Boundary work and tax regulation: A Bourdieusian view

Description
Boundaries are ubiquitous in modern social life, and the work of creating and maintaining
boundaries is particularly evident within regulatory fields. Through the analysis of a recent
critical incident in the tax field (Arctic Systems) with which the accounting profession is
intimately associated, this paper uses a Bourdieusian lens to unravel the relational complexities
of the regulation of tax avoidance at the complex and fuzzy boundary between
acceptable and unacceptable tax practice. We develop an alternative, relational interpretation
of tax regulation and contribute to a more nuanced understanding of regulatory practice
within the tax field that also raises questions about regulatory practice more widely.

Boundary work and tax regulation: A Bourdieusian view
Louise Gracia
a,1
, Lynne Oats
b,?
a
University of Warwick, Warwick Business School, Gibbet Hill Road, Coventry CV4 7AL, UK
b
University of Exeter, Exeter Business School, Exeter EX4 4PU, UK
a r t i c l e i n f o a b s t r a c t
Boundaries are ubiquitous in modern social life, and the work of creating and maintaining
boundaries is particularly evident within regulatory ?elds. Through the analysis of a recent
critical incident in the tax ?eld (Arctic Systems) with which the accounting profession is
intimately associated, this paper uses a Bourdieusian lens to unravel the relational com-
plexities of the regulation of tax avoidance at the complex and fuzzy boundary between
acceptable and unacceptable tax practice. We develop an alternative, relational interpreta-
tion of tax regulation and contribute to a more nuanced understanding of regulatory prac-
tice within the tax ?eld that also raises questions about regulatory practice more widely.
We conclude by highlighting how a move towards ‘relational’ regulation might contribute
to improved understanding of regulatory processes and practices.
Ó 2012 Elsevier Ltd. All rights reserved.
Introduction
This paper uses Bourdieusian concepts to explore, using
an interpretive approach, the relational aspects of regula-
tion at a particularly contentious and complex boundary
within the tax ?eld. Boundaries are ubiquitous in modern
social life and their shaping, writing, control, maintenance
and re-writing – termed ‘boundary-work’ (Gieryn, 1983,
1999) – are important sites for the operation of practices
and their regulation.
The concept of boundary work has particular value in
understanding relational processes (Lamont & Molnar,
2002). For example, it has been applied in the study of pro-
fessional jurisdictions to explore the mechanisms through
which the parameters of professional ?elds are circum-
scribed and defended (Burri, 2008; Llewellyn, 1998). The
work of Humphrey, Loft, and Woods (2009) also demon-
strates the value of understanding regulatory relationships
within audit practice. Such relational studies resonate with
Bourdieu’s (1977) theory of social practice that develops a
relational understanding of structure and action. Respond-
ing to what Bourdieu perceived as the ?awed polarisation
of objectivism and subjectivism, a central integrative
theme emerges from his work. His theory highlights how
the relationship between subjective experiences and the
objective social world frame experiences and contribute
to the production and reproduction of practice within so-
cial ?elds (Bourdieu, 1987, 1996, 1998).
Although not widely used within accounting research
(Malsch & Gendron, 2011), a number of accounting studies
(e.g., Baxter & Chua, 2009; Kurunmäki, 1999; Neu, Friesen,
& Everett, 2003; Shenkin & Coulson, 2007) draw on Bour-
dieu to develop understandings of aspects of accounting
practice. Whilst such studies indicate a usefulness and
applicability of Bourdieu’s social theory to the accounting
?eld generally, there is little Bourdieusian exploration of
the social processes working at the junctures of acceptable
and unacceptable practice especially within the tax ?eld.
This is signi?cant since regulatory struggles over authority
and control of practice descriptions intensify, not only at
the boundaries between ?elds, but also at the boundaries
within ?elds (Lawrence, 2004). In particular the social pro-
cesses used to construct, defend and maintain the bound-
aries within ?elds (in contrast to between ?elds) that are
prevalent, within for example the ?eld of tax avoidance,
are noticeably absent within the literature.
0361-3682/$ - see front matter Ó 2012 Elsevier Ltd. All rights reserved.http://dx.doi.org/10.1016/j.aos.2012.03.004
?
Corresponding author. Tel.: +44 (0)1392 726627.
E-mail address: [email protected] (L. Oats).
1
Tel.: +44 (0)24 76572953.
Accounting, Organizations and Society 37 (2012) 304–321
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This paper responds by considering boundary-work,
using a Bourdieusian lens, to explore the relational aspects
of tax regulation through analysis of a critical incident in
the tax ?eld where meaning is contested and practice
emergent. We present a different view of regulation, as a
relational process that creates, negotiates and enforces
the boundary between acceptable and unacceptable prac-
tice. Our approach offers an alternative, re?exive perspec-
tive of the regulatory processes at play across an important
boundary within a signi?cant social ?eld – the tax ?eld. It
contributes to understandings of both intra and inter ?eld
boundary interactions between related ?elds including
those of accounting and law. We aim to make visible rela-
tional aspects of regulation that hitherto remain obscured
and in doing so contribute to a more nuanced understand-
ing of regulatory practice.
To explore the dynamic interplay between boundary-
work and regulatory practice, we analyse a recent UK tax
avoidance case – Arctic Systems.
2
This case involves a par-
ticularly complex, visible power struggle and boundary
interaction between participants in the tax ?eld, including
the United Kingdom’s tax authority (Her Majesty’s Revenue
& Customs – HMRC), the taxpayer, the accounting profes-
sion, the judiciary and lobby groups. The case centres on a
complex and layered
3
boundary between acceptable and
unacceptable tax avoidance practice. It will be explained
that as the dispute moves from the private to the public do-
main, the overlapping ?elds and relational processes be-
come more complex. Focusing on this intra-?eld boundary
exchange allows us to investigate how regulation emerges
as a social process within the tax ?eld. The tax ?eld is a spec-
ialised and important area of accounting practice, and is of
considerable importance to wider society (Boden, Killian,
Mulligan, & Oats, 2010; Martin, Mehrotra, & Prasad, 2009).
Within the accounting literature, tax scholarship ap-
pears intermittently and tax as a ?eld of enquiry is not
dealt with systematically. In part, this stems from tax’s
inherent interdisciplinarity that leads to fragmentation of
scholarship across a variety of disciplines (Oats 2012a,
2012b). For example strands of both economic
4
and
accounting literature
5
draw on psychological approaches,
paying much attention to the propensity of taxpayers to
evade taxes (i.e., the deliberate and fraudulent non-payment
of taxes). Less closely examined, however, is the notion of
tax avoidance, the legal minimisation of one’s tax liability,
and by examining this phenomenon, this paper contributes
to new understandings of avoidance, as distinct from eva-
sion. Another strand of tax literature, within accounting
and elsewhere, deals with global manifestations of tax
non-compliance,
6
often without suf?ciently distinguishing
evasion from avoidance. Much of this work centres on the
activities of large multi-national corporations and their
advisors with signi?cantly less scholarly attention being
paid to national concerns, small taxpayers and their advis-
ors. This paper, by addressing the latter issues, opens up
new avenues of inquiry for accounting researchers, an issue
to which we return later in the paper.
