Qantas and Tax Avoidance

Discuss About The Value Creation Through Stakeholder Synergy.

The report is prepared for explaining the incident of avoidance of tax by Airline Company named Qantas by referring to the accounting theories. The uproar of media regarding the tax avoidance incidence by large corporations such as Qantas is explicitly illustrated in this report. Furthermore, report also demonstrate the identification of two accounting theories and discussing on each of them by referring to literature review that covers the benefits, history and problems and history of using that theory. The selected theories is also used for explaining and discussion the reason why the Qantas has not paid any taxes and predicting whether they would pay taxes in future (Zorzini et al., 2015).  Two different accounting theories that have been chosen incorporate legitimacy and stakeholder theory and the selection of these accounting theories have been properly justified. Such theories have been illustrated in this particular study by explaining the application in the given situation.

Qantas is the largest airline and flag carrier of Australia by international flights, fleet size and international destinations. The company was established in year 1920 and has grown to be a largest domestic and international airline company and it is known as one of the strongest brands of Australia and long distance airline. Reputation of organization has been built on its excellence of operational reliability, safety, customer service and engineering and maintenance. The main business of group is customer transportation using complementary brands of Jetstar and Qantas. Operations of the group are also in subsidiary business that includes business in specialist market such as Q catering and other airlines. The airline brand operates through domestic, regional and international services along with broad portfolio of business ranging from Qantas frequent flyer to Qantas freight enterprises (Qantas.com, 2018). Alan Joyce is the CEO of organization who has been the leading person for supporting such Turnbull government proposed tax cut. The chief executive officer Alan Joyce has been presiding over the corporation and has not paid tax for overtime period of ten years. Since time period of year 2009, the payment of tax has been averted by Qantas despite the fact that the group generated total profit or earnings of around $ 106.4 billion (Qantas.com, 2018). This avoidance of payment of tax by the group is attributable to the factors such as business capability for offsetting the losses against the future as well as past earnings and depreciation provisions. Several representatives of company have confirmed through their different mail exchanges about the data of corporate tax transparency and it has been replicated that for the last three years, payment of taxation have been avoided by one out of every five biggest corporation (Morioka & de Carvalho, 2016).

Accounting Theories and Qantas’s Tax Avoidance

From the analysis of some relevant sources, it has been found that since year 2013, the corporate tax rate has not been paid by even one of the Australian biggest airline and this involved airline company Virgin along with its subsidiaries. The principal energy retailer of Australia has made payment of corporate tax rate as the price of electricity has been observed to be increasing by the household of Australia (Macve, 2015). However, it is reflected by previous research that organization are able to enhance their corporate investment by cutting their tax payment or avoiding payment of tax. It has been depicted from the financial statements of firms of Australia that there investment has been enhancing.

For the financial year 2016-2017, the underlying profit before tax was reported by organization of amount $ 1401 million. This amount of profit report was significantly higher and is the second highest performance in history of ninety seven years. It is indicated by result that margin advantage of Qantas group over global and local competitors was underpinned by its three year transformation program. For millions of transactions undertaken by then group, there is virtually a component of tax. The primary focus on all matters related to tax is in compliance and the tax affairs are managed by a robust framework of corporate governance. For year 2017, Qantas was not required to make payment of taxes due to carry forward of tax losses as reported in the report issued by company.

Stakeholder and legitimacy theory are the two theories that have been identified below.

It has been stated as per stakeholder theory that the objective of doing business is to create value for stakeholders and it represents the association between group of stakeholders and firms. The supposition of stakeholder theory is that the operations of business are accountable to all the stakeholders along with the shareholders of company. Recognition of stakeholders is necessarily done in the business enterprise interest. It is implied as per this particular theory that business enterprise that is socially responsible response by taking into considerations of requirement of all stakeholders and they do not always act in the interest of owners. The reason behind the selection of stakeholder theory is that it will assist in evaluating the impact of avoiding taxes on stakeholders and thereby explaining the consequences of such acts (Alrazi et al., 2014). How the avoidance of tax influences the behaviour of stakeholders can be explained by taking into consideration stakeholder theory.

Stakeholder Theory and Tax Avoidance

The disbursement of tax cannot be always excluded from strategy of corporate social responsibility and policy of CSR should be well aligned with the planning needs of worldwide taxation. For business enterprise and stakeholders as a whole, arrangement of taxation at international level is considered as issue. In order to provide benefits to shareholders, business concerns are prone to enhancing their profits by disbursing some taxation amount. Tax avoidance by business concerns make taxation authorities apprehensive about losing the taxation revenue (Henisz et al., 2014). Therefore, it considered essential crucial for highlighting the relationship between tax planning and CSR.

