While much of the empirical accounting literature suggests that, if differences do exist, Big Four employees are more ethical than non-Big Four employees, this trend has not been evident in the recent media coverage of Big Four tax practitioners acting for multinationals accused of aggressive tax avoidance behaviour. However, there has been little exploration in the literature to date specifically of the relationship between firm size and ethics in tax practice. We aim here to address this gap, initially exploring tax practitioners’ perceptions of the impact of firm size on ethics in tax practice using interview data in order to identify the salient issues involved. We then proceed to assess quantitatively whether employer firm size has an impact on the ethical reasoning of tax practitioners, using a tax context-specific adaptation of a well-known and validated psychometric instrument, the Defining Issues Test.
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The terms ‘morality’ and ‘ethics’ are used interchangeably in the literature on the psychology of moral reasoning (Rest 1994) and we follow this practice throughout this paper. Various authors have proposed distinctions, but there does not seem to be one, generally accepted distinction. We would tend to use ‘ethical’ rather than ‘moral’ (unless in direct quotations) for the sake of internal consistency.
Ireland is a common law jurisdiction, so the results of this study are inherently relevant and applicable to other countries with similar systems, for example, the United Kingdom, the United States of America, Canada, Australia, New Zealand, etc.
The two other dilemmas in the short version of the DIT are the ‘Escaped Prisoner’ and the ‘Newspaper’ dilemmas. The ‘Escaped Prisoner’ scenario examines whether a man should pay for a past crime after living 8 years of a virtuous existence that contributed to the well-being of the local community. The ‘Newspaper’ dilemma examines freedom of speech as it relates to the press.
The two other dilemmas in the TPDIT are ‘Bar Talk’ and ‘Interpretation’. ‘Bar Talk’ examines whether a tax practitioner should report information he heard in a bar to the revenue authorities. ‘Interpretation’ examines mass marketing a tax planning product which goes against the spirit of the legislation.
On the link with risk management, see Doyle et al. (2009a).
A semi-state company is one in which the government has a controlling stake.
Under the Taxes Consolidation Act 1997, s. 1086, the Irish Revenue Commissioners are required to compile a list of the names, addresses and occupations of all ‘tax defaulters’. The list must be included in their annual report to the Minister for Finance and is published on a quarterly basis. The cases to be listed are: (a) all cases where a fine or penalty has been imposed by a court for a tax offence; and (b) all cases where a settlement has been reached with the Revenue for an amount over a specified sum of money and is paid in lieu of tax owed and penalties, unless a voluntary disclosure was made.
To check that these results were robust, the research hypotheses were retested using the GLM Repeated Measure model but also controlling for no degree level education (EDNODEGREE), below manager level in the firm (BELOWMANAGER), and years of tax experience, on the basis that these variables were significant at the 10 per cent level in regression analyses (Tables 7, 8). There was no change in the outcome with the only significantly different variable still being CONTEXT (P = 0.041). TPTYPE was still not significant (P = 0.936).
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Appendix 1: DIT Scenario One: Heinz and the Drug (Rest 1986b) (The indication of the stage of moral reasoning represented by each item for consideration below is not present in the instrument used with participants)
In a small European town a woman was near death from a rare kind of cancer. There was one drug that doctors thought might save her. It was a form of radium that a pharmacist in the same town had recently discovered. The drug was expensive to make, but the pharmacist was charging ten times what the drug cost to make. He paid €200 for the radium and charged €2,000 for a small dose of the drug. The sick woman’s husband, Heinz, went to everyone he knew to borrow the money, but he could only get together about €1,000, which is half of what it cost. He told the pharmacist that his wife was dying and asked him to sell it cheaper or let him pay later, but the pharmacist said, “No. I discovered the drug and I’m going to make money from it”. So Heinz got desperate and began to think about breaking into the man’s store to steal the drug for his wife.
Appendix 2: Tax-DIT Scenario One: Capital Allowances
Anne is a tax practitioner with an accounting firm. She is working on a capital allowances claim to benefit one of her firm’s corporate clients that is in financial distress. Despite profitable trading, the client has suffered severe cashflow problems as a result of adverse economic conditions. The capital allowances claim relates to a new factory building and will significantly reduce taxable corporate profits (and thus the tax the client has to pay). To be eligible for capital allowances the factory has to be in use at the end of the client’s financial year. Without the reduction in tax from the capital allowances, it is unlikely that the company will survive, which will result in 5,000 employees losing their jobs.
It is now a month since the client’s financial year end and Anne has asked the financial controller for documentary evidence that the factory was in use at the end of the financial year. The financial controller sends her a copy of the minutes of the latest directors’ board meeting. The last item on the board minutes notes that the factory premises became fully operational on the last day of the financial year. However, Anne is convinced that this was not the case as she drives past the factory every evening and it is clearly unoccupied. However, she also knows that the company will not survive if the capital allowances cannot be claimed. Should Anne file a tax return claiming capital allowances for the financial year?
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Doyle, E., Frecknall-Hughes, J. & Summers, B. Ethics in Tax Practice: A Study of the Effect of Practitioner Firm Size. J Bus Ethics 122, 623–641 (2014). https://doi.org/10.1007/s10551-013-1780-5
- Firm size
- Moral reasoning
- Tax practice
- Tax practitioners