Exploring Tax Avoidance by Qantas Airlines: An Analysis Using Stakeholder and Legitimacy Theories

This report explores the tax avoidance practices of Qantas Airlines in Australia using stakeholder and legitimacy theories. The report discusses the impact of tax avoidance on stakeholders and the community and predicts the future actions of Qantas regarding tax payments.

Running head: FINANCIAL ACCOUNTING THEORY
Financial Accounting Theory
University Name
Student Name
Authors’ Note

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Executive Summary
The report is prepared for reviewing the avoidance of taxes by corporations in Australia with
specific reference to Qantas airlines. Two theories have been selected for explaining the
concept of given scenario and those theories comprise of stakeholder theory and legitimacy
theory. Analysis of such theories has been done by reviewing literature related to the topic
concerned. In addition to this, the application of theory is done in the context of avoidance of
tax payment by Qantas.

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Table of Contents
Introduction:...............................................................................................................................4
Discussion:.................................................................................................................................4
Qantas and tax discussion..........................................................................................................4
Identification of two chosen theories and justification of chosen theories:...............................4
Stakeholder theory:....................................................................................................................4
Legitimacy Theory:....................................................................................................................4
Literature reviews on each theory:.............................................................................................4
Review of literature on Legitimacy Theory:..............................................................................4
Chosen theory application:.........................................................................................................4
Conclusion:................................................................................................................................4
References list:...........................................................................................................................4

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Introduction:
The report is prepared for explaining the incident of avoidance of tax by Airline
Company named Qantas by referring to the accounting theories. The uproar of media
regarding the tax avoidance incidence by large corporations such as Qantas is explicitly
illustrated in this report. Furthermore, report also demonstrate the identification of two
accounting theories and discussing on each of them by referring to literature review that
covers the benefits, history and problems and history of using that theory. The selected
theories is also used for explaining and discussion the reason why the Qantas has not paid any
taxes and predicting whether they would pay taxes in future (Zorzini et al., 2015). Two
different accounting theories that have been chosen incorporate legitimacy and stakeholder
theory and the selection of these accounting theories have been properly justified. Such
theories have been illustrated in this particular study by explaining the application in the
given situation.
Discussion:
Qantas and tax discussion:
Qantas is the largest airline and flag carrier of Australia by international flights, fleet
size and international destinations. The company was established in year 1920 and has grown
to be a largest domestic and international airline company and it is known as one of the
strongest brands of Australia and long distance airline. Reputation of organization has been
built on its excellence of operational reliability, safety, customer service and engineering and
maintenance. The main business of group is customer transportation using complementary
brands of Jetstar and Qantas. Operations of the group are also in subsidiary business that
includes business in specialist market such as Q catering and other airlines. The airline brand

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operates through domestic, regional and international services along with broad portfolio of
business ranging from Qantas frequent flyer to Qantas freight enterprises (Qantas.com, 2018).
Alan Joyce is the CEO of organization who has been the leading person for supporting such
Turnbull government proposed tax cut. The chief executive officer Alan Joyce has been
presiding over the corporation and has not paid tax for overtime period of ten years. Since
time period of year 2009, the payment of tax has been averted by Qantas despite the fact that
the group generated total profit or earnings of around $ 106.4 billion (Qantas.com, 2018).
This avoidance of payment of tax by the group is attributable to the factors such as business
capability for offsetting the losses against the future as well as past earnings and depreciation
provisions. Several representatives of company have confirmed through their different mail
exchanges about the data of corporate tax transparency and it has been replicated that for the
last three years, payment of taxation have been avoided by one out of every five biggest
corporation (Morioka & de Carvalho, 2016).
From the analysis of some relevant sources, it has been found that since year 2013,
the corporate tax rate has not been paid by even one of the Australian biggest airline and this
involved airline company Virgin along with its subsidiaries. The principal energy retailer of
Australia has made payment of corporate tax rate as the price of electricity has been observed
to be increasing by the household of Australia (Macve, 2015). However, it is reflected by
previous research that organization are able to enhance their corporate investment by cutting
their tax payment or avoiding payment of tax. It has been depicted from the financial
statements of firms of Australia that there investment has been enhancing.
For the financial year 2016-2017, the underlying profit before tax was reported by
organization of amount $ 1401 million. This amount of profit report was significantly higher
and is the second highest performance in history of ninety seven years. It is indicated by
result that margin advantage of Qantas group over global and local competitors was

