Guest editorial

Citation

(2013), "Guest editorial", Journal of Applied Accounting Research, Vol. 14 No. 3. https://doi.org/10.1108/JAAR-09-2013-0072

Guest editorial

Article Type: Guest editorial From: Journal of Applied Accounting Research, Volume 14, Issue 3.

In this issue we have three themed papers on taxation with implications for tax policy and corporate accountability and one paper (selected from general submissions) related to auditing, with implications for the audit profession. Together they make salient reading for policy makers and accounting practitioners as well as making an important contribution to the academic community.
Elaine Harris
Managing Director (Special Issues)

Current issues in taxation

Taxation is something of an academic Cinderella, especially in the UK and amongst accounting researchers (Oats, 2012). This is an unjustifiable state of affairs; the UK is part of a major, sophisticated global economy in which taxation plays a significant role and represents a major part of the work of the majority of accounting practices. The reasons for this relative neglect have not been systematically explored, but casual empirical observation suggests that, unlike countries such as Australia, where several dedicated tax journals publishing interdisciplinary tax scholarship, and the USA where tax is a recognised specialism within accounting (see Hanlon and Heitzman, 2010), tax hasn’t developed a distinct academic identity in the UK and academic researchers tend to be somewhat dispersed. The fact that tax is seen as a complex subject that sits at the interface of, inter alia: law, economics, accounting, politics, social policy and sociology contributes to its somewhat marginal status; no-one really feels that they “own” it. Arguably, the fragmentation of tax scholarship across these various disciplines leads to its dilution in terms of policy impact (Oats, 2012, p. 5).

Yet contemporary conceptualisations of accounting as a complex phenomenon embodying not just technical rules and procedures but also reflecting and shaping social, economic and political practices (see e.g. Ravenscroft and Williams, 2009) should place taxation directly at the heart of accounting research. Taxation is where accounting meets the real world in stark form. Since feudal times (Boden, 2012), taxation has represented the means by which kings or states have extracted the financial resources necessary to do the work of government. In more recent years, the development of neoliberal modes of governance has seen the intertwining of private capital, states and individuals in globalised form. It follows that, if states are there to support and service capital (Dean, 1999), then their taxation practices must be appropriately tailored to boost growth and aid economic “efficiency”. As Besley and Persson (2009, p. 1239) observe, “state capacity to collect taxes and enforce contracts is a key aspect of development”. This engenders difficulties regarding who governs? That is, if states are making tax policy choices to support and sustain globalised private capital, this begs the question of what happens to democratic control and accountability.

The Tax Research Network (TRN; http://trn.taxsage.co.uk/) has its origins in a 1992 workshop supported by the ICAEW's PD Leake Trust. Since then, TRN has been steadily shaped to provide a forum for tax researchers and aims to work proactively with tax practitioners in accounting, law and policy arenas. The TRN conference continues to receive generous support from the Chartered Institute of Taxation, ICAS and ICAEW's charitable trusts. The three papers in this themed issue were presented at the 2012 TRN annual conference at the University of Roehampton, London. We have selected them because, together, they cut to the heart of the issues of the shaping of tax policy to meet the needs and desires of capital and explore the democratic consequences of this.

Sarah Lindop and Kevin Holland explore empirically the relationship between the taxation of dividends and the pricing of shares (stocks) in the UK. The nature of this relationship is of crucial importance to policy makers in government because changes in dividend taxation might affect heterogeneously share prices. In turn this might have an impact on the cost of capital for firms and thereby affect their investment decisions. This issue sits at the heart of the interrelationship between government tax policy and corporate finance in sophisticated financialised economies. The authors’ empirical site shows some ingenuity given the impossibility of running experiments in such an area. Using accounting data, they use the abolition of repayment of dividend tax credits in the UK in 1997 to pension funds (the major institutional investors in the UK) to explore the impact of the reform on share prices. Prior to 1997, dividends were paid with an associated implied tax credit attached which pension funds could reclaim. The paper concludes that there is evidence to suggest that the policy change caused earnings to be “trapped” inside firms because delaying paying dividends meant that the associated tax charge (no longer reclaimable) was also deferred.

Katrin Hohler moves these sorts of considerations to the international arena in a paper that explores the effects of individual territorial tax regimes on the competitiveness of national economies in making international investments. Her paper addresses directly the question of how nation states respond to the realities of a globalised financial economy. Again an empirical paper, Hohler interrogates data on the effect of both the UK and Japan of simply exempting foreign source dividends received by domestically based multinational firms from taxation. She concludes that both Japanese and UK investing firms were able to pay higher prices for investments.

Whilst these two papers explore the interrelationships between the state and private capital and the helping hand that the latter might receive from the former, Malcolm James returns to the issue of democratic accountability in his paper. He uses a recent tax controversy in the UK to explore the use of administrative discretion by the state to forgive interest arising as the result of the late payment of tax by Goldman Sachs. Using contemporary sources, James explores the possibilities of and the limitations to the powers of citizens to challenge such use of discretion in circumstances of taxpayer confidentiality. He concludes that perhaps democratic accountability relies ultimately on widespread media publicity.

Together, these three papers are indicative of the importance of taxation in modern society and the way in which accounting scholarship can be enriched by embracing tax as a significant element of both theoretical and practical considerations of the world of accounting. The papers demonstrate the potential for studying both national and international issues, for using quantitative and qualitative methods, and for adopting realist and interpretivist approaches, none of which are necessarily mutually exclusive.

There is much work to be done, particularly in the UK, to achieve a better understanding of the role taxation plays in the development and application of accounting rules and practices, but also of the wider implications of tax policy choices by governments and their effects on the world in which we live.

Rebecca Boden
Roehampton University Business School, London, UK, and
Lynne Oats
University of Exeter Business School, Exeter, UK

References

Besley, T. and Persson, T. (2009), “The origins of state capacity: property rights, taxation and politics”, American Economic Review, Vol. 99 No. 4, pp. 1218-1244

Boden, R. (2012), “Tea parties, tax and power”, in Oats, L. (Ed.), Taxation: A Fieldwork Research Handbook, Routledge, Oxon, pp. 126-133

Dean, M. (1999), Governmentality: Power and Rule in Modern Society, Sage, London

Hanlon, M. and Heitzman, S. (2010), “A review of tax research”, Journal of Accounting and Economics, Vol. 50 No. 2, pp. 127-178

Oats, L. (2012), “Tax as a social and institutional practice”, in Oats, L. (Ed.), Taxation: A Fieldwork Research Handbook, Routledge, Oxon, pp. 3-8

Ravenscroft, S. and Williams, P. (2009), “Making imaginary worlds real: the case of expensing employee stock options”, Accounting Organizations and Society, Vol. 34 Nos 6/7, pp. 770-786