The Complexities of Accounting Treatment and Taxation
Anti-tax avoidance rules can be justified as a process or regulation, wherein a party deals with another party with the help of participatory notes for conducting business (Australian Government, 2018). In this context, the participatory note is a document, which reflects a legal evidence of transactions. Through this note, an organization can receive tax benefits from the business. This study intends to reflect on the re-evaluations associated with the Anti-Tax Avoidance rules in Australia. However, most of the financial and non-financial organizations of Australia as well as the world have followed General anti-avoidance rules or GAAR (ACCA, 2018). By implementing this rule, an organization is able to deposit appropriate tax to the government. In order to properly understand the rules and its implementation, two theories have been elaborated through the study, namely shareholder theory and theories of regulation. Based on these theories, the Anti-Tax Avoidance Rules of Australia has been identified properly. Hence, this can be considered as the main aim of this study.
Taxation can be described as a vital activity for any organization or business, as an organization must deposit income tax in a year (Cobham & Janský, 2018). Therefore, failing to deposit income tax can be considered as an illegal activity because the government of Australia has suggested the prospect and constraints in the Australian Company Act. On the other hand, various accounting standards such as International Financial Reporting Standards (IFRS) and the Australian Accounting Standards Board (AASB) among others also suggested that the taxation is a vital activity for an organization. Every owner of an organization wants to earn a reasonable amount of profitability through their business operations. This s include activities such as conducting purchasing, selling, share & bond selling, earning from the share, return on assets, and depreciation. By conducting these activities, an organization faces both profit and loss. Contextually, in order to avoid loss, various organizations are avoiding taxation process so that they can earn more profit with no tax. Hence, it can be considered as an illegal activity for an organization (McClure, Lanis, Wells & Govendir, 2017).
Based on the above observation, it has been identified that prior to the period of the 1970s, most of the Australian organizations were engaged in tax avoidance. Additionally, weak taxation laws of Australia can be considered as the main reason behind this kind of activities. Most of the organizations were observed loopholes in the governmental law regarding the taxation, which was helping them to minimize tax volume within the market (Xynas, 2011). However, the Australian government faced a serious issue and implemented a regulation namely ‘General Anti?Avoidance Rules (GAAR)’ in the year 1980. This was under the Australian law of ‘Income Tax Assessment Act 1936’ (Seely, 2017). After the implementation of this law, the government of Australia was able to control the situation and succeed to manage the tax leakage within the economy. Fundamentally, ‘General Anti?Avoidance Rules (GAAR)’ provides benefits to the business organizations, which are facing loss in the recent year (ACCA, 2018). Tax benefits have been provided through the process GAAR, wherein an organization can carry forward its taxes to the next year if it faces losses in the current year (Australian Government, 2018).
Overview of Australian Anti-Tax Avoidance Rules
As per the above observation, it has been identified that GAAR has played a major role in the Australian taxation history. Approximately, 94% of companies have paid their taxes reasonably from the years 2014 to 2018. Moreover, shareholder and organizational regulation play an essential role in taxation (Krever & Mellor, 2016). In the case of shareholders, they have purchased the organizational shares and bonds with the intention of earning profit from the market. As per the Australian Company Law, each of the shareholders is considered as the owner of a company. Thus, due to this reason, they are contributing reasonably, while an organization is depositing tax to the government. Naturally, a synchronized and effective taxation process can be conducted with the help of shareholders. On the other hand, the organizational regulation also helps the internal as well as external stakeholders to work in an effective manner, wherein the taxation process is conducted (Edwards, Ward & Rockwell, 2018).
Based on the above observation, it can be stated that both shareholders and organizational regulation are assisting to develop organizational strength over the period of time. Hence, implementation of GAAR along with its revaluations in the aforementioned aspects has been developing through this study. Generally, various issues have been initiated in the abovementioned aspects, while an organization is operating their business within the market. Hence, the issues and its mitigation in a legal way has been elaborated in the next section of the study with the help of two theories named shareholder theory and theories of regulation. It has helped in attaining the main aim of the study, which is to gain knowledge relating to Anti-Tax Avoidance Rules of Australia and its re-evaluations (Xynas, 2011).
In order to analyze the Anti-Tax Avoidance Rules of Australia and its revaluations through two shareholder theory and theories of regulation along with its implications in the Australian organizations, a critical elaboration has been conducted in this particular section of the study. Therefore, the theories and its implication with respect anti-tax avoidance rules have been discussing below:
A shareholder can be considered as a crucial component for any organization, as it helps organizations to collect a reasonable capital. Milton Friedman, which is one of the greatest economists, has suggested that shareholders of an organization are depending upon the organizational profitability (Kusi, Gyeke-Dako, Agbloyor, & Darku, 2018). At the same time, he also stated that an organization must focus on the society and the internal environment of business so that the business can develop in an effective way. After analyzing his theory of stakeholders it can be claimed that the entire productivity of an organization is depending on the employees as well as workers. However, internal stakeholders are more valuable than the external stakeholders. Based on this, it can be stated that the employees of an organization are internal stakeholders (Vargas-hernandez & Gonzalez, 2017).
Shareholder theory can be justified as a wealth maximization, which can help stakeholders to earn more returns (Pfarrer, 2010). The shareholders of an organization are contributing certain volume of capital so that the organization can conduct business profitably. On the other hand, the only a reasonable volume of profitability can provide appropriate profitability to the shareholders. Therefore, it can be stated that an organization along with its shareholders have a strong relationship within the market. For any reason, an organization is unable to achieve reasonable profitability from the market, then the organization has to face loss. This will also lead the shareholders of that particular organization to face loss within the market. Similarly, if shareholders are not able to provide reasonable support to an organization, then both the shareholders and organization have to face loss. Hence, only a collaborative approach of both parties can lead an organization to attain market success. Apart from this, each of the shareholders of a company can have a large contribution in organizational tax along with its benefits (Cundill, Smart & Wilson, 2017).