Our approach, therefore, presents a different and previ-
ously unexplored view of intra-?eld boundary practice,
and an alternative view of regulatory struggles between
groups within the tax ?eld where participants shape, and
are shaped by, the game being played. This opens the
way for a new perspective on the regulation of social ?elds
by addressing the important issues about how boundaries
of practice are constructed, experienced, negotiated and
regulated over time. A Bourdieusian lens, drawing on con-
cepts of habitus, doxa and capital, provides an opportunity
to construct an interdisciplinary understanding of regula-
tory practice and critically question both the actions and
motives of agents involved in the boundary struggle. This
in turn allows us to contribute to understandings of tax
regulatory practices and highlight wider implications
across regulatory and social ?elds more broadly.
The paper is structured as follows. To begin, we elabo-
rate our central theoretical constructs by drawing on liter-
ature relating to regulation and recent developments in
regulatory thinking, boundaries and boundary work, and
relevant Bourdieusian concepts including ?eld, habitus
and capital. We then describe the tax ?eld as a particularly
complex regulatory arena encompassing not only behav-
ioural requirements, as do all regulatory ?elds, but also
the transfer of funds (taxes) from the regulatee to the reg-
ulator. Against this background, we interrogate the speci?c
detail of the Arctic Systems dispute, constructing an alter-
native view of regulatory practice leading to concluding
observations relevant to the tax regulation ?eld.
Regulation, boundaries and Bourdieu
In recent years, considerable attention on regulation has
highlighted its signi?cance (see, e.g., Cooper & Robson,
2006; Humphrey et al., 2009; Richardson, 2009). This
attention includes the appropriate balance between older
style ‘command and control’ models, and more responsive
approaches to securing compliance, particularly within
governmental regulation. John Braithwaite’s seminal con-
tribution to this debate (Ayres & Braithwaite, 1992; Brai-
thwaite, 1985; see also OECD, 1988) has led to
widespread adoption of responsive regulation, under
which regulators begin by assuming that regulatees are
cooperative, but if this proves not to be the case, regulators
respond with escalating punitive strategies until coopera-
tive compliance is achieved. In this process, the aim is to
move towards an environment where regulatees comply
voluntarily, and there is mutual trust and respect between
regulators and regulatees. Braithwaite’s model has been
adapted and extended in a number of ways. Gunningham
2
Jones v. Garnett (Her Majesty’s Inspector of Taxes) [2007] UKHL 35
(known as the Arctic Systems case).
3
The boundary between acceptable and unacceptable tax avoidance is
indistinct and open to interpretation by its many varied ?eld participants,
e.g. taxpayers, accountants, regulator and tax advisors. These actors
interact, ascribing particular interpretive meanings of the nature and locus
of the boundary. The boundary is thus layered both in the sense of the
diversity of actors occupying its space and the range of alternative
meanings assigned to it. Peeling back these layers of interaction and
meaning are central to developing understanding of the relational aspects
of tax avoidance regulation.
4
See, e.g., Kirchler (2007).
5
See, e.g., O’Neil and Samelson (2001) and Blanthorne and Kaplan
(2008).
6
See, e.g., Sikka and Hampton (2005).
L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321 305
and Grabosky (1998), for example, take responsive regula-
tion one step further in their ‘Smart’ regulation by intro-
ducing other parties into the regulation game, leveraging
non-governmental agents to act as ‘surrogate’ regulators
thereby blurring the public/private boundary. Baldwin
and Black (2008) also extend responsive regulation into
what they describe as ‘‘really responsive regulation’’,
which recognises the ways in which different regulatory
mechanisms interact with each other in distinct ways.
They state that ‘‘[r]egulation is really responsive when it
knows its regulatees and its institutional environments,
when it is capable of deploying different and new regula-
tory logics coherently, when it is performance sensitive
and when it grasps what its shifting challenges are’’
(2008, p. 94). In a further extension, the same authors bring
to the fore the pervasive modern trend of risk management
(Power, 2007) into regulation describing what they term
‘‘really responsive risk-based regulation’’ (Black & Baldwin,
2010). Combining these two concepts allows risk-based
regulation to shift from a mechanical mode of regulation
using quantitative approaches towards risk evaluation.
Each of these regulatory models envisage a pyramid-
shaped distribution of regulatees and corresponding regu-
latory tactics and strategies. In turn, each model recognises
that most regulatees comply and generally only a minority,
depicted at the narrow top of the pyramid, fail to comply
with regulatory requirements.
In terms of enforcing adherence to government regula-
tion, we can envisage a continuum of strategies. At one end
is a deterrence strategy, typi?ed by confrontational
enforcement backed by signi?cant sanctions. Underpin-
ning this command and control approach is a rational-ac-
tor model that assumes regulatees respond to threats of
punishment. This adversarial approach relies on the regu-
lating authority’s capacity to detect and penalise defaulters
(Braithwaite, 2009; Kirchler, 2007). At the other end of the
continuum of strategies, we move through responsive reg-
ulation towards more radical and innovative forms of reg-
ulation including self-regulation. For the purposes of this
paper, responsive regulation is most relevant as a number
of tax authorities have adopted this approach (Job, Stout, &
Smith, 2007), including the UK (which we discuss later).
The tax system of any country, and the manner in which
it operates on a practical level, can be viewed as a regula-
tory institution. Valerie Braithwaite (2009, p. 35) de?nes a
regulatory institution as ‘‘an enduring and organised set
of rules, norms and roles that socially prescribe the behav-
iour expected’’ of those responsible for enforcing and ‘liv-
ing’ the regulatory code. She describes the relationship
between regulator and regulatee as a ‘dance’ in which both
regulators and regulatees demonstrate patterned behav-
iour. The regulatee’s behaviour is re?ected in ‘motivational
postures’ linked to the notion of social distance that in-
volves ‘‘approaching, withdrawing, confronting and cir-
cumventing manoeuvres of the regulated as they manage
authority’’ (Braithwaite, 2009, p. 40). The smooth and con-
sensual routines of practice are essential to the ef?cient
operation of the tax system yet the potential for actors to
become out of step in the regulatory exchange exists in
forms of unacceptable tax avoidance (and, more markedly,
in tax evasion) occurring at its practice boundaries.
