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A Study of the Changing Relationship between Large Corporates and the Inland Revenue By Penelope Ann Louise Tuck A thesis submitted in partial fulfilment of the requirements for the degree of Doctor of Philosophy Warwick Business School, University of Warwick February 2007 Contents Page no Table of Contents ii List of Figures vii List of Abbreviations viii Acknowledgments ix Declaration x Abstract xi Chapter 1- Introduction 1.1 The Research Issues and Questions 1 1.2 The IR: past and present 11 1.3 The Large Corporate Taxpayer 16 1.4 Corporate Tax Compliance 19 1.5 Theoretical Approach 22 1.6 Structure of the Thesis 25 Chapter 2- Setting the Scene: the background to the Corporate Tax Compliance Process 2.1 Introduction 27 2.2 Corporation Tax 27 2.3 Tax Avoidance 31 2.4 'Who is the corporate taxpayer? 36 2.5 Specialist Large Taxpayer Compliance Units (SLTCU) 40 2.6 The `elite professional' nature of large corporates' tax specialists 43 2.7 External Factors 44 2.7 Chapter Summary 45 Chapter 3- Literature Review 3.1 Introduction 47 ii 3.2.1 Tax Research 49 3.2.2 Tax Research as Legal Research 50 3.2.3 Tax Research as Political Science Research 51 3.2.4 Tax Research as Economic Research 53 3.2.5 Tax Research as Accounting Research 55 3.3 Tax Compliance 57 3.3.1 The Taxpayer's perspective 59 3.3.2 The Tax Authority 64 3.3.3 Tax Compliance research summary 73 3.4 New Public Management (NPM) 74 3.5 Links to the Professionalisation Literature 81 3.6 Critical Accounting research 83 3.6.1 Governmentality 88 3.6.2 The use of Foucault to study discourse and practices in tax administration 92 3.7 Chapter Summary 94 Chapter 4- Methodology 4.1 Introduction 96 4.2 Quantitative versus qualitative 100 4.3 Definitions of discourse 103 4.4 Towards a Foucault- based approach to critical discourse analysis 105 -discourse/ power/ knowledge 4.5 Definition of practices 108 4.6 Power, truth and the "subject" 112 4.7 Regimes of truth 116 4.8 Truth and Inquisition Practices 117 4.9 Methods 123 4.10 Selection of research sites 124 4.11 Interview process 126 4.12 Matched pairs 133 4.13 Coding and Computer Aided Qualitative Data Analysis (CAQDAS) 134 4.14 Chapter Summary 136 Chapter 5- The Organisation of the IR 5.1 Introduction 138 111 5.2 Localised operations 139 5.3 The formation of the IR - the emergence of bureaucracy 143 5.4 Bureaucracy and disciplinarity 147 5.5 The Organisational Structure of the IR 147 5.6 The Changing IR 153 5.7 The Modernised IR 155 5.8 Emergence of the Large Groups office 158 5.9 The Large Business Office 162 5.10 NPM versus Bureaucracy 165 5.11 Chapter Summary 167 Chapter 6- Processes and Practices 6.1 Introduction 168 6.2 The Managerial and Strategic IR 168 6.3 Corporate tax compliance 176 6.4 Pre Self Assessment 176 6.5 Corporate Tax Self Assessment 178 6.6 Impact of CTSA 179 6.7 Divergent structure and processesand uncertainty 182 6.8 Secondary practices 184 6.9 The Event of 'Negotiations': Emergent Procedures 186 6.10 Resistance 192 6.11 Chapter Summary 196 Chapter 7- The Knowledge Expert - the Tax Official 7.1 Introduction 198 7.2 The IR's Representative 201 7.3 The Tax Official -the Inspector of Taxes 203 7.4 Shaping the knowledge expert 205 7.5 Formal training 207 7.6 Technical Knowledge 208 iv 7.7 Investigative approach 212 7.8 Immersion in the IR discourse - implicit training 215 7.9 Immersion in the IR discourse - organisational structure 217 7.10 Business Sectorisation 219 7.11 Specialist Knowledge 221 7.12 Discussion 224 Chapter 8- The Corporate taxpayer reconceptualised as a Customer 8.1 Introduction 228 8.2 Who is the corporate taxpayer? 231 8.3 The choice of customer discourse 232 8.4 Duty of care from service provider 237 8.5 The objectivization of the customer (Stage One): a way of challenging the 239 provider `as jr they had customers 8.6 Customer relationship building 241 8.7 The objectivization of the customer (Stage Two): the institutional 245 emergence of the visible customer 8.8 Chapter Summary 248 Chapter 9- The Event of Compliance 9.1 Introduction 249 9.2 New Style CompliancePractices 253 9.3 Managing the process of meeting the Customer 257 9.4 Managing the process of meeting the IR Official 258 9.5 Outward facing discourse with tax managers and tax professionals 259 9.6 The Truth Game and the Customer 263 9.7 Chapter Summary 265 Chapter 10 - Conclusion 10.1 Introduction 267 10.2 The Changing Process 267 10.3 The Managed Process 269 V 10.4 Limitations of the Study 270 