The impact of the identification and management of tax risk on the income tax compliance behaviour of large Australian companies

Abstract

This thesis considers the impact of the identification and management of tax risk on the income tax compliance behaviour of large Australian companies (turnover exceeding AUD250 million). A mixed methodology design is used. The first phase involves in-depth interviews with tax decision-makers in large Australian public and private companies. Qualitative analysis of these interviews is used to inform the second phase of data collection and the development of a survey of the tax risk management practices of large Australian companies. Quantitative analysis of the survey data indicates that a small majority of large Australian companies have a tax risk management system and that such systems do result in a reduction in the level of acceptable tax risk. Almost all respondent companies that have a tax risk management system feel that it ensures the directors and tax decision-makers are informed concerning tax risk. The survey responses highlight that in the majority of large Australian companies that have a tax risk management system, the system results in the identification of potential non-compliance with the income tax laws and opportunities to minimise income tax. In addition, a minority of large Australian companies manage tax risk using a clear definition of what constitutes a tax risk. The lack of a clear definition is noted as a limitation in the effectiveness of a tax risk management system. The statistical analysis of survey responses shows that companies that have a clear definition of what constitutes a tax risk place greater importance on income tax compliance. The survey responses identify a number of factors that determine the level of tax risk that a large company is exposed to and that limit the ability of a large company to identify and manage tax risk. Significant factors identified include uncertainty and complexity of the income tax laws, reputational concerns as well as complexity and size of business transactions. This thesis provides an insight into the tax risk decision-makers and the tax risk management practices of large Australian companies and concludes that the identification and management of tax risk leads to an improvement in the level of income tax compliance.