Boundaries are important facets of social life (Zeitsma &
Lawrence, 2010) and signi?cant objects of scholarly atten-
tion. They have been a prevalent feature in studies of
professions and knowledge; for example, between occupa-
tional scope leading to jurisdictional struggles (Abbott,
1988; Dezalay & Garth, 1995), between lay and expert
knowledge (Kerr, Cunningham-Burley, & Sutton, 2007),
and in the allocation of organisational tasks (Llewellyn,
1998). Others, including Gieryn (1999), describe the work
of boundary drawing and maintenance as a resource used
to establish epistemic authority.
Within regulatory environments, boundaries take on
particular signi?cance. Lying at the heart of the regulatory
tax regime is the compliance boundary that delineates
compliant and non-compliant regulatees. In this context,
the key task of any regulatory authority is to police this
boundary and, using appropriate regulatory strategies,
move regulatees into the compliant zone. This is problem-
atic since a compliance boundary is not imposed on the
regulator or regulatee by some exogenous source as a dis-
crete divide. Participants engage with the boundary, and
through particular interactions and interpretations, con-
tribute to its very development and positioning as well as
shaping the wider tax ?eld.
This brings us to the question of what is understood with-
in this paper by ‘?eld’ – a concept we use in its Bourdieusian
sense. The work of Bourdieu is particularly useful in this
study because of its understanding of practice as emerging
from the relational interaction of subjective experiences
and the objective social structures that frame those experi-
ences. Within this framing, cultural ?elds are positioned as
relatively autonomous social spaces that comprise of objec-
tivehierarchies that createandlegitimiseparticular activities
and discourses (Bourdieu, 1977). They are dynamic with
shifting, permeable boundaries and relations to other ?elds
and are ‘‘occupied by the dominant and the dominated . . . al-
ways relational, dynamic social microcosms . . . contingent
and ever changing’’ (Everett, 2002, p. 60). They are under-
stood as sites of struggle (Madsen & Dezalay, 2002) wherein
participants challenge eachother (althoughgenerallynot the
?eld itself) for forms of capital including symbolic or dis-
guisedforms of capital, suchas prestige, that commandcredit
or respect within a particular ?eld (Bourdieu, 1977).
A participant’s position within a ?eld is dependent on
their success in the struggle to de?ne, access and acquire
forms of capital (Bourdieu, 1986). Capital here is whatever
is regarded as powerful or valuable within a ?eld; for
example, quali?cations or social connections. There are
four main types of capital to which Bourdieu (1977) refers:
economic, cultural, social and symbolic. Each type of capi-
tal is ‘‘manifest in a different ‘currency’. . . and also has a
different degree of liquidity, convertibility, and susceptibil-
ity to attrition’’ (Everett, 2002, p. 64). Economic capital
generally includes money and property, and underpins
other forms of capital. Cultural capital refers to culturally
authorised attributes, including educational credentials,
general cultural awareness, tastes and aesthetic prefer-
ences. Cultural capital is less stable than economic capital
and therefore not so readily managed. Social capital refers
to the support provided from having acquaintances of
in?uence or inclusion in social networks valued within
306 L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321
particular ?elds.
7
Finally, symbolic capital refers to the
legitimisation or recognition of an actor’s status within a
?eld (e.g., prestige) acquired by using other forms of capital
(Bourdieu, 1977). Symbolic capital is a disguised form of
capital that ‘‘conceals the fact that it originates in material
forms of capital’’ (Bourdieu, 1990, p. 122). An agent high in
symbolic capital commands more credit or respect within
a ?eld than one with low symbolic capital.
Struggles within cultural ?elds are in?uenced, in part, by
symbolic violence – non-physical limiting in?uences ex-
erted on individuals – which include being denied access
to resources, rights or opportunities or being treated as infe-
rior. Symbolic violence serves to create order through con-
straint (Bourdieu & Wacquant, 1992) obscuring, through
the disguise of legitimacy, the power relations that underpin
its existence (Jenkins, 2002). Authority is therefore a neces-
sary precursor for symbolic violence. This authority is de-
scribed by Madsen and Dezalay (2002, p. 194) as ‘‘the
power to construct and impose mental structures, catego-
ries of perception and thought, which become institutiona-
lised in social and mental structures, and so present
themselves as a matter of fact, or even natural’’. Acts of sym-
bolic violence or domination are hence normalised by ?eld
participants as intrinsic facets of the ?eld. Bourdieu (1977)
refers to this process as ‘‘misrecognition’’ or a ‘‘form of for-
getting’’ that social actors are caught up in, and produced
by the ?eld games they engage with. Bourdieu and Wac-
quant (1992) use the metaphor of a game (amongst other
metaphors such as marketplace) to explain the operation
of ?elds. The metaphor of game highlights howthe compet-
itive struggle between ?eld participants over the de?nition
and possession of capital relies on participants’ ‘‘feel for the
game’’ or habitus (Bourdieu, 1998, p. 65).
Habitus refers to a set of attitudes, values and behaviours
that dispose agents to behave in particular ways. Thomas
(2002) describes howshared internalised dispositions arise
from collective immersion in particular socio-cultural mili-
eu that value particular types of capital. Habitus is produced
or developed over time in response to one’s life experience
or cultural history as individuals undergo ‘‘inculcation into
the conditions of existence, including socialisation and for-
mal education’’ (Xu & Xu, 2008, p. 73). Bourdieu and Wac-
quant (1992) describe how the habitus becomes so deeply
internalised that it is experienced as ‘second nature’, which
although durable remains capable of adaptation to the val-
ues and imperatives of the ?elds across, and through which
agents move (Baxter & Chua, 2009; Hamilton & Ó hÓgart-
aigh, 2009). Althoughhabitus is frequently discussedas a fa-
cet of the individual, the concept is equally applicable to
shared beliefs between groups of individuals, for example,
organisations or institutions (Goddard, 2004).
Habitus is central to the ‘‘continual reproduction of
belief in the game, interest in the game and its stakes’’
(Bourdieu, 1996, p. 227). Being ‘caught up’ in the game in
this way (termed ‘illusio’) predisposes participants to
collude with (as opposed to challenge) the directives of
the dominant participants who shape the ?eld logic. In-
deed, it is this collusion of agents in the illusio (termed
‘collusio’) that is ‘‘the root of the competition which pits
them against each other and which makes the game itself’’
(Bourdieu, 1996, p. 228). In this way, collusio fosters the
iterative reproduction of ?elds.
