Impact of firms’ Internal Information Environment on Tax Avoidance

BAAFM PT8 – Independent Study for Accountants
Contents Page
Index 1
Declaration 2
Rationale for Study 3
Research Objectives 3
Research Questions 3 – 4
Literature review 5
Reference List 6
CHAI YONG FUEI (UP837727) Page 1 of 13

BAAFM PT8 – Independent Study for Accountants
Declaration
I declare that all materials included in this essay/report/project/dissertation is the end result of
my own work and that due acknowledgement have been given in the bibliography and
references to all sources be they printed, electronic or personal.
____________________
Name: Chai Yong Fuei
Student ID: UP837727
Date: 21.07.2017
CHAI YONG FUEI (UP837727) Page 2 of 8

BAAFM PT8 – Independent Study for Accountants
Impact of firms’ Internal Information Environment on Tax Avoidance
Rationale
Taxation is one of the most important concepts in case of economy of any country and affects
the revenue of the government considerably. Calculation of the correct amount of taxes and
paying of the same is one of the responsibilities of the citizens towards the government of a
country. Taxes are the only source of income that the government has. There are various
social and economic rules that the government has formed in this regard to make sure there is
seamless transfer of tax and people are not able to avoid paying of these taxes. In every
country tax plays an important apparatus that judges the flow of economy to the government
therefore the norms for tax collection and tax recovery have become very strict. Tax
avoidance and tax evasion are the two ways that firms employ to reduce their tax payments.
Tax evasion is an illegal way by which firms cover off their income to avoid paying the tax
and tax avoidance is a method by which the firm uses the gap in the law to avoid paying of
the taxes legally. Both are heavily practiced in today’s time, and therefore the government is
looking out for ways it can stop the acceleration of the same which is affecting the overall
financial growth of the economy (Gartland, 2017). Tax avoidance programs are legal in
nature and include smart moves by the firms to not pay the taxes legally. To practice effective
tax avoidance it is important that companies must have good knowledge about the various
taxation practices and laws and should be able to use the available information about the
company in that way, so that firms have to pay the least amount of tax. Taxation cost can
heavily reduce the overall income of any company and thus they follow such practices that
help in reducing their overall taxable income and thus accordingly they have to pay of fewer
taxes. This is how this concept flows, and is one of the major topics of debate because firms
are following legally ethical ways to avoid their tax implications but that is causing the
CHAI YONG FUEI (UP837727) Page 3 of 8

BAAFM PT8 – Independent Study for Accountants
government its overall flow of income. Thus the government needs
to think whether such practices of tax avoidance are allowed (Kohtamäki, 2017).
The internal information of the firms play a major role in tax planning and that plays a major
role in tax avoidance. If there is no adequate information that is available then companies
might end up losing tax cuts. It is difficult to coordinate the different department of the firm
for the sake of tax planning and sometimes the tax documentation might be so much that the
tax authorities will nullify the same. It is thus important that awareness must be there and all
departments must be coordinated to make sure that effective tax planning is done (Mayntz,
2017). However strangely in today’s time the presence of evidences states that the importance
of the internal information of the firm might end up affecting its tax avoidance capabilities.
Research Objectives
In this research paper we will try to understand how the internal information of any company
might affect its overall tax avoidance and what role does it play in it. The report will follow
the flow of information towards the concept of tax planning and that might end up affecting
its prospects of tax avoidance. Tax avoidance is legally practiced but there is a very thin line
between tax avoidance and tax evasion. Often while planning ethically people end up hiding
their income by unlawful means thus that must be avoided. We will also study the overall
role of the internal information in tax avoidance and judge the various aspects of the
information that is available on the basis of various parameters like availability, accessibility,
quality, importance to the firm in regard to the overall financials of the company. If the firm
employs high quality accounting information system it will be able to use the same to extract
high quality information accordingly (Minnis & Sutherland, 2017). The various aspects of
internal information have still been neglected in terms of tax planning but slowly its
importance is being established. If good information is not available, tax planning might not
be up to the mark, and that might affect the overall flow of data. It is difficult to establish
effective coordination of tax planning across business or geographical segments. There is
huge risk involved in the same as the firm documentation might not be able to prove the same
and hence that will bring the firm in worse position. It is thus important that internal
information must be properly regulated to avoid any kind of flow of such data from one
CHAI YONG FUEI (UP837727) Page 4 of 8