It is posited by legitimacy theory that it is continuously sought by organization for ensuring the fact that they operate within norm and bounds of respective societies. When the perceptive of legitimacy theory is adopted by organization, reporting on activities would be done voluntarily by companies when it is perceived by management that communities expect such activities in the area of operations. In order to function in an appropriate way, business enterprise are required to have the legitimacy need. Therefore, it can be inferred that there will be serious consequences of part of organization if its lacks legitimacy and result in loss of support from community. The strategy of CSR of business might incorporate legitimacy and the organization relies on such strategy when the legitimacy of management is threatened.

The overall amount of taxes that corporate seeks to disburse might be minimized by imbibing strategic taxation behaviour. For serving the well being of community and reducing the damaging impacts of aggressiveness of corporate taxation, for which it is required to undertake the corporate social responsible steps (Hörisch et al., 2014).

Tax is regarded as one of the modern community cornerstone and the corporate social responsibility aim is counteracted by the avoidance of taxation by corporation. Therefore, the corporations that involved in circumventing taxes and participating in the activities of corporate social responsibility are faced with an apparent conflict. The legitimizing activities are induced by the tax avoidance and this is more prevalent when such avoidance is not aligned with the community core values. In such situation, a double standard is presented by business as they are involved in activities of avoiding taxes whilst promising the community of being a responsible behaviour (Frynas & Yamahaki, 2016).

It has been reviewed by articles that the development of stakeholder theory was between year 1984 and 2007. The Freeman strategic behaviour has resulted in evolving of the maximizing the value of stakeholders and this particular approach became the theoretical ground for further development. Stakeholder theory is a theory of ethics and organizational management that is responsible for opposing the norms of free market relating to promotion of maximization of shareholders and shareholder capitalization. The purpose of business has been defined by economist as an instrument for capitalizing on the shareholders (Dembek et al., 2016).

Legitimacy Theory and Tax Avoidance

Growth of stakeholder theories was expanded into different models, branches and criteria that incorporate typology of organizational stakeholders, the three taxonomies of instrumental, normative and descriptive domains, salience framework, and resource based influential strategies and stakeholder management (Eskerod et al., 2015).

Stakeholders are conventionally defined as individual or group of individual that would have considerable influence on organizational goal attainment. It has been referred by some authors that the grouping of stakeholders can be referred to as organization and the objective of such corporation is to handle the requirement, interest and opinions. In particular, stakeholder management can be regarded by managers as satisfied business concerns. This is so because they can act as an agent of stakeholders and exercising considerable due so that they are able to shield them in the long term. On other hand, in order to ensure that the decision making process incorporates rights and participation on part of stakeholders, managers engage with the business concerns that will be in the interest as well as benefits to the stakeholders (Warren & Jones, 2018).

Therefore, it can be said that all the mentioned thoughts on stakeholder principle notions in the body of literature as normative stakeholder theory. Such theory depicts that stakeholders and managers are required to view and act on the purpose of foundations that are based on principles of ethics. Descriptive stakeholder theory is another approach for explaining the concepts of stakeholder theory. The concept and definition of stakeholders comes in wide range and incorporates different views.

Legitimacy theory is can be regarded as else supposition and general discernment of organization that their activities are appropriate and desirable and are conducted within the norms, view point and values of being socially responsible. The theory is the mechanism with the help of which organization uphold themselves in development and implementation of environmental and social disclosures for fulfilment of social contract. Such social contract fulfilment provides assistance to organization in continuous existence and recognition of their activities in unstable environment. It is viewed by authors that there is correlation between society and the firm. It is mentioned by the legitimacy theory that community and their values are congruent with the value system of business.

From the previous studies conducted in legitimacy theory, governing bodies and business concerns are required to identify and follow the norms, values and respect regulations as dictated by the threats posed from environmental, economic and social factors. In order for organization to examine their compliance, it is required by them to properly disclose the environmental as well as social information in a transparent and an appropriate way as required by the theory. As a consequence of this, it can be inferred that legitimacy theory plays a considerable role by performing the function of disclosing the information and justifying the disclosure aspects. On other hand, the lack of legitimacy is depicted in terms of negative environmental and social phenomenon and stimulation of legitimacy vita role in survival of institutions, business concerns and community. It is recommended by legitimacy literature that the process of legitimating forms the basis of survival of corporations and assist them in handling of the threats and constant pressures (Feeney & Pierce, 2016). Moreover, it has been found that the primary purpose of legitimacy theory is to maintain and acquire stakeholder approvals.