Despite their common sets of beliefs and shared pro-
cesses (termed ‘doxa’ by Bourdieu, 1987), ?elds are in a con-
stant state of ?ux. This ?ux occurs not only in terms of the
external boundaries that control entry and participation in
the ?eld, but also within the ?eld itself and manifested by
a shifting control of forms of capital amongst the players
in the game (Albertson & Diken, 2004; Ramirez, 2001). An
important part of this constant shifting is the struggle over
the de?nition and positioning of boundaries: ‘‘To de?ne
boundaries, defend them and control entries is to defend
the established order in the ?eld’’ (Bourdieu, 1996, p. 225).
Each protagonist in the game attempts to impose the de?ni-
tions that are favourable to their own interests. The game in
this sense is not one of benignplay, but rather a constant and
competitive struggle for power in which tensions are most
acutely present at the boundaries of practice.
In the next section, and in light of the preceding litera-
ture, we examine the tax ?eld more closely in order to con-
textualise the dynamics of the regulatory ‘dance’ at the
compliance boundary.
The tax ?eld
The imposition of taxes in modern states is an impor-
tant point of interaction between the state and its citizens
(Boden et al., 2010; Martin et al., 2009). Indeed, Campbell
(2009, p. 256) describes tax revenues as the ‘‘life blood of
the modern state’’. The process by which the state extracts
tax revenue from its citizens is not, however, a simple
bilateral arrangement involving regulator and regulatee.
It is an intricate relationship, mediated by other actors
including highly specialised expert professionals operating
in both the public and private realms.
Hence, the modern tax ?eld is complex and not con?ned
to a single site of autonomous social practice, but overlaid
and intertwined with a number of other social and profes-
sional ?elds includingtheaccounting, political, bureaucratic
and juridical ?elds. It is shaped by a series of constantly
changing questions including: Who should pay tax? How
much should be paid? On what should tax be levied? These
questions are not only concerned with achieving political
objectives but social objectives too. The process of answer-
ing these questions is in?uenced by a host of actors includ-
ing expert practitioners, lobby groups and professional
associations. Thus the nature, frequency and positioning of
tax boundaries within and around the ?eld emerges as a
body of tax law that is socially negotiated and constructed;
although sometimes misrecognised as stable codi?ed
knowledge (Burton, 2007; Hasseldine, Holland, & van der
Rijt, 2011; Morris & Empson, 1998). In this paper, we use
the term‘tax law’ as extending beyond the legislative provi-
sions to encompass the practices through which the legisla-
tion is put into play by various actors, including
professionals and the courts. In the context of accounting
regulation, Cooper and Robson(2006, p. 427) note that most
7
The concept of social capital has been appropriated by a number of
disciplines; most notably, economics, and to some extent taken on a life of
its own. For a discussion of the use and abuse of the concept, see Fine
(2010).
L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321 307
literature assumes rules act to constrain practice and fails to
recognise the capacity of corporate managers to ‘‘exercise
discretion as to how rules are enacted’’. We suggest that
the same observation is applicable to tax rules (tax law) en-
acted by taxpayers and their advisors. Tax rules are not
immutable, but rather are fuzzy and open to interpretation
– taxpayers, like corporate managers, have discretion as to
howrules are enacted. In exploring this observation further,
we turn ?rst to the issue of boundaries.
The related accounting ?eld contains numerous bound-
aries including temporal boundaries that delineate a period
of account; spatial boundaries that determine the location
of activities and the consequent identi?cation of which set
of rules is to be applied; and technical boundaries that con-
trol, albeit incompletely, classi?cation of activities and
events such as the debt/equity divide. Boundaries also exist
in terms of who performs the accounting and is examined in
analyses concerning struggles for professional jurisdiction
(Burri, 2008; Kurunmäki, 1999; Llewellyn, 1998). Sometimes
the same boundaries are used for both accounting and tax
purposes (Oats & Tuck, 2008), and sometimes new bound-
aries are drawn that are speci?c to the tax ?eld. However,
the logic of the tax ?eld is different to that of related ?elds,
such as the accounting ?eld. This is due to existence of more
complex, and often cross-disciplinary relationships, many of
which arise only in the tax ?eld without replication in other
?elds. These relationships complexify the boundaries of
practice, as actors occupying different ?elds of practice, often
with contrasting doxic logic and practice meet. Doxic prac-
tices are often inscribed within codes of practice and rules,
such as within the ?elds of tax and accounting. These create
opportunities for actors to engage in gamesmanship (or dis-
cretionary enactment), at the intersecting boundaries, in an
attempt to impose particular doxic logic, and hence in?u-
ence doxic practice, within a ?eld (Shah, 1995).
In terms of the tax ?eld, as with all regulatory ?elds, one
signi?cant boundary lies between compliance and non-
compliance. While ?eld participants may agree on the
distinction between full compliance with the tax law and
illegal non-compliance (usually described as tax evasion);
activities between these two extremes are the subject of
on-going contestation, broadly termed ‘tax avoidance’. Tax
avoidance may be viewed as the minimisation of one’s tax
liability through legal means or, in practical terms, a form
of beating the tax authority at its own game.
8
To put it an-
other way, tax evasion as a form of non-compliance involves
failure to comply with a crystallised tax liability. Tax is due
but the taxpayer simply chooses not to pay it. Tax avoidance,
incontrast, is concernedwiththe questionof whether or not a
liability exists, and includes actions taken to make sure that
the taxpayer does not fall within a category that attracts a
tax liability, or a greater tax liability than would otherwise
arise. We are not concerned here with the boundary between
avoidanceandevasion, but rather withthe boundarybetween
acceptable and unacceptable practice, which is not simply a
case of legality on one side and illegality on the other; rather
it is conceived of as legal (compliant) on one side and poten-
tially illegal (non-compliant) on the other. This potentiality
creates opportunities for discretionary enactment, which is
what makes this particular boundary so contentious.
Potentiality arises, in part, from the subjective interpre-
tation of the boundary. Habitus is useful here, explaining
how the parameters of the compliance game are perceived
differently for participants. This can result in individuals
who, based on their subjective understandings of the regu-
latory requirements (tax habitus) that drive particular
forms of discretionary enactment, are compliant but face
being categorised as non-compliant by the regulator’s
alternative subjective understanding (Picciotto, 2007).
Taxpayers’ conceptual view of tax avoidance as a legiti-
mate social practice may also be at odds with the regula-
tor’s view of it as a failure to comply with the spirit of
the law (Shah, 1995). These destabilise the location of the
boundary since its position varies depending on the posi-
tion of the viewer. Variable views of acceptable and unac-
ceptable tax practice make this boundary fuzzy. A fuzzy
boundary is problematic for regulatory practice since its
discursive positioning is crucially important for the clear
functioning of the tax ?eld and ?eld doxa; as this position-
ing controls what can and cannot be done with impunity,
circumscribing the extent of a taxpayer’s ?scal obligation.
