Corporate Tax Avoidance and Strategy

This assignment delves into the complex world of corporate tax avoidance, examining various strategies employed by companies to minimize their tax liabilities. It analyzes the motivations behind such practices, considering both legal and ethical implications. The analysis draws upon academic research, including articles from reputable journals like the Quarterly Journal of Finance and The Journal of Economic Inequality, as well as real-world examples from corporations like Autosports Group. Key themes explored include the influence of financial distress on tax avoidance, shareholder value considerations, and the impact of public pressure on corporate behavior.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1CORPORATE ACCOUNTING
Table of Contents
Answer to Part (i):......................................................................................................................2
Answer to Part (ii):.....................................................................................................................3
Answer to Part (iii):....................................................................................................................3
Answer to Part (iv):....................................................................................................................4
Answer to Part (v):.....................................................................................................................5
Answer to Part (vi):....................................................................................................................6
Answer to Part (vii):...................................................................................................................7
References:.................................................................................................................................8

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Answer to Part (i):
Three main items are present in the statement of financial position of the
organisations, out of which equity is significant. Autosports Group Limited is not an
exception from this rule. In compliance with the balance sheet statement of the organisation
in 2017, three main items are listed in equity section, which include issued capital, share-
based payments reserve and retained profits. Issued capital is the equity of the business
organisations (Atanasov and Black 2016). The firms utilise in raising a part of capital needed
for their businesses. The issued capital is calculated by multiplying the par value of the shares
with the number of outstanding shares. The annual report of the organisation states that the
issued capital has fallen from $478,500,000 in 2016 to $475,637,000 in 2017
(Investors.autosportsgroup.com.au 2018).
The main items falling under issued capital comprise of issuance of ordinary shares,
cost of issuance of shares and income tax associated with issuance of shares. The next item in
the equity of Autosports Group Limited is reserves. According to the financial accounting
concept, reserve is taken into account as a part of the equity of the firm. This is adjudged in
the form of additional amount except for primary share capital. The recent annual report of
Autosports Group Limited states that it has issued shares-based payments reserve in 2017,
which is valued at $392,000; however, no such reserves are there in 2016.
In addition, the latest annual report of Autosports Group Limited states that it has
positive retained profits amounting to $12,198,000; however, it has experienced retained
losses in 2016 amounting to ($101,000). Hence, it could be said that the organisation has
made more profits than losses. The constituents involved in the retained profits of Autosports
Group Limited are net income available to the shareholders, dividends paid or provided and

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effect of restatement (Schaltegger, Etxeberria and Ortas 2017). Thus, all the above-described
constituents are the main equity items in the organisation.
Answer to Part (ii):
In the global firms, various forms of expenses could be seen and they are selling
expenses, administrative expenses and other expenses. Out of these expenses, tax expense
could be considered as one of them. Moreover, tax expense is taken into account in the form
of main liabilities of the companies owing to the state, federal and municipal governments of
the nation (Damodaran 2016). The tax expense is computed through multiplication of the
suitable business tax with the income before taxes after some main items are factored such as
tax assets, non-deductible items and tax liabilities. Autosports Group Limited is not exempted
from this, since it incurs tax expenses as well. Based on the recent annual report of the
organisation, the income tax expense has been $6,035,000 in 2017, which was $8,000,000
million in 2016.
Based on the rules of the taxation law of Australia, the corporate tax rate is 30%
(Gitman, Juchau and Flanagan 2015). According to this tax rate, the overall tax expenses for
Autosports Group Limited would be $5,526,900 in 2017, which was $101,400,000 in 2016.
This is the major tax expense of the firm for the years 2016 and 2017. It could be identified
that the overall tax expenses of the organisation have fallen in 2017 due to decline in income
for the organisation in that year.
Answer to Part (iii):
Based on the above discussion, it could be stated that Autosports Group Limited has
recorded total tax expense of $6,035,000 in 2017, which was $8,000,000 in 2016. On the
other hand, if the tax rate is followed, the overall tax expenses for Autosports Group Limited