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underpinned by its three year transformation program. For millions of transactions
undertaken by then group, there is virtually a component of tax. The primary focus on all
matters related to tax is in compliance and the tax affairs are managed by a robust framework
of corporate governance. For year 2017, Qantas was not required to make payment of taxes
due to carry forward of tax losses as reported in the report issued by company.
Identification of two chosen theories and justification of chosen theories:
Stakeholder and legitimacy theory are the two theories that have been identified
below.
Stakeholder theory:
It has been stated as per stakeholder theory that the objective of doing business is to
create value for stakeholders and it represents the association between group of stakeholders
and firms. The supposition of stakeholder theory is that the operations of business are
accountable to all the stakeholders along with the shareholders of company. Recognition of
stakeholders is necessarily done in the business enterprise interest. It is implied as per this
particular theory that business enterprise that is socially responsible response by taking into
considerations of requirement of all stakeholders and they do not always act in the interest of
owners. The reason behind the selection of stakeholder theory is that it will assist in
evaluating the impact of avoiding taxes on stakeholders and thereby explaining the
consequences of such acts (Alrazi et al., 2014). How the avoidance of tax influences the
behaviour of stakeholders can be explained by taking into consideration stakeholder theory.
The disbursement of tax cannot be always excluded from strategy of corporate social
responsibility and policy of CSR should be well aligned with the planning needs of
worldwide taxation. For business enterprise and stakeholders as a whole, arrangement of

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taxation at international level is considered as issue. In order to provide benefits to
shareholders, business concerns are prone to enhancing their profits by disbursing some
taxation amount. Tax avoidance by business concerns make taxation authorities apprehensive
about losing the taxation revenue (Henisz et al., 2014). Therefore, it considered essential
crucial for highlighting the relationship between tax planning and CSR.
Legitimacy Theory:
It is posited by legitimacy theory that it is continuously sought by organization for
ensuring the fact that they operate within norm and bounds of respective societies. When the
perceptive of legitimacy theory is adopted by organization, reporting on activities would be
done voluntarily by companies when it is perceived by management that communities expect
such activities in the area of operations. In order to function in an appropriate way, business
enterprise are required to have the legitimacy need. Therefore, it can be inferred that there
will be serious consequences of part of organization if its lacks legitimacy and result in loss
of support from community. The strategy of CSR of business might incorporate legitimacy
and the organization relies on such strategy when the legitimacy of management is
threatened.
The overall amount of taxes that corporate seeks to disburse might be minimized by
imbibing strategic taxation behaviour. For serving the well being of community and reducing
the damaging impacts of aggressiveness of corporate taxation, for which it is required to
undertake the corporate social responsible steps (Hörisch et al., 2014).
Tax is regarded as one of the modern community cornerstone and the corporate social
responsibility aim is counteracted by the avoidance of taxation by corporation. Therefore, the
corporations that involved in circumventing taxes and participating in the activities of

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corporate social responsibility are faced with an apparent conflict. The legitimizing activities
are induced by the tax avoidance and this is more prevalent when such avoidance is not
aligned with the community core values. In such situation, a double standard is presented by
business as they are involved in activities of avoiding taxes whilst promising the community
of being a responsible behaviour (Frynas & Yamahaki, 2016).
Literature reviews on each theory:
It has been reviewed by articles that the development of stakeholder theory was
between year 1984 and 2007. The Freeman strategic behaviour has resulted in evolving of the
maximizing the value of stakeholders and this particular approach became the theoretical
ground for further development. Stakeholder theory is a theory of ethics and organizational
management that is responsible for opposing the norms of free market relating to promotion
of maximization of shareholders and shareholder capitalization. The purpose of business has
been defined by economist as an instrument for capitalizing on the shareholders (Dembek et
al., 2016).
Growth of stakeholder theories was expanded into different models, branches and
criteria that incorporate typology of organizational stakeholders, the three taxonomies of
instrumental, normative and descriptive domains, salience framework, and resource based
influential strategies and stakeholder management (Eskerod et al., 2015).
Stakeholders are conventionally defined as individual or group of individual that
would have considerable influence on organizational goal attainment. It has been referred by
some authors that the grouping of stakeholders can be referred to as organization and the
objective of such corporation is to handle the requirement, interest and opinions. In particular,
stakeholder management can be regarded by managers as satisfied business concerns. This is
so because they can act as an agent of stakeholders and exercising considerable due so that