Modern tax systems rely on the legal process to assist
them with this boundary issue. A desire for precise and ex-
plicit tax practice rules has led to a complex labyrinth of
tax legislation (McBarnet & Whelan, 1991). Ironically, the
complexity of tax legislation has exacerbated rather than
prevented tax avoidance as opportunities to exploit loop-
holes within its many intricacies have increased and has
intensi?ed subsequent struggles over the interpretation
of its form and application (McBarnet, 1991, 2003, 2006).
Although regulators may view a prescriptive approach as
providing more certainty and clarity to the site and nature
of the boundary between acceptable and unacceptable
practice, Picciotto (2007) argues that this detailed com-
plexity actually encourages tax avoidance, stimulating
the cat-and-mouse game-playing between taxpayers and
regulators (see also Braithwaite, 2005).
The prevailing view, in the UK and elsewhere, is that tax
avoidance has increased in recent years warranting greater
control by the government.
9
This has created a heightened
8
There is a vast literature on tax avoidance using a variety of
perspectives. These include technical studies undertaken from a legal
perspective (e.g., Freedman, 2007); rational economic studies that seek to
understand taxpayer behaviour as a rational decision-making process
where the distinction between forms of non-compliance is irrelevant (e.g.,
Kirchler, Maciejovsky, & Schneider, 2003); psychological studies drawing
on models of ethical decision-making (e.g., Reckers, Sanders, & Roark, 1994;
Wenzel, 2005); emerging perspectives of ‘tax morale’ (e.g., Torgler, 2002)
that include social and personal norms within analysis of tax compliance as
a cognitive process, and behavioural studies (e.g., Braithwaite, 2003) that
identify a number of motivational ‘postures’ that taxpayers may adopt in
their interactions with the tax authority. See Kornhauser (2007) and
Leviner (2009) for discussions of further recent work. Without denying the
value of this prior literature, it focuses largely on external in?uences on tax
avoidance practice and largely omits consideration of the often subtle,
diffuse and unconscious relational in?uences that underpin it and its
regulation.
9
Notwithstanding that the nature and extent of tax avoidance is a
contested issue, a variety of studies attempt to quantify it. E.g., recent
research (TUC, 2008) based on the analysis of government data and the
accounts of the UK’s 50 largest companies over the last 7 years, estimates
the cost of tax avoidance in the UK at £25 billion per annum.
308 L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321
impetus for the tax authority to demonstrate mastery of the
rules and enforcement of the boundaries – intensifying the
struggle to control it.
10
The power to name and de?ne these
boundaries is a key and valuable feature of the tax ?eld for
HMRC, since their ?eld status is directly linked to their abil-
ity to succeed in this naming and de?ning struggle. It is a
valuable form of symbolic capital, allowing them to impose
a particular view of reality and thereby control the ?eld.
The practice of extracting tax revenue from often-reluc-
tant taxpayers is a complex regulatory endeavour and, in
this regard, tax authorities are different from other regula-
tory agencies (Ventry, 2008). Many agents are involved in
the game creating layered and nuanced relationships be-
tween them. Although Bourdieu’s work has yet to be used
within the ?eld of tax regulation, it is exactly this relational
aspect of the tax ?eld, which lends itself so well to a Bour-
dieusian analysis (Oats and Gracia (2012). His framework
provides a unique opportunity to explore, more dynami-
cally, the interplay of professional/regulatory discourses
and the overarching relational social contexts from which
they emerge. It is to these relationships that the paper
now turns, beginning by considering the central regulatory
relationship – that between regulator (tax authority) and
regulatee (taxpayer).
In the UK, HMRC is charged primarily with the task of
ensuring that taxpayers pay the right amount of tax at the
right time. The use of the word ‘right’ in this context is part
of the illusio of the tax ?eld
11
and imbues HMRC with
knowledge authority – valuable ?eld capital. This entails
enforcing a number of boundaries, in recent years increas-
ingly through responsive regulatory tactics and strategies
(HMRC, 2009). As an organisation, HMRC is accountable to
a number of parties, most notably wider society, to whom
the integrity of the tax system is important such that those
required to pay tax actually do so, and also to the state that
expects a certain level of performance in terms of revenue
collection. Pressure to perform not only comes from govern-
ment and politicians, but also from taxpayers and their rep-
resentatives who seek equitable and respectful treatment. As
Gergen (2001, p. 147) observes in a US context ‘‘the health of
the tax law depends upon practitioners believing that it is
principled’’.
As part of the bureaucratic ?eld, a tax authority’s habi-
tus is imbued with notions of service to society, and proce-
dures and processes are controlled to secure equitable
treatment across the taxpayer population. Technical skill,
i.e., mastery of the labyrinthine tax laws is important as
are displays of symbolic power associated with state
authorisation of activities (Braithwaite, 2009). The suite
of tactics and strategies available to HMRC (to be used
responsively) in the course of patrolling the compliance
boundary include educating taxpayers who are willing to
voluntarily comply with the tax law, sanctions such as
?nes and penalties for those who fail to comply, and legal
action to impose compliance where there is deviation from
the tax law. There is some evidence of an enforcement hab-
itus, particularly with regard to relations with smaller tax-
payers, such that tax ‘‘nspectors are seen as having an
aggressive attitude towards taxpayers and being ‘out to
get’ as much tax fromthem as possible’’ (PCG, 2006), which
sits uneasily with the notion of responsive regulation. One
challenge then for tax authorities adopting a co-operative
regulatory model (Ventry, 2008) is to balance persuasion
and punishment, and also play a longer game dealing with
non-compliance now while at the same time building con-
sent for the future (Braithwaite, 2003).
Taxpayers vary enormously in their willingness to pay
the taxes for which they are liable, which has been linked
to various attributes such as social norms (Bobek, Roberts,
& Sweeney, 2007), ethical dispositions (Reckers et al.,
1994; Wenzel, 2005), motivational postures (Braithwaite,
2009) and occupational group membership (Ashby & Web-
ley, 2010; Ashby, Webley, & Haslam, 2009). Taxpayers also
vary in terms of the power that the tax system bestows
upon them. Abreu (1996) distinguishes two types of power
in this regard: avoidance power and burden power. The
former relates to the ability of the taxpayer to avoid their
liability to tax; usually considered to be those taxpayers
with more economic capital at their disposal who can
pay for specialist tax advice. The latter relates to the capac-
ity of taxpayers to pass the tax liability to another party
and thereby not directly bear the burden of the tax. This
capacity depends more on the nature of the tax under con-
sideration. For example, in the case of tax on income, an
employee subjected to tax withholding by an employer
will have very little burden power; in comparison, a com-
pany has substantial power to pass on the burden of a tax
on its pro?ts through, inter alia, increasing prices.
