Towards a General Theory of Tax Practice
| DOI | 10.1177/0964663915571787 |
| Date | 01 June 2015 |
| Author | Erich Kirchler,Jane Frecknall-Hughes |
| Published date | 01 June 2015 |
| Subject Matter | Articles |
Article
Social & Legal Studies
2015, Vol. 24(2) 289–312
Towards a General
ª The Author(s) 2015
Reprints and permission:
Theory of Tax Practice
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DOI: 10.1177/0964663915571787
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Jane Frecknall-Hughes
Hull University Business School, UK
Erich Kirchler
University of Vienna, Austria
Abstract
This article works towards developing a general theory of tax practice by identifying the
type of individuals who provide tax services and examining the nature of the fragmented
market in which they operate. The empirical studies in the tax practitioner literature
have been considered with a view to determining what exactly tax practitioners do and
how they interact and deal with the persons on whose behalf they work. This is done
with a view to developing a conceptual analysis of their work. Negotiation theory (Wall,
1985) is then posited as a general theory that fits many aspects of tax practitioners and
their work, when analysed in this way.
Keywords
Tax practitioners, conceptual analysis of work, negotiation theory
Introduction
Back in the early 1990s Erard (1993: 164) claimed, ‘[t]here is at present no general the-
ory of tax practice. Rather there exists a small collection of studies that each focus on
particular features of this institution’.
This situation persists today. The work of tax practitioners continues to attract atten-
tion and generate significant studies, particularly because of the alleged involvement of
tax practitioners in tax avoidance. Doyle et al. (2014) comment that, whilst the Organi-
zation for Economic Cooperation and Development (OECD, 2008) study of the role of
Corresponding author:
Jane Frecknall-Hughes, Hull University Business School, Cottimgham Road, Hull HU6 7RX, UK.
Email: J.Frecknall-Hughes@hull.ac.uk
290
Social & Legal Studies 24(2)
tax practitioners in tax compliance acknowledges that practitioners play a vital role in all
tax systems, their role is not straightforward. They are key players, as the article by Brad-
ley in this collection makes clear. They help taxpayers understand and comply with their
tax obligations in an increasingly complex world of regulation, but their involvement in
giving advice also creates greater complexity in terms of interpretation of the law (see
the articles by de Cogan and Picciotto in this collection) and gives cause for concern.
This concern relates chiefly to ethics (Shafer and Simmons, 2008) and their involvement
in facilitating tax avoidance deemed aggressive or unacceptable by revenue authorities,
both in the United States and in the United Kingdom.1 The 2012 cases of Starbucks,
Amazon, Google and Facebook (Barford and Holt, 2012), underline the continuing rele-
vance of examining the work of practitioners, with senior members of large accounting
and tax firms being interrogated by the UK government’s Public Accounts Committee
(Armitstead, 2013; Fuller, 2013). It might appear that tax practitioners are needed to help
taxpayers comply with the law and also help them find ways of not complying. How can
the apparently different and conflicting roles of tax practitioners be reconciled? This
already complex situation becomes even more complicated when one considers that tax
practitioners work both in the private sector and in the public sector. If the work of tax
practitioners is to be understood, it is necessary to show that their different activities are
aspects of an internally consistent theoretical framework.
We first examine who practitioners are, the nature of the market in which they work,
and consider the extant literature on taxation practitioners to consider what they do and
to determine how they interact with others. This analysis is used to develop a conceptual
framework for tax services. Negotiation theory is posited as an underlying construct that
goes some way to reconciling the apparently internal conflict in tax practitioners’ work,
whereby they seem to be involved actively in both compliance and avoidance. It helps
provide an understanding of a work role, which is widely misunderstood or misinter-
preted, especially by the media.
Definition of a Tax Practitioner
There is a multiplicity of terms used to describe tax practitioners or tax preparers who are
persons, or any such persons’ employee, who prepare, for compensation, all or a substan-
tial portion of a tax return or claim for refund (Arzoo, 1987). According to Devos (2012:
5), ‘tax practitioner’ is a term that:
covers a diverse group of individuals, business structures and professional groups who pro-
vide a range of tax services for their clients. Self-employed and in-house accountants, tax
advisers and registered tax agents, tax agent franchises and legal practitioners in the tax area
are all embraced by the term ‘tax practitioner’.