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they are able to shield them in the long term. On other hand, in order to ensure that the
decision making process incorporates rights and participation on part of stakeholders,
managers engage with the business concerns that will be in the interest as well as benefits to
the stakeholders (Warren & Jones, 2018).
Therefore, it can be said that all the mentioned thoughts on stakeholder principle
notions in the body of literature as normative stakeholder theory. Such stakeholder theory
depicts that stakeholders and managers are required to view and act on the purpose of
foundations that are based on principles of ethics. Descriptive stakeholder theory is another
approach for explaining the concepts of stakeholder theory. The concept and definition of
stakeholders comes in wide range and incorporates different views.
Review of literature on Legitimacy Theory:
Legitimacy theory is can be regarded as else supposition and general discernment of
organization that their activities are appropriate and desirable and are conducted within the
norms, view point and values of being socially responsible. The theory is the mechanism with
the help of which organization uphold themselves in development and implementation of
environmental and social disclosures for fulfilment of social contract. Such social contract
fulfilment provides assistance to organization in continuous existence and recognition of their
activities in unstable environment. It is viewed by authors that there is correlation between
society and the firm. It is mentioned by the legitimacy theory that community and their values
are congruent with the value system of business.
From the previous studies conducted in legitimacy theory, governing bodies and
business concerns are required to identify and follow the norms, values and respect
regulations as dictated by the threats posed from environmental, economic and social factors.
In order for organization to examine their compliance, it is required by them to properly

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disclose the environmental as well as social information in a transparent and an appropriate
way as required by the theory. As a consequence of this, it can be inferred that legitimacy
theory plays a considerable role by performing the function of disclosing the information and
justifying the disclosure aspects. On other hand, the lack of legitimacy is depicted in terms of
negative environmental and social phenomenon and stimulation of legitimacy vita role in
survival of institutions, business concerns and community. It is recommended by legitimacy
literature that the process of legitimating forms the basis of survival of corporations and assist
them in handling of the threats and constant pressures (Feeney & Pierce, 2016). Moreover, it
has been found that the primary purpose of legitimacy theory is to maintain and acquire
stakeholder approvals.
Chosen theory application:
While referring to the context of case of Qantas that is associated with the avoidance
of tax, the applicable theory to be considered is legitimacy theory. The topic of avoiding
taxes comes with regular debates that in the present interest have a distinctive character of
wider audience engagement that generally involves community and their value system. In this
regard, it is essential for business to assess how the managers are criticized when the
organization is involved in critics of corporate tax avoidance and this can be evaluated by
reviewing the annual pronouncements and disclosures associated with taxes. The legitimacy
structure can be utilised for identification of some themes of disclosures such as implicit
philosophy of tax, explicit philosophy of tax, tax contribution and process of tax conduction.
Manager’s inconsistencies can be regarded as contributing factor in uncertainty of avoidance
of taxation by the organization. Uncertainty is represented in the disclosure occurrence and is
responsible for variation in the disclosure. If it is anticipated by managers that their behaviour