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would be $5,526,900 in 2017, which was $101,400,000 in 2016. Hence, a clear variation in
the tax expense of the organisation could be observed. For Autosports Group Limited, there
are some particular reasons for the variations in tax expenses despite of having the identical
tax rate of 30%. However, few specified items are included or not taken into account in the
preliminary overall tax expenditures. The initial item is non-deductible expense in order to
ascertain taxable profits (Cheng, Ioannou and Serafeim 2014). However, few expenses in the
organisation need not be subtracted from its overall income. Due to this, $638,000 and
$879,000 are included in 2016 and 2017 respectively. The next item includes the use of
various tax rates for the subsidiaries of the organisation. In Australia, the rate of tax is 30%,
while in case of USA and New Zealand, the tax rates are 34% and 28% respectively (Graetz
and Warren Jr 2014).
Because of such variation in the rate of tax, certain amount is subtracted from the
actual tax expenses of the organisation. The next item includes the availability of deferred tax
assets. With the help of deferred tax assets, tax advantages could be sought (Agrawal and
Cooper 2017). For this reason, $3,897,000 has been deducted from the tax expense of
Autosports Group Limited in 2017. Some other items need to be included as well with the tax
expense of the organisation. The final item is the availability of non-assessable incomes.
There are certain incomes, which do not need to be evaluated in accordance with taxation.
Hence, an inclusion of $1,547,000 is made with the overall tax expenses.
Answer to Part (iv):
In the words of Richardson, Taylor and Lanis (2015), deferred tax assets and
liabilities are the major concepts that are associated with the tax operation of the
organisations. The situation, in which the organisations make prepaid tax on their financial
assets or overpay taxes, is termed as deferred tax assets. On the contrary, deferred tax

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liabilities signify a situation, in which a variation could be observed in profit and the carrying
amount of tax of the organisation (Taylor and Richardson 2014). For Autosports Group
Limited, it could be viewed that the organisation has disclosed deferred tax assets as well as
deferred tax liabilities in its balance sheet statement. The deferred tax assets of the
organisation have been $3,897,000 in 2017, which were $3,900,000 in 2016. Along with this,
the organisation has deferred tax liability base of $5,948,000 in 2017, which was $4,000,000
in 2016. By taking into account the accounting norms and regulations, there are few reasons
to develop deferred tax assets and liabilities.
For deferred tax assets, the cause might be the additional depreciation amount on the
part of the organisation because of the difference in rate of taxable depreciation and
depreciation. Because of the additional depreciation payment, Autosports Group Limited
would not have to incur the excess tax in the upcoming year; hence, it is taken into account as
asset. In case of deferred tax liabilities, the temporary variations in business profits might be
the cause, which has resulted in lower tax payment of the organisation in the existing year
(McClure et al. 2018). Hence, it becomes mandatory for the organisation to repay the same in
the upcoming years, which is the main reason of its consideration in the form of liability.
Answer to Part (v):
Income tax payable or current tax asset is adjudged as a significant aspect for the
global organisations. According to the annual report of Autosports Group Limited, it has
disclosed about its current tax asset. It has been found that the income tax payable of the
organisation has been $4,980,000 in 2017; however, no income tax payable is reported in the
year 2016.
In organisations, it could be observed that there is a variation between income tax
payable and income tax expense and there are some particular reasons that could be held for

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such disparity. The basic reason is the availability of deferred tax assets. There are many
examples, in which the organisation incurs additional tax amounts in contrast to the tax
expenses (Dyreng, Hoopes and Wilde 2016). In this condition, the additional amount of tax
paid would be adjudged in the form of deferred tax assets, which would result in variation.
The next reason is that the rules pertaining to financial accounting and tax accounting differ
from each other. In this dimension, it is noteworthy to mention the concept of depreciation.
The variation for depreciation could be observed in case of tax accounting as well as financial
accounting due to the use of different depreciation methods (King 2016). Therefore, the final
depreciation amount payable could rise or decline. These could be stated as the primary
reasons behind the variations between income tax expense and income tax payable
(Burkhauser, Hahn and Wilkins 2015).
Answer to Part (vi):
Based on the financial statements of Autosports Group Limited, the organisation has
disclosed its tax-related expenditure in both the income statement and the cash flow
statement. However, there are variations in tax expenses, which are depicted in the cash flow
statement and the income statement. Under the income statement, the income tax expense has
been $6,035,000 in 2017, which was $8,000,000 million in 2016. Under the cash flow
statement, the income tax paid has been $6,760,000 in 2017, while in 2016; it has not
recorded any income tax paid. Some particular reasons are there for this variation in both the
above-depicted statements in relation to tax expense. Under the income statement, the
organisation has depicted the entire taxation amount by using the tax rate of 30% on the profit
before tax. However, the situation is dissimilar in case of the cash flow statement.
In this regard, Murphy (2016) advocated that the tax expense falls under the operating
cash flows. Moreover, in the section of the statement of cash flow, there is different for few