The Importance of Shareholder Theory and Theories of Regulation
In the case of income tax, an organization is providing a certain amount of volume to the government of the country from its profitability and income. On the basis of the above discussion, it has been observed that the shareholders of an organization have the biggest contribution in organizational profitability as well as capital. Generally, an organization shares profitability volume to the shareholders after earning money from the market. Therefore, the taxation volume of an organization is divided equally, while an organization is providing share volumes to the shareholders (Malsch, Tremblay & Cohen, 2018)). Generally, the shareholders of an organization are receiving profit volume after deducting the tax. At this point, an organization can avoid the tax by sending money to the shareholder. However, tax avoidance is an illegal activity in Australia. Hence, this kind of activity can affect the shareholder trust as well as shareholder theory. Through the conduction of tax avoidance shareholders do not receive a reasonable amount of profitability. Simultaneously, share profit volume providing organization has received illegal as well as unethical profit (Pfarrer, 2010).
By conducting the aforementioned activity, an organization can be profitable for a limited time, but after a period, a company will lose their shareholders within the market. At the same time, shareholders can claim or suit against the organization regarding the profitability volume as well as shareholder policy. In this situation, the company may be found guilty for their consequences, whereas both parties will lose profit from the market. Thus, due to this kind of situation and reasons, GAAR of Australia is providing certain rules, wherein each of the shareholder. Additionally, the company is liable to provide receipts and documents while the process of taxation has been conducted (Hogarth, Hutchinson, & Scaife, 2017).
Theory of regulation can be described as a synchronized process along with the implication of scarce resources within an organization (Mertens, 2013). Additionally, an organization is working with various scarce resources such as human resources, raw materials, labor, machinery, and currency among others. Therefore, a proper allocation of the aforementioned resources can lead an organization towards attaining success. Through the process of implementing theories of regulation, an organization is able to use a resource in a decent as well as optimum manner. Based on the above-mentioned observation, it can be stated that the theories of regulation are depending entirely on individuals or the public of an organization (Hertog, 2003). Therefore, making regulative terms, policy, and rules of an organization in order to allocate every resource in a reasonable manner is included under the theories of regulation in respect to the public interest. Various types of individuals work under an organization, hence, motive and work interest of each employee can be different in an organization. Thus, the process of resource allocation of an organization must be conducted in a strategic manner, wherein each of the abovementioned scarce resources can be used properly. Among all scarce resources, human resources can be considered to be the most vital for any organization. This resource of an organization can work properly, while their interest in work is reasonable. At the same time, shareholders are also considered as scarce resources for of an organization (Zhang & Guo, 2018).
History of Australian Tax Law and General Anti-Avoidance Rules
In order to develop a profitable business operation, an organization must develop regulations regarding the above mentioned scarce resources. Thus, only appropriate regulation and its implementation along with maintenance can develop organizational performance within the market. In the case of tax avoidance, an organization can ignore paying tax while investing in the scarce resources (Hail, Tahoun & Wang, 2017). Higher authorities of an organization can declare a statement, wherein they can reflect an investment capital through tax avoidance. It can lead an organization to incur a loss, due to the fact that in case a disclosed investment is not conducted properly, then financial constraints may initiate within the organization in which it may not able to create public interest in respect of human resource and shareholders. In this condition, a company may face bankruptcy or insolvency within the market. Thus, an Australian organization must follow the rule of GAAR so that the company can make legal and effective regulations for the company regarding the taxation process. At the same time, legal, trustful, and strategic regulation of an Australian organization can increase the public interest. Proper public interest can lead an organization towards market success within its competitive market arena (Hertog, 2003).
Based on the above discussion, it can be asserted that an organization must not avoid tax in the market. Stealing the currency relating tax volume can create an environment, wherein an organization may develop internal and external trust and relationship. Any kind of untruthful activity regarding tax can initiate a situation, wherein the organization may face unexpected loss within the market (Cafaggi & Renda, 2012).
Discussing and Conclusions
From the study, it has been identified that taxation plays a major role in any organization, which is also evident all over the world. Thus, each of the individuals has to pay taxes for the country’s development. In accordance with the Company Act of Australia, IFRS, and AASB, an organization must pay taxes as per the organizational strategy. It may occur quarterly, half-yearly, and yearly. However, avoiding tax for any reason has been treated as an illegal activity, wherein an organization may penalize legally from the court of justice (John, 2017). In the year 1970s, the government of Australia faced large issue relating to tax avoidance, but it has been stopped reasonably after the implementation of GAAR (Krever & Mellor, 2016). Apart from this, there are two theories have been elaborated, which have focused on the theory of shareholders and theories of regulation. Through the analysis of these theories, it has been observed that an inappropriate approach regarding shareholders and scarce resources can lead an organization towards loss. It can be considered as a major issue in any organization around the world (Edwards, Ward & Rockwell, 2018).
Based on the above discussions and observations, it can be concluded that tax avoidance is a crucial issue in an organization. Conducting tax avoidance can lead an organization to insolvency or bankruptcy. At the same time, it can also reduce shareholders volume and public interest towards the organization, wherein it is not able to make a reasonable capital for business operations. Simultaneously, tax avoidance can also affect the organizational relationships within the market, wherein the organization is unable to make quality products for their customers.
Impact of GAAR on Taxation in Australia
References:
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