The effects of tax management on corporate governance in Maltese listed companies : an analysis

Abstract

Purpose: The aim of this dissertation is to evaluate how income tax management affects corporate governance within Maltese listed entities. This is achieved by discussing the importance of corporate governance; the necessity for enhanced tax disclosures in the financial statements; the reliance on external advice when making tax-related decisions and the suggestion to converge tax and accounting rules. Design: The study's objectives were achieved through semi-structured interviews with Chief Financial Officers within Maltese listed companies and tax practitioners. Findings: Corporate governance was highly considered by all interviewees. They indicated that individual shareholders are not knowledgeable about tax management, and so are disinterested in further related information. This wasn't the case for corporate shareholders, but since they are usually involved in the day-to-day running of the firm, further tax disclosures were also deemed unnecessary. The interviews highlighted that obtaining tax advice provided a means to moderate tax risk due to the precautions taken by advisors. Finally, the convergence of tax and accounting rules was criticised by most advisors due to the rules' differing aims, while listed companies agreed because of simplification purposes. Conclusions: The study concludes that most reservations about tax management identified abroad are inapplicable to Malta due to the responsible approach adopted by listed entities and their advisors. Recommendations include increased awareness to instil corporate governance as an enshrined culture within the firms, development of guidelines for the establishment of tax risk management systems and more published rulings from tax authorities. Value: The research is motivated by the conflicting views of making the company's tax plan public to improve corporate governance, versus that of not divulging business know-how. It also outlines whether favourable tax provisions are compromising corporate governance.