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items laid out in the income statement. This signifies that various modifications have
occurred in the current asset and liability base of the organisations. In case of Autosports
Group Limited, the income tax payment is taken into account in the form of current asset.
Under the cash flow statement, some minimisation in the constituents of income tax has been
brought signifying the usage of cash. This denotes that there is cut off of few components of
tax expense, before they are considered in the cash flow statement (Dowling 2014). Because
of these reasons, the variation in tax expense could be observed in both the income statement
and the cash flow statement.
Answer to Part (vii):
After the tax treatment is observed for the financial reports of Autosports Group
Limited, it is to be said that the organisation has presented its tax-related information in a
fashion that any user would not find any confusing or surprising element within the same.
The organisation has carried out all its tax treatments by adhering to the regulations and
principles of the taxation law of Australia. Moreover, the organisation has laid down all the
justifications and descriptions of the different influential dynamics of taxation such as rate of
tax, income tax payable, deferred tax assets, deferred tax liabilities and others. However, few
interesting stuffs have been found in relation to the tax treatment of the organisation.
The most significant factor is the description made on the part of the organisation in
relation to the difference identified in the overall tax expense. It has provided description
about the five main influential dynamics accountable to create difference in tax expense. This
is depicted with the help of various tables present in the annual report of the organisation.
Another significant factor is the variation in tax expense, as identified from the statement of
income and the statement of cash flow. All these exciting factors are highly valuable to
increase the knowledge and understanding needed in business taxation. From this evaluation,

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an individual could obtain insight and understanding regarding the tax treatment of the
Australian organisations.

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References:
Agrawal, A. and Cooper, T., 2017. Corporate governance consequences of accounting
scandals: Evidence from top management, CFO and auditor turnover. Quarterly Journal of
Finance, 7(01), p.1650014.
Atanasov, V. and Black, B., 2016. Shock-based causal inference in corporate finance and
accounting research.
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax
record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2),
pp.181-205.
Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to
finance. Strategic Management Journal, 35(1), pp.1-23.
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and
corporate finance (Vol. 324). John Wiley & Sons.
Dowling, G.R., 2014. The curious case of corporate tax avoidance: Is it socially
irresponsible?. Journal of Business Ethics, 124(1), pp.173-184.
Dyreng, S.D., Hoopes, J.L. and Wilde, J.H., 2016. Public pressure and corporate tax
behavior. Journal of Accounting Research, 54(1), pp.147-186.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Graetz, M.J. and Warren Jr, A.C., 2014. Unlocking Business Tax Reform. Tax Notes, 145,
pp.707-712.

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Investors.autosportsgroup.com.au., 2018. Investor Centre | Autosports Group. [online]
Available at: http://investors.autosportsgroup.com.au/investors/?page=annual-reports
[Accessed 25 Jan. 2018].
King, M., 2016. Offshore hubs: Developments in multinational corporate tax anti-
avoidance. Australian Resources and Energy Law Journal, 35(2), p.142.
McClure, R., Lanis, R., Wells, P. and Govendir, B., 2018. The impact of dividend imputation
on corporate tax avoidance: The case of shareholder value. Journal of Corporate Finance, 48,
pp.492-514.
Murphy, C., 2016. The effects on consumer welfare of a corporate tax cut. Arndt-Corden
Department of Economics Working Paper, (2016/10).
Richardson, G., Taylor, G. and Lanis, R., 2015. The impact of financial distress on corporate
tax avoidance spanning the global financial crisis: Evidence from Australia. Economic
Modelling, 44, pp.44-53.
Schaltegger, S., Etxeberria, I.Á. and Ortas, E., 2017. Innovating Corporate Accounting and
Reporting for Sustainability–Attributes and Challenges. Sustainable Development, 25(2),
pp.113-122.
Taylor, G. and Richardson, G., 2014. Incentives for corporate tax planning and reporting:
Empirical evidence from Australia. Journal of Contemporary Accounting &
Economics, 10(1), pp.1-15.