The relationship between taxpayer and tax authority in
part depends on the extent to which taxpayers trust in the
ability of the organisation to treat them fairly (Feld & Frey,
2002; Ventry, 2008). HMRC, for their part, categorise tax-
payers according to their perceived willingness to comply
(Braithwaite, 2009), amenability to regulation (Black &
Baldwin, 2010) and adopt enforcement strategies accord-
ingly. HMRC’s 2002 departmental report describes its ap-
proach to relations with ‘customers’ (see Fig. 1), which
follows the regulatory pyramid model, and envisages most
taxpayers (the base of the pyramid) as willing to comply
and informed about their obligations (compliant habitus).
HMRC’s regulatory response to such taxpayers is desig-
nated as ‘encouragement’. In contrast, at the top of the pyr-
amid is a much smaller group of taxpayers who refuse to
engage with the tax system (non-compliant habitus) and
for whom HMRC must devise ‘big gun’ tactics (Ayres & Bra-
ithwaite, 1992) to enforce compliance (see also Levi, 1998).
HMRC’s stated aim is to move taxpayers down the pyramid
through its interventions and minimise the number of
taxpayers who refuse to participate in the system.
The development of taxpayer habitus emerges from
their experiences and interactions with the tax ?eld. As
in many jurisdictions, the dense complexity of tax law puts
its requirements beyond the grasp of many taxpayers,
strengthening the cultural capital of the tax authority.
Some taxpayers therefore choose to acquire the expertise
11
This phrase is often used by both HMRC and other parties. For example,
in a section of HMRC’s website entitled ‘Tax in the Boardroom’ it is stated
‘‘HMRC has a responsibility to ensure that the right tax is paid at the right
time and to promote a fair and ef?cient tax system’’. See .
L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321 309
of professional advisors to help not only with compliance,
but also with strategies to minimise future tax obligations
through judicious planning. This will occur more often un-
der systems of self-assessment (as in the UK). Usually, but
not always, tax professionals will be accountants or law-
yers, and it is to this category of actor that we now turn.
Bourdieu (1990) describes how professionals such as
accountants and tax advisors acquire knowledge, skills,
and awareness of current and emerging professional prac-
tice (such as taxation), developing practical mastery of a
?eld-speci?c language. These regimes of training and qual-
i?cation structure professionals’ habitus in line with the
emergent doxa of the overarching professional body (Par-
naby, 2009). In the tax ?eld this is grounded in the natura-
lised logic of contemporary tax practice/planning and
market economics – in that advice is ‘sold’ to clients for
?nancial return and seeks to provide a ?nancial gain (tax
saving) to the taxpayer clients. Advisors’ possession of rel-
atively higher levels of relevant capital, for example, mas-
tery of the rules and practices of tax and its boundaries (an
experienced ‘feel for the game’), confers valuable profes-
sional capital (Kurunmäki, 1999) and hence power onto
these players within the tax compliance game.
Acquiring the valuedsocial, cultural andsymbolic capital
provides ?eld authority to professional accountants/tax
advisors, enabling them to attract and retain clients, and
to some extent in?uence and control the habitus of their cli-
ents through their professional advice. Parnaby (2009), in
his analysis of the work of ?nancial advisors, describes this
mechanism whereby professionals develop extensive pro-
fessional experience (cultural capital) that is exchanged
for symbolic capital (expertise) and subsequently used to
establish legitimacy of their advice. It is worthy of note here
that the taxpayer is not helpless in their relationship with
tax advisors and actively seeks to minimise their tax liabil-
ity. Legitimate tax planning consequently reduces the tax
paid by them. In turn, the amount of tax revenue collected,
which is used to fund (amongst other things) systems of
public health and education, is reduced. In this way, the tax-
payer who plans to reduce their tax liability (and engages in
tax avoidance) is seen to minimise, albeit legally, their con-
tribution to wider societal support systems and obligations.
On the one hand, this may be construed as a failure of entre-
preneurial clients to share their part of the tax burden of
society. On the other hand, Stringfellow and Shaw (2009)
observe the wider societal importance of entrepreneurial
capital, especially in the case of small professional service
?rms relevant to this paper. Such perspectives highlight
the importance SME sector to the national economy in
terms of providing employment, generating pro?ts and cre-
ating wealth – all of which generate tax revenue.
The role of the professional advisor is hence not simply
one of exerting control and authority over the impotent cli-
ent, since their advice emerges from the social negotiations
of professionals with other ?eld actors (Maynard, 1991;
Plinick, 1998). These ‘others’ include professional groups
and the tax authority as well as their clients who are active
partners in the professional discourse. As Ventry (2008, p.
483) notes ‘‘tax practitioners cannot change the hearts of
taxpayers nor, for that matter, their desire for lower taxes.
But [they] have a responsibility to lead clients’’. The valid-
ity of tax avoidance (planning) practices must be mutually
recognised by the professional advisors and their taxpayer
clients. Furthermore, the tax authorities also recognise the
validity of many tax avoidance practices, reinforcing the
integrity of the ?eld doxa. Hence, the relationship and
interactions of HMRC with other ?eld actors is a critical
interaction in the tax ?eld, but this relationship between
HMRC and what are increasingly referred to as ‘intermedi-
aries’ (OECD, 2008) is quite different from that between
HMRC and taxpayers.
12
Intermediaries, be they accountants
or lawyers or with some other form of quali?cation,
13
Fig. 1. Regulatory pyramid. Source: Inland Revenue (2002)
12
The role of the tax intermediaries in the compliance process is also the
subject of increasing scrutiny in the tax literature (see, e.g., Murphy, 2004;
Sakurai & Braithwaite, 2003).
13
In the UK, there is no formal requirement for professional accreditation
of tax advisors and some, particularly in the SME sector, are former tax
administration employees without accountancy or legal training.
310 L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321
possess similar levels of mastery of the technical rules of the
tax system as the revenue authority. Here mastery of the
rules within the interactions between these players is not
such an overt source of power between these particular ?eld
actors, although there is some imbalance between the num-
bers of experts in the public and private spheres (Schizer,
2006). Rather the relationship concerns the integrity of the
tax system as a whole, the doxa, which both the regulator
and the intermediaries have an interest (collusio) in main-
taining. Intermediaries have the power to subvert the oper-
ation of the tax system through tax avoidance practices;
although the size of the intermediary (the Big Four or small
practitioner) and their professional af?liations arguably af-
fect the degree of in?uence.