Stakeholder Management and Corporate Social Responsibility

While referring to the context of case of Qantas that is associated with the avoidance of tax, the applicable theory to be considered is legitimacy theory. The topic of avoiding taxes comes with regular debates that in the present interest have a distinctive character of wider audience engagement that generally involves community and their value system. In this regard, it is essential for business to assess how the managers are criticized when the organization is involved in critics of corporate tax avoidance and this can be evaluated by reviewing the annual pronouncements and disclosures associated with taxes. The legitimacy structure can be utilised for identification of some themes of disclosures such as implicit philosophy of tax, explicit philosophy of tax, tax contribution and process of tax conduction. Manager’s inconsistencies can be regarded as contributing factor in uncertainty of avoidance of taxation by the organization. Uncertainty is represented in the disclosure occurrence and is responsible for variation in the disclosure. If it is anticipated by managers that their behaviour can be altered for managing the issue of tax avoidance, then government cannot depend upon the different voluntary structures and attitudes.

Legitimacy theory is used for ascertaining that the activities of organization comply with the values, norms and social system of the society and community. In order for business to function seamlessly and effectively, it is required by business enterprise to maintain legitimacy. Business concerns would be adversely impacted if there is a lack of legitimacy because it would direct the business in way that would lead to loss of confidence of public and community (Tantalo & Priem, 2016). Business enterprise follows the strategy of corporate social responsibility if they intend to generate legitimacy. Therefore, organizations and business concerns make use of correct corporate social responsibility strategies and respond to any adverse incident in an appropriate way if occurrence of certain adverse incidents has threatened the legitimacy of organization. It is considered by some organization that legitimacy can be generated by stratagems that would comprise of providing information to public that lead to correction of altering perceptions concerning external stakeholders, correcting any existing deficiencies and altering the focal point by shifting the management attention related to several problems (Richard et al., 2016).

The approving factor for conducting the operation of organization is explained by the functioning of the license. Such approval involves grant from stakeholders and regional community. Licence to function is the functions that are primary incorporated in the view point, beliefs and stakeholder and regional population perception (Lozano et al., 2014). Therefore, it can be said that licence to function is such aspect that needs to be earned by management and should be maintained. Taxes are regarded as subsistence pre conditions and they are regarded as crucial part of functioning of modern community. One fact that is presented here due to which the entire community will have devastating consequences is the capital flight that results from loss of revenue (Henderson et al., 2015). Therefore, it can be inferred that corporate tax evasion work against the working of corporate social responsibility that would contribute to the overall well being of community. Hence, it can be seen that the activities of corporate social responsibility becomes conflicting factor on part of organization if they intend to evade and avoid tax. Corporate tax avoidance can be regarded as lowering the legitimacy of organization as such activities of company is not aligned with the activities of being corporate socially responsible.

Conclusion

The present study has evaluated and examined the environmental and corporate social disclosure of Qantas group and the legitimacy theory have been applied for analyzing whether the company gives out environmental and social information while responding to social expectations that are specific (Gaffikin & Aitken, 2014). It is suggested that there will be increased disclosure of commitments of social and environment matters if there is a high level of media coverage. The concept of tax avoidance can be explained using the legitimacy theory and it was found that company intend to publish more information relating to their corporate social factor if they engage in the aggressive taxation procedures. There exists a positive and significant relationship between CSR reporting and aggressive taxation procedures of company and hence the legitimacy theory is supported in association with the aggressive taxation (Esmail et al., 2014). Organizations intend to pursue CSR and develop CSR strategy for creating legitimacy.

Therefore, organization for maintaining their legitimacy should not indulge in activities of avoiding taxes and they should take every possible measure for aligning the strategy of corporate social responsibility and tax avoidance regime. Avoidance of corporate tax can be regarded as an issue of corporate social responsibility that is considered significant in operations of government and firm’s viability. Maximization of wealth of shareholders by way of aggressively tax arrangement avoidance can be considered as problematic for both organization and government. One of the notions of organization being corporate social responsible is related to their ethical performance. There is an ongoing discussion on the concept of CSR issue and corporate tax avoidance constituents. Nevertheless, among academics, avoidance of tax and CSR is a heated discussion. It is required to perform the specific research and linkage between corporate tax avoidance and CSR issue, for comprehending the purpose and meaning of tax avoidance (Bertomeu & Magee, 2015).

Conclusion:

The study conducted above assist in explaining the concepts of tax avoidance and how it is related to corporate social responsibility issue. Analysis has been concentrated around the evasion of tax by larger corporations such as Qantas airlines that have not made payment of tax in year 2016-2017 despite considerably higher amount of earnings generated. The concepts of avoidance of corporate tax by corporations have been explained using the legitimacy theory. It has been found from the above analysis that concept of aggressive taxation has been well understood using the legitimacy theory. Analysis depicts that there is a positive relationship between issue of corporate social responsibility and tax avoidance. Avoidance of payment of corporate taxes by Qantas would have considerable impact on their reputation and image as it is perceived that their legitimacy has been hampered by way o tax avoidance. 

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