australia reacting to greater tax transparency?

Abstract

Abstract

Outrage at egregious corporate tax planning practices has seen the introduction of greater tax transparency as a regulatory tool to counteract the systemic under-taxation of multinational corporations (MNCs). Qualitative research undertaken as part of this thesis found that wider access to corporate tax information induces some degree of openness about tax practices among MNCs, but not always to the extent intended. Transparency begets transparency within limits. The limitations are imposed by regulation that does not trigger an automatic change of mindset in MNCs, but rather signals an illusion of regulatory control that needs to be factored into ongoing business modelling. Differences among MNCs in how they make sense of this regulatory control suggest that over time, further inroads into disclosure practices may be achieved with a judicious set of regulatory tools that include further ratcheting up transparency requirements. This research uses legitimacy theory to argue that MNCs' voluntary tax-related disclosures are largely driven by extrinsic motivation and a desire to maintain, or repair, corporate legitimacy - with only a minority of MNCs adopting tax transparency as a corporate value/principle. It appears, for most MNCs, that transparency moves their hands but not their hearts. This instrumentalist approach means that MNCs operating in Australia overwhelmingly self-legitimate aggressive tax planning based on pure 'legality', allowing them to skirt morality considerations and to resist demands to pay a 'fair share' of tax. MNCs are cognisant, however, that civil society actors perceive overly aggressive tax structuring as a breach of corporations' social contract obligations, causing an erosion of offending corporations' moral legitimacy. To protect their corporate reputations and to safeguard social licences, MNCs consequently 'contextualise' information releases relating to their tax behaviour. The desire to remain in control of their disclosure environments creates the risk that MNCs might be investing in appearances and engaging in mock compliance, instead of undertaking fundamental reform. In this thesis, Erving Goffman's theatrical metaphor of 'frontstage' versus 'backstage' behaviour is used to devise a typology of MNCs operating in Australia. In this regard, the research compares the behavioural impact of transparency on MNCs' public reporting with key interviewees' private observations behind closed doors. By analysing these data in terms of the degree to which an MNC institutionalises tax transparency and/or shuns tax aggressiveness, a particular MNC can be categorised as either 'hardcore', 'poser', 'incremental change', or 'restructured'. The research found that greater tax transparency indeed had some 'chilling effect' on corporate tax aggressiveness, even though - as a stand-alone mechanism - it fell short of being a behavioural game-changer. Based on the AMP framework of 'awareness' (A), 'motivation' (M), and 'pathways' (P), this thesis advocates for greater and broader tax transparency, increasing motivational pressure through wider access to MNCs' country-by-country reporting data and the building of credible pathways toward fundamental international tax architecture reform. Furthermore, to augment regulatory capacity within the tax ecosystem, non-state actors - whose tax-technical proficiency is in the process of developing significantly - should be empowered to access and analyse MNCs' tax-related information as uncovered through tax transparency measures. Show more