In this way, tax advisors, professional groups and their
taxpayer clients together engage in ?eld collusio. Brubaker
(1985, p. 755) describes the mechanism of operation of the
collusio through an ‘economy of practices’ – predomi-
nantly discursive – that align client’s subjective structures
(habitus) with the objective structures that comprise the
overlapping ?elds they occupy. Naturalisation (con?dence
in the integrity of the taxation advice) is crucial for tax
advisors to secure the client taxpayer and their fee. We
have discussed that taxpayers are not merely passive
recipients of advice, but they also exert power over their
advisors through the extent to which they disclose infor-
mation on which the professional advice is then based
(Parnaby, 2009). Only the taxpayer can know the full nat-
ure of his or her ?nancial affairs and the extent to which
these are revealed can signi?cantly in?uence the ensuing
tax obligation. Taxpayer clients, although motivated by
?nancial gain (economic capital), thus engage with HMRC
and their advisors in the game of tax avoidance. Such rou-
tines of practice naturalise the industry of tax planning and
avoidance, and more controversially tax evasion (Sikka &
Hampton, 2005), reinforcing and stabilising its existence.
The role of the accounting profession in tax avoidance
has led some commentators to suggest there exists a
‘‘rapacious tax avoidance industry . . . dominated by
accountants, lawyers, and bankers . . . with ordinary citi-
zens, equality, democracy and fairness as the visible casu-
alties’’ (Sikka & Hampton, 2005, p. 326; see also Steubs &
Wilkinson, 2010). This perhaps polemic view
14
is coun-
tered, although not completely negated, by HMRC’s analysis
that ‘‘[t]he overwhelming majority of tax agents advise their
clients appropriately and calculate the right amount of tax
. . . If this were not the case, the tax system as we know it
simply would not function’’ (HMRC, 2009). It should be
noted that Sikka and Hampton (2005) are referring primarily
to ‘big’ players in the tax game, and also primarily to the
United States where cooperative regulation has not yet fully
emerged and an adversarial approach to tax compliance pre-
dominates where there has been clear evidence of the failure
of self-regulation among tax professionals (Ventry, 2008).
Sikka and Hampton, also (deliberately) con?ate tax avoid-
ance and tax evasion to challenge the distinction, and there-
by necessarily disregard the issue of potential legitimacy of
the former and illegality of the latter (Barker, 2009; Ordow-
er, 2010). We argue that the distinction between tax avoid-
ance and tax evasion is conceptually important and, as
previously noted, it is the former that we are concerned with
in this paper, speci?cally the complex boundary within the
category of tax avoidance that delineates acceptable and
unacceptable ?eld practices.
Interlinked with professionals offering tax compliance
and planning services to taxpayer clients is the role of pro-
fessional associations, who are important ‘regulatory
agents’ (Greenwood, Suddaby, & Hinings, 2002, p. 58). The
accounting profession are signi?cant actors here too and
deeply embedded in the struggle for boundary control
within the wider game of taxation. They compete with
other professionals and regulators for control of the de?ni-
tion and description of valid ?eld knowledge and
approaches (Greenwood et al., 2002), seeking to in?uence
the construction and control of the boundaries of legitimate
or compliant practice (Picciotto, 2007), and shape the rules
by which the tax game is played (Ventry, 2008).
The tax ?eld also overlaps signi?cantly with the juridi-
cal ?eld, not only in terms of the way in which tax laws are
enacted, but also in the way in which they are interpreted.
The compliance boundary is overlaid by technical bound-
aries, which specify in legal terms details of who should
pay tax and on what it should be paid. However, the inde-
terminacy of tax law means that disputes frequently arise
over their meaning. Indeed, Ventry (2008) goes so far as to
describe tax law as stochastic in nature. For many taxpay-
ers the complexity of regulations and bureaucracy are ‘ac-
cepted’ or legitimised as the natural order of things, or ?eld
illusio and therefore remain unchallenged, reproducing the
status quo. In this way, the authority of dominant ?eld ac-
tors, such as HMRC is legitimised (Jenkins, 2002) – norma-
lised through the process of ‘misrecognition’ or a form of
forgetting that taxpayers themselves are caught up in the
game of taxation. Such normalisation lends a degree of sta-
bility and certainty to the social practice and discourse
within the ?eld evidenced in part by a tax collection cul-
ture (habitus) developed in the UK over a long period of
time (Mumford, 2003). When meaning is disputed
between the tax authority and the taxpayer, with or with-
out the mediation of a professional advisor, the courts may
well be called upon to adjudicate, which opens up a new
set of relations.
Judges should not be viewed as neutral, impartial deci-
sion makers in the tax ?eld. James (2010) reminds us that
judges have substantial power conferred on them through
their discretion in the way cases are adjudicated. Schnieder
(2005), in a US context, ?nds that the social background of
judges is correlated with their decisions in terms of
whether they ?nd in favour of the taxpayer or the tax
authority. In addition, the capacity of a taxpayer to chal-
lenge the tax authority is not a given, it is contingent on re-
sources (Edgley, 2010). For many taxpayers, expensive
litigation is not an option. This confers power on the tax
authority, which is able to use a threat of litigation as a reg-
ulatory enforcement tactic in the pursuit of compliance.
At this point, in the paper we move onto analyse a crit-
ical incident that Herr and Anderson (2003) suggest
14
‘Polemic’ in the sense of using selected statistics and anecdotal
evidence to highlight controversy and stimulate debate. In this way
polemics play an important role in raising public awareness of contentious
issues, but need to be identi?ed as such.
L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321 311
provides a fruitful way of studying social practices, such as
regulation. The practice of tax avoidance has created such a
critical incident – the Arctic Systems case.
The Arctic Systems dispute
Exploring the relational aspects of regulation requires a
focus on the social construction of relationships and
interactions between ?eld participants involved in the reg-
ulatory encounter. We have detailed earlier how Bourdieu-
sian theory is well suited to such a contextualised study of
the complex relational encounter attempted here. This
study also lends itself to an interpretive research approach
– founded in the idea that reality is socially constructed.
Our analysis of the Arctic Systems dispute is therefore
interpretive. We have systematically searched and exam-
ined a variety of publicly available texts and documents
including the written decisions of the various court hear-
ings, HMRC pronouncements, commentaries of academic
scholars, archival data, and commentaries from tax practi-
tioners, lobby groups and the media. Our case study data
combines a rich variety of data sources from a range of
informants and sources including highly knowledgeable
expert commentary as well as the accounts and experi-
ences of the individual non-expert taxpayers concerned.
The data includes printed material and various internet dis-
cussions and texts. The story of the case is intertwined with
theory to draw out key issues and contribute relational in-
sights into existing regulatory theory.