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can be altered for managing the issue of tax avoidance, then government cannot depend upon
the different voluntary structures and attitudes.
Legitimacy theory is used for ascertaining that the activities of organization comply
with the values, norms and social system of the society and community. In order for business
to function seamlessly and effectively, it is required by business enterprise to maintain
legitimacy. Business concerns would be adversely impacted if there is a lack of legitimacy
because it would direct the business in way that would lead to loss of confidence of public
and community (Tantalo & Priem, 2016). Business enterprise follows the strategy of
corporate social responsibility if they intend to generate legitimacy. Therefore, organizations
and business concerns make use of correct corporate social responsibility strategies and
respond to any adverse incident in an appropriate way if occurrence of certain adverse
incidents has threatened the legitimacy of organization. It is considered by some organization
that legitimacy can be generated by stratagems that would comprise of providing information
to public that lead to correction of altering perceptions concerning external stakeholders,
correcting any existing deficiencies and altering the focal point by shifting the management
attention related to several problems (Richard et al., 2016).
The approving factor for conducting the operation of organization is explained by the
functioning of the license. Such approval involves grant from stakeholders and regional
community. Licence to function is the functions that are primary incorporated in the view
point, beliefs and stakeholder and regional population perception (Lozano et al., 2014).
Therefore, it can be said that licence to function is such aspect that needs to be earned by
management and should be maintained. Taxes are regarded as subsistence pre conditions and
they are regarded as crucial part of functioning of modern community. One fact that is
presented here due to which the entire community will have devastating consequences is the
capital flight that results from loss of revenue (Henderson et al., 2015). Therefore, it can be

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inferred that corporate tax evasion work against the working of corporate social responsibility
that would contribute to the overall well being of community. Hence, it can be seen that the
activities of corporate social responsibility becomes conflicting factor on part of organization
if they intend to evade and avoid tax. Corporate tax avoidance can be regarded as lowering
the legitimacy of organization as such activities of company is not aligned with the activities
of being corporate socially responsible.
The present study has evaluated and examined the environmental and corporate social
disclosure of Qantas group and the legitimacy theory have been applied for analyzing
whether the company gives out environmental and social information while responding to
social expectations that are specific (Gaffikin & Aitken, 2014). It is suggested that there will
be increased disclosure of commitments of social and environment matters if there is a high
level of media coverage. The concept of tax avoidance can be explained using the legitimacy
theory and it was found that company intend to publish more information relating to their
corporate social factor if they engage in the aggressive taxation procedures. There exists a
positive and significant relationship between CSR reporting and aggressive taxation
procedures of company and hence the legitimacy theory is supported in association with the
aggressive taxation (Esmail et al., 2014). Organizations intend to pursue CSR and develop
CSR strategy for creating legitimacy.
Therefore, organization for maintaining their legitimacy should not indulge in
activities of avoiding taxes and they should take every possible measure for aligning the
strategy of corporate social responsibility and tax avoidance regime. Avoidance of corporate
tax can be regarded as an issue of corporate social responsibility that is considered significant
in operations of government and firm’s viability. Maximization of wealth of shareholders by
way of aggressively tax arrangement avoidance can be considered as problematic for both
organization and government. One of the notions of organization being corporate social

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responsible is related to their ethical performance. There is an ongoing discussion on the
concept of CSR issue and corporate tax avoidance constituents. Nevertheless, among
academics, avoidance of tax and CSR is a heated discussion. It is required to perform the
specific research and linkage between corporate tax avoidance and CSR issue, for
comprehending the purpose and meaning of tax avoidance (Bertomeu & Magee, 2015).
Conclusion:
The study conducted above assist in explaining the concepts of tax avoidance and
how it is related to corporate social responsibility issue. Analysis has been concentrated
around the evasion of tax by larger corporations such as Qantas airlines that have not made
payment of tax in year 2016-2017 despite considerably higher amount of earnings generated.
The concepts of avoidance of corporate tax by corporations have been explained using the
legitimacy theory. It has been found from the above analysis that concept of aggressive
taxation has been well understood using the legitimacy theory. Analysis depicts that there is a
positive relationship between issue of corporate social responsibility and tax avoidance.
Avoidance of payment of corporate taxes by Qantas would have considerable impact on their
reputation and image as it is perceived that their legitimacy has been hampered by way o tax
avoidance.

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