Tax practitioners play a variety of roles in the taxation system, namely, as preparers of
tax returns to the tax authorities and responding to queries on the returns from the tax
authorities; as advisers on how to arrange a taxpayer’s affairs so as to minimize the tax
payable; as valuers or mediators if disputes over valuations occur; as tax authorities’
Frecknall-Hughes and Kirchler
291
agents in the case of an investigation and within the public sector, as employees of the
tax authority.
Strictly, tax practitioners in the private sector will consider that their primary duty is
to their clients in such circumstances, though sometimes there is confusion as to whom
tax practitioners serve (Hammer, 1996; Jackson and Milliron, 1989). Devos (2012) con-
ducted a study in Australia on the impact of tax practitioners on tax compliance. Gener-
ally, the role of tax practitioners has been viewed as representative of both taxpayers and
the government; they have to act as advocates for their clients and to serve as interme-
diaries in the tax system (Brody and Masselli, 1996; Duncan et al., 1989; Yetmar and
Eastman, 2000).
With so many facets to their role, the ethical dimensions can be complex. Tax practi-
tioners have a duty towards their clients, the government, their firm, their profession, the
wider public, and of course, to themselves. The view of them as government represen-
tatives may stem from the fact that technically competent practitioners will consider the
stance a taxing authority may take, especially where ambiguous or disputed items are
under consideration. There are many ways of looking at the ways in which people and
organizations interact, but it is the nature of what the tax practitioner does which will
determine the appropriate perspective.
Practitioners will usually act on behalf of one or more parties. If tax practitioners act
on behalf of a client, it is common to see them referred to as agents, but this will depend
on whether taxpayers remain responsible for their affairs.
Before analysing conceptually the work of tax practitioners, we first examine the
nature of the taxation services market in which they work, to establish who is at work
there and also the literature on tax practitioners.
The Nature of the Taxation Services Market
The market worldwide for the supply of tax services appears fragmented. There are often
large numbers of different types of individuals providing tax services, such as, members
of a professional accountancy and/or taxation body whose studies necessarily included
taxation to a certain level (seven, for example in the United Kingdom); members of the
legal profession and former members of a taxing authority who have moved into private
practice. These individuals may work in a variety of entities, for example, a ‘one-man
band’ general accounting practitioner, a small- or medium-sized accounting firm or a Big
Four firm (Deloitte, EY, KPMG and PricewaterhouseCoopers) or legal firms. Tax prac-
titioners are also found within the financial function of commercial enterprises, typically
multinational groups. A taxing authority too employs a large number of taxation practi-
tioners, who have been trained to various levels internally by that body. The main fea-
tures therefore of the market for tax services are the lack of any professional monopoly
and fragmented professional regulation (Fisher, 1994; Hemans, 1996). Thuronyi and
Vanistendael (1996: 160–163) examined the organization of the tax profession in Eur-
ope, the United States, Canada and Australia and found a lack of monopoly and fragmen-
tation of regulation. However, this situation is frequently subject to localized variation
and change. Registration of paid preparers has been a requirement in Oregon since
1973, in California since 1997 and in Maryland since 2008 (McKerchar et al., 2008),
292
Social & Legal Studies 24(2)
whilst Federal registration of tax intermediaries in the United States became mandatory
from 1 January 2011, along with other mandatory requirements (Frecknall-Hughes and
McKerchar, 2013: 276). Generally, elsewhere there is more regulation than in the United
Kingdom. The 2009 consultation document, issued by Her Majesty’s Revenue and Cus-
toms (HMRC), Modernising Powers, Deterrents and Safeguards. Working with Tax
Agents: A Consultation Document, does suggest, however, some form of registration for
the 12,000 estimated tax practitioners who are currently unregulated by any professional
body.
The fragmented nature of the market for taxation services, arguably, has adversely
impacted on studies of tax practitioners, as it makes a holistic view of the services they
provide difficult to obtain. Whilst a considerable amount of academic literature exists on
various aspects of taxation...
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