The Arctic Systems case is a tax compliance boundary
dispute between HMRC and an individual taxpayer – infor-
mation technology (IT) consultant, Mr. Jones. The case
concerns a relatively obscure, but long-standing anti-avoid-
ance provision in UK income tax legislation. Initially de-
signed in the 1920s, the provision prevents a higher rate
taxpayer from transferring an asset to someone taxed at a
lower rate on the income it generates. This ‘settlements’
provision has the consequence that income from the asset
transferred is treated as if it belongs to the original owner
of the property and subsequently taxed at the higher rate.
15
Much has been written about this case from a legal perspec-
tive, and we do not seek to delve into the intricacies of the
legislation, nor the court’s interpretation of it, since others
have already done so (Gammie, 2007; Loutzenhiser, 2005,
2006, 2007; Mumford, 2010; Redston, 2007; Tiley, 2006).
We do, however, drawon the details, judgements and discus-
sions surrounding the case to explore relational aspects of
regulation at the boundary of practice.
Suf?ce to say that the ‘settlements’ legislation is a tex-
tual representation of a speci?c boundary within the tax
?eld designed to describe a point of crossing between
acceptable and unacceptable practice. Application of the
settlements rule occurs when there is evidence of unac-
ceptable tax avoidance, resulting in an increased tax liabil-
ity for the taxpayer concerned. It is, therefore, a very
speci?c manifestation of the broader compliance bound-
ary. Although this case can be framed as a ‘technical’
disagreement between the taxpayer and HMRC, we seek
to recognise the in?uence and interaction of many other
actors comprising of a network of relationships of power
and control (regulation), information and advice, ?nancial
support, in?uence and opinion, and commercial interest.
Mr. Jones, was an IT professional whose wife did not
work. Made redundant from employment in 1992, he and
his wife decided to become self-employed at that time.
Their decision to incorporate this business was driven by
Mr. Jones’ interaction with his potential clients and hence
a response to industry norms – since his potential clients
would only outsource services to incorporated entities,
not individuals. On the advice of their accountant, Mr.
and Mrs. Jones each subscribed £1 for a share in an off-
the-shelf private company, Arctic Systems Ltd. Mrs. Jones
had prior experience in managing a company and agreed
to act as company secretary for the company (Gammie,
2007). In relation to Mrs. Jones’ participation, Malcolm
Gammie QC, who appeared as counsel for the Joneses
throughout the case, observed that ‘‘nobody doubted that
Mrs. Jones made a genuine contribution to the running of
the business and nobody who met Diana Jones would have
been left in any doubt of her managerial capabilities’’
(2007, p. 1).
Although a response to industry norms, in choosing to
operate their business through a company, Mr. and Mrs.
Jones were able to take advantage of an unsatisfactory
boundary in the UK tax system between the tax treatment
of incorporated and unincorporated businesses. In Abreu’s
(1996) terms, they availed themselves of avoidance power
granted to them by the tax system. Tax savings arise be-
cause of structural features in the UK tax system that are
common in other countries, namely: lower rates of tax
on companies than on individuals, lower rates of tax on in-
come from capital (dividends) compared to labour income
(salary), and reduced NICs, which create further bound-
aries between different categories of receipt (Crawford &
Freedman, 2010).
The arrangement between Mr. and Mrs. Jones was not in
any sense unusual
16
and had been common practice follow-
ing the introduction of independent taxation of spouses in
the UK in 1990.
17
It is of interest to note that the incentive
to adopt such arrangements for family businesses only arises
because of independent taxation. If the family (however that
boundary is de?ned) were the tax unit, the incentive to incor-
porate may not arise (Oliver & Harris, 2008). The Jones’ deci-
sion to incorporate was apparently made on commercial
grounds (Gammie, 2007); although limited liability provides
15
The relevant legislation is contained in the Income and Corporation
Taxes Act 1988, Section 660A, as in force for tax year 1999/2000.
16
The tax motivated formation of companies by husbands and wives/civil
partners is common in many countries.
17
Indeed, the then Chancellor is quoted as saying on the introduction of
independent taxation: ‘‘Independent taxation is bound to mean that some
couples will transfer assets between them with the result that their total
tax bill will be reduced. This is an inevitable and acceptable consequence of
taxing husbands and wives separately . . . we have made it clear that we
expect income splitting will occur . . . we see absolutely no case for
imposing a tax penalty on the income from those assets’’ (quoted in CIOT,
ACCA, & AAT, 2004). As Mumford (2010) observes by reference to a study by
Stephens and Ward-Batts (2004), the introduction of independent taxation
led to reallocation of family assets, mainly into the hands of women who
are generally in a lower tax bracket.
312 L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321
protection for a newbusiness venture and was widely under-
stood to be on the compliant side of the boundary of accept-
able tax practice (Freedman, 2006). Indeed, the common
practice of incorporation of family businesses generally
caused a signi?cant increase in their numbers during the late
1990s and early 2000s – in part due to the ?scal advantages of
incorporation in terms of considerably lower tax rates for
companies (Crawford & Freedman, 2010; Freedman, 2006).
At this point in the tale, we can reveal several important
relationships and interactions. The structure of the UK tax
system provides different tax treatments depending on the
type of income (capital or labour) and the vehicle through
which it is earned (individual or company). These are tech-
nical boundaries enshrined in tax law with which tax spe-
cialists are intimately familiar. In making the decision to
run their business as a company, the Joneses were advised
by their accountant that they would save tax. Their profes-
sional advisor leveraged specialist expertise (professional
capital) to ‘persuade’ their client to adopt a particular
course of action. As Xu and Xu (2008) suggest, the tax
advisors inculcated and socialised the Joneses into existing
?eld doxa, exerting in?uence over the development of
their taxpayer habitus. Importantly, the Joneses also faced
additional pressure to incorporate ?owing from clients for
whom Mr. Jones would work to earn taxable pro?ts for
Arctic Systems. These clients therefore also shaped the tax-
payer habitus in this regard. In addition, these clients,
some large multinational companies, are also taxpayers,
and in coercing IT specialists such as Mr. Jones to operate
through a company they also save tax (speci?cally the
employment related taxes payable by employers). There-
fore, an interesting dynamic of the case, at least in terms
of business format, is the relative power of different types
of organisation that shaped the Jones’ decision to
incorporate.
At ?rst blush, the arrangement appears to be innocuous,
the Joneses were merely acting on the advice of profession-
als, but also coerced into operating their business through
a company structure by those clients for whom Mr. Jones
would work. However, positioning the Joneses as a benign
party in this practice is questionable when we dig a little
deeper. The case arises in a tax environment where, in
common with many other modern income tax systems,
progressive rates of income tax result in higher rates of
tax