Business Capstone Project For Finance And Tax – Literature Review

1st Phrase: Effectiveness of Finance and Tax in an Organization

Describe about the Business Capstone Project for Finance and Tax.

This literature review is going to focus on four major areas of the relationship between finance and tax of company. It will also highlight the relationship between the profit, revenue and tax and try to spot the key drivers of tax. Four key phases have been identified by the literature review. The first phase is referred to the effectiveness of finance and tax in an organization. The second phase will relate Administrative effectiveness in tax avoidance in companies in Australia. The third will look to highlight the management of tax risk in an organization. The fourth phase will round up with the The standoff between the Government and Australia’s mining industry over Resources Super Profits Tax. This literature review converses these four areas by reviewing articles and journals from the same field.

First article:

Multinational companies are allowed to decide under which separate accounting rules they are to be taxed in relation to the firm’s behavior and tax revenues. Using different accounting technique leads to profitable productivity. It has been witnessed that generally the low cost and high cost firms are in the habit of utilizing separate accounting whereas the medium cost’s preference has been the formula apportionment. Symmetrical countries produce greater tax revenues in places with lower tax rates whereas asymmetrical ones prefer do not requires greater tax revenues because of countries valuing tax base deformation in a different way (Gresik 2016).

According to Anton and Constantin (2013), accounting information takes into account the consumer’s requirement of information which enables them to build a strong relationship. This article analyzes the various methods to examine the relationship of accounting-taxation relationship controlling the collaboration between the service providers of accounting and their recipients. The research intends in taking the opinions of the accounting professionals concerning about the relationship between accounting and taxation, and the importance they have regarding the business activities.

Management’s important aspect is the financial implications and taxation inference of profitable conclusion. Approval from researchers and ones studying management may not be there regarding the modification of accounts for the reason of accounting which might present a profitable outcome of the business. Accounting facilitates decision making and control along with recording of some accurate information. Taxation’s main role is to lift revenue and boost up economic and social policy. Preparing accounts in different ways is acceptable through proper accounting standards but the preference is generally subjective to the taxation implications in an inappropriate way (Alzeban and Gwilliam 2014).

2nd Phrase: Administrative effectiveness in tax avoidance in companies in Australia

Company’s accounting profit replicate the application of accounting values for valuing the accurateness in the activities of the company, while the tax income echoes the interest of tax administration. If the accounting interest and the tax interest are not on the same page, it is essential to resolve between accounting, representative of company and taxation being the representative of state. The income tax is stated to be the major expense of the company (Vera 2015).

The above analysis states that financial accounting and taxation plays a major role in defining a company’s success story. Companies do indulge themselves in choosing separate accounting standards that suits them and their calculation of tax.

Companies believed that tax is a burden or an expense which sometimes gets out of control if not properly taken account of and companies do find ways to deal with the tax burden.

H0: Companies should be allowed to choose different accounting methods and modification of the same.

H1: Companies should not be allowed to choose different accounting methods and modifying it for the same.

1^st Article:

The authors Davis et al. (2015) examine the relation between corporate social accountability and corporate tax expenses. Existing theories and experimental studies have found pretty much inconsistency in the relation between the two terms and the author is in the mood to find out whether the two actions are substitutes or complements of each other. The relation between corporate social responsibility and the amount of corporate taxes paid are guesstimated. Proves are there where corporate social responsibility is unconstructively related to five year cash successful tax rates and extremely related to tax lobbying expenditures.

The article focuses on whether it is possible to guess a firm’s actual tax liability and taxable income from the admission of income tax under the current Australia Accounting Standard AASB 112 Income taxes, which affects financial statements for reporting phase starting on or after 1^st January, 2005. The problems related with estimating taxable income from current tax expenditure whose disclosure is mandatory under AASB 112 (Tran 2015).