10.5 Contribution 271 10.6 Future Research 274 Appendices Appendix 1- List of interviews carried out 276 Appendix 2- Interview questionnaire - Case Directors 278 Appendix 3- Interview questionnaire - Tax Advisors 282 Appendix 4- Interview questionnaire - Tax Managers 285 Bibliography 288 VI Page List of Figures no 1 The "two box" entity 13 2 The Inland Revenue `boxology' 15 3 The compliance/ non-compliance continuum 31 4 Organisation Structure of an in house Tax Department 39 of a FTSE 100 group of companies 5 Patterns of Corporate Tax Compliance and ways of shaping risk management 72 systemsfor taxpayers and tax advisors 6 Different Approaches to Discourse Analysis 104 7 Organisational Structure of the IR as at 31 March 1969 149 8 IR Organisation Chart as at 31 March 1976 150 9 Organisational Structure of the IR as at 31 March 1983 152 10 Organisational Chart of the IR as at September 1993 154 11 Organisational Chart of the IR as at 31 March 2004 156 prior to the merger with HM Customs & Excise 12 Inland RevenueCompliance Model 172 vii List of Abbreviations ATO Australian Tax Office BIR Board of the Inland Revenue CPA Certified Public Accountants CTSA Corporate Tax Self Assessment CRAKA Centre for Researchin Accounting Knowledge and Accountability HMRC HM Revenueand Customs ITSA Income Tax Self Assessment IR Inland Revenue IRS Internal Revenue Service IMF International Monetary Fund LBO Large Business Office LBS Large Business Service LCF Large CorporatesForum NCP New Compliance Process NPM New Public Management SLTCU Specialist Large Taxpayer Compliance Units SV ShareValuation Division of the IR vi" Acknowledgements I wish to thank my supervisor Professor Keith Hoskin for both his encouragementand the intellectually demanding and enjoyable supervisions which have enlightened me to new ways of thinking. I also wish to thank my latterly second supervisor, Dr Lynne Oats for her encouragement, support and friendship and also my former second supervisor before her move to the US, Dr Margaret Lamb for her enthusiasm to open up the tax administration researchagenda. The thesis could not have been completed without the generous funding of the Chartered Accountants' Trust for Education and Research of Institute of Chartered Accountants in England and Wales and all the interviewees who have given their time freely and generously. I expressmy thanks to all concerned. I thank my fellow 'PhD pals' who have offered great support and excellent friendship throughout this experience: Layla Branicki, Derek Condon, Ken Le Meunier- Fitzhugh, and Michael Nottage. Obviously I could not have completed this thesis without the great support and sacrifices of my family and I wish to thank, my husband Paul for his love and wise advice, my son Alexander for his determination and confidence in me and my father, Arthur for being there to laugh! This thesis is dedicated to Paul, Alexander, Arthur and Priscilla (1925 - 2000). lx Declaration This is to declare that: I am responsible for the work submitted in this thesis. This work has been written by me All verbatim extracts have been distinguished and sources specifically acknowledged During the preparation of this thesis, a paper was prepared as listed below. The remaining parts of the thesis are unpublished. Tuck, Penelope (2004) `No Accounting for Taste: Remaking the Large Corporate Taxpayer into a Visible Customer'. Paper presented at the European Accounting Association Conference, Prague, Czech Republic, April 2004 and also presented at the British Accounting Association Conference, University of York, April 2004. This work has not previously been submitted with in a degree programme at this or any other institution. Signature: Peý. ýge SAVL. k k' Date: 2 9-0-4 X Abstract This thesis addressesthe following researchquestions: 1. How is the process of corporate tax compliance changing for large groups of companies? 2. How is this process being managed by the Inland Revenue? The empirical evidence consists of 33 interviews conducted in 2002-04 with IR officials; tax directors and tax managersof large corporates; and tax partners from a Big 4 accounting firm. This thesis also draws upon archival data including state papersand documentary data from the IR. Theoretically this thesis draws from the new public management,administration, and the tax compliance literatures. However I argue that an approach grounded purely in these literatures does not adequately explain the changing tax compliance environment for large groups.