Is the top leadership of the organizations promoting tax avoidance?

Publication Date03 May 2016
AuthorNubia Evertsson
SubjectAccounting & Finance,Financial risk/company failure,Financial crime
Is the top leadership of the
organizations promoting
tax avoidance?
Nubia Evertsson
Department of Criminology, Stockholm University, Stockholm, Sweden
Purpose – This paper aims to study the roles of CEOs, board of directors and accounting/auditing
rms in the adoption of tax avoidance schemas.
Design/methodology/approach – A cross-national analysis with data from 22 countries is used to
examine the relationship between tax avoidance and the ethical qualities of the top leadership of the
organizations, the rm’s prole and the tax/legal system characteristics.
Findings – The results show that the board of directors is the actor that contributes more to control tax
avoidance cross-nationally, whereas the CEOs’ role to contend this practice is less relevant. The
outcomes for accounting/auditing rms reveal that the stronger standards these rms have, the more
tax avoidance is observed.
Originality/value – The methodology (cross-national analysis) and dimensions examined (role of the
actors/instances of discretional power) in this inquiry offer a novel perspective to the analysis of tax
avoidance, as most scholarly studies have taken a national approach and have mainly focused on
studying the characteristics of the rms involved in tax avoidance.
Keywords Corporate crime, Tax avoidance, Creative compliance
Paper type Research paper
On 5 November 2012, the Committee of Public Accounts of the British House of
Commons summoned various top executives and public ofcials to give oral evidence on
tax avoidance. Matt Brittin, Google Vice President for Sales and Operations, Northern
and Central Europe, was interrogated by the Chair, Margaret Hodge, as follows:
Q448 Chair: […] As I understand it, 92 per cent of all sales outside the USA are
billed in Ireland. Is that right?
Matt Brittin: I am not sure if is 92 per cent, but the vast majority of sales outside
the USA will be billed in Google in Ireland. That is correct.
Q449 Chair: Why?
Matt Brittin: First, let me say that we pay the tax we are required to pay in every
country in which we operate, including the UK.
The research for this article was supported by the Anna Ahlströms and Ellen Terserus
Foundation and the Helge Ax:son Johnsons Foundation.
The current issue and full text archive of this journal is available on Emerald Insight at:
Journalof Financial Crime
Vol.23 No. 2, 2016
©Emerald Group Publishing Limited
DOI 10.1108/JFC-06-2014-0028
Q450 Chair: Well, it depends where you choose to put the business, doesn’t it? That
is what this afternoon is all about. It depends where you choose to put the business.
Matt Brittin: […] [P]erhaps I can quickly talk about how Google is set up […]
Outside the USA, Google headquarters are located in Ireland under the name Google
Ireland Limited. Google’s Algorithms, located in Bermuda, owns Google’s intellectual
property rights outside the USA. Google Ireland pays royalties to Google’s Algorithms,
which in 2012 were 99.4 per cent of the operating prots. Google’s Algorithms is not
obliged to send prots to Google Incorporated, located in the USA, because of the tax
legislation in Bermuda. Google UK is an agent of sales for Google Ireland, and therefore,
Google UK does not pay tax on prots made in the UK.
Matt Brittin: […] [W]e, like any company, are required to do two things. One is to
play by the rules, and when you set up internationally, you need to make decisions
about how to protect your intellectual property and how to organize. Secondly, we are
required to manage our costs efciently in order to satisfy our shareholders. And our
goal as a company is to –
Q484 Chair: So you are minimizing your tax even though it is unfair to British
Matt Brittin: It is not unfair to British taxpayers. We pay all the tax you require us
to pay in the UK. We paid £6 million of tax last year.
Q485 Chair: We are notaccusing you of being illegal; we are accusing you of being
Matt Brittin: It is not a matter of personal choice. (Extract taken from Committee of
Public Accounts, 2012, pp. 78-83).
The Google case is an example among many others that can be given to illustrate the
problem of tax avoidance worldwide. The description above illustrates how
corporations adapt their structures to increase the benets for their stakeholders. This
was noted early on by Friedman (1970), who argued that “the social responsibility of the
business is to make prots” and that the managerial duty of directors is the
maximization of shareholder prots, constrained by compliance with the legal
regulations. The purpose of this article is not to neglect prots but to scrutinize how they
are made. This has been the core of the research agenda on corporate social
responsibility (CSR).
CSR focuses on studying compliance with the regulations imposed by governmental
agencies and self-regulations (Garsten and Hernes, 2009;McBarnet, 2007;Parker and
Nielsen, 2011). McBarnet (2004), a leading scholar of the CSR approach, introduced the
theory of creative compliance to illustrate how corporations structure or restructure
their business practices and repackage them as a lawful practice. Thus, creative
compliance denotes the use of technical legal work to manage practices that fall between
lawfulness and illegality. Creative compliers do not follow the law in a strict sense,
although these corporations claim to be open to legal scrutiny. In fact, creative compliers
provide careful explanations of the procedures used and legal claims. The use of
premeditated disclaimers and a double moral standard is a common practice of creative

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