In comparison to many facet of the social responsibility of commerce, CSR has remained silent on the subject of payment of corporate tax. Corporate tax payment may frequently be avoided on a legal basis, though laws and CSR suggest a company has the liability to pay tax. The ones not staying on that track should be considered socially irresponsible. This article of Dowling (2014) highlights the issue of tax avoidance and the measurement of CSR.

3rd Phrase: Management of tax risk in an organization

Tax avoidance is done by companies to reduce or lessen the amount of taxes whereas tax evasion focuses on the activities which are prohibited under the tax legislation like hiding foreign income or claims of fraudulent deductions (McClure Lanis and Govendir 2016).

The above analysis has found out that tax avoidance effect is positive for companies that are well governed. There is a certain framework which is used by the managers in hiding the tax value and it is in a systematic way.

Avoidance of tax has been recognized as a global problem. Companies do channelize their profits in other countries which charge them with less tax in order to gain competitive advantage over others in the industry.

Ho: Avoidance of tax is legal from a company’s viewpoint and can be adjusted accordingly.

H1: Avoidance of tax is not at all legal and companies should pay it accordingly.

1^st Article:

The article focuses on the contact of the recognition and management of tax risk on the income tax fulfillment and practices by Australian companies with turnover exceeding AUD 250 million with the help of a mixed methodology design (Lavermicocca and McKerchar 2013). Some Australian companies do have this tax management system in place which results in diminishing the acceptance level of tax risk and development in the level of income tax conformity.

A recent study has found out that Australian multinational companies along with the domestic ones are in the habit of holding large amount of cash in their balance sheets. The paper determines whether holding on to the cash has any direct effect on tax risk. Tax authorities can ask for future cash tax payments for which companies may cling to the cash so as to satisfy these future demands (Richardson Taylor and Lanis 2013). It has been witnessed that firms with larger cash balances have a higher risk than the firms who do not.

One of the most important factors of overall risk management for enterprises is the tax risk management influencing the tax cost and economic awareness. The characteristics of tax risk management of bigger companies are facing difficult challenges but are being possessed with the advantage of being under unified management (Meng 2014)

The panel of authors Wheeler et al. (2012) inspects the sources of internal tax risk and the prescribed and familiar development for identification, communication and evaluation and resolution of those risks. The article also takes into account the evaluation of formal enterprise tax management policy. A survey has concluded that the biggest tax risks faced by companies irrespective of their size are the overpayment of tax. However the government has long been protesting that they face the difficulty of underpayment of tax.

It is the responsibility of the management to manage tax through a proper governance framework which will ensure all taxes to be managed in accordance with the prevalent tax laws in time. It is necessary for organizations to have a proper tax function objectives.

Companies do find ways to save themselves from the burden of tax. It is the problem of the management to think tax payment as a ‘burden’.

H0: Companies should hold or show larger amount of cash in order to pay out future tax payments.

H1: Companies should not hold or show larger amount of cash in order to pay out future tax payments.

The standoff between the Government and Australia’s mining industry over Resources Super Profits Tax

The article takes into account the enlistment of various small sized and medium sized companies in the Australia’s mining industry’s movement against Resources Super Profits Tax (RSPT). The articles have insights of top 18 industry players. The Australian Government anticipated that the companies would lend support towards the RSPT as promised by them that they would contribute towards the development (Gilding Merlot and Leitch 2016). However the industry leaders have pleaded to get some extraordinary returns against the odds.

It has been discussed earlier too that some companies are in the habit of holding onto cash, but certain changes in the tax legislation including some income sources will combine such growth with increase in the split in income they hold. The article studies the comprehensive tax reform legislation in 1985 which changed the top Australian companies who do not break up taxable realized capital gains from other taxable income (Burkhauser Hahn & Wilkins 2015).

In the year 2010, the Australian federal government lost out on its battle with the country’s mining industry over the implementation of new ‘super profit tax’. The authors Bell and Hindmoor (2014) put forward the question whether investment in business is necessary for expansion or whether business will disinvest if new tax law is implemented. The area of concern was whether the foreword of new tax jeopardizes the investment along with employment and growth. This thinking lead to the abandonment of the tax from the industry.

In the Australian business-government duel the mobilization of the mining industry opposing the proposed Resources Super Profits Tax (RSPT) was a highlight. This article of Gilding et al. (2012) investigates the news and analyzes the stories as was available in the leading Australian journals. In the buildup of this story it has been found that the social justice arguments have been marginalized.

The Government wanted to implement resource rent tax on all the non-renewable resources which would have enabled the government to deal with the risk of “two speed economy”. The tax if applied only to law would have recognized large investments that are compulsory for resource projects.

The mining industry believed that the implementation of new tax would have severely affected the investment policy. It would have jeopardized the whole situation.

H0: The implementation of RSPT would have affected the investment policy in the mining industry.

H1: The implementation of RSPT would not have affected the investment policy in the mining industry.

Reference:

Alzeban, A. and Gwilliam, D., 2014. Journal of International Accounting, Auditing and Taxation. Journal of International Accounting, Auditing and Taxation, 23, pp.74-86.

Anton, C. and Constantin, C., 2013. The Accounting–Taxation Relationship In The Opinion Of The Financial–Accounting Services Providers. Journal of Applied Economic Sciences (JAES), (2 (24)), pp.133-140.

Gresik, T.A., 2016. Allowing firms to choose between separate accounting and formula apportionment taxation. Journal of Public Economics, 138, pp.32-42

Vera, S., 2015. Accounting, Taxation and Company Performance-Convergences and Contradictions. Valahian Journal of Economic Studies,6(3), p.27.

Davis, A.K., Guenther, D.A., Krull, L.K. and Williams, B.M., 2015. Do Socially Responsible Firms Pay More Taxes?. The Accounting Review,91(1), pp.47-68.

Dowling, G.R., 2014. The curious case of corporate tax avoidance: Is it socially irresponsible?. Journal of Business Ethics, 124(1), pp.173-184.

McClure, R., Lanis, R. and Govendir, B., 2016. Analysis of Tax Avoidance Strategies of Top Foreign Multinationals Operating in Australia: An Expose.

Tran, A., 2015, May. Can taxable income be estimated from financial reports of listed companies in Australia?. In Australian Tax Forum (Vol. 30).

Lavermicocca, C. and McKerchar, M., 2013. Impact of Managing Tax Risk on the Tax Compliance Behaviour of Large Australian Companies, The.Austl. Tax F., 28, p.707.

Meng, J., 2014. CNOOC’s Exploring Path for Tax Risk Management of Large Enterprises. International Taxation in China, 6, p.019.

Richardson, G., Taylor, G. and Lanis, R., 2013. The impact of board of director oversight characteristics on corporate tax aggressiveness: An empirical analysis. Journal of Accounting and Public Policy, 32(3), pp.68-88.

Wheeler, R., Conway, K., Curry, W.L. and Frank, M., 2012. Strength from within: Critical Aspects of Internal Tax Risk Management. Taxes, 90, p.23.

Bell, S. and Hindmoor, A., 2014. The structural power of business and the power of ideas: The strange case of the Australian mining tax. New Political Economy, 19(3), pp.470-486.

Burkhauser, R.V., Hahn, M.H. & Wilkins, R. J Econ Inequal (2015) 13: 181. doi:10.1007/s10888-014-9281-z

Gilding, M., Merlot, E. and Leitch, S., 2016. The power of hope: the mobilisation of small and mid-tier companies in the mining industry’s campaign against the Resources Super Profits Tax. Australian Journal of Political Science, 51(1), pp.122-133.

Gilding, M., Merlot, E., Leitch, S., Bunton, V. and Glezos, L., 2012. Media framing of the resources super profits tax. Australian Journal of Communication, 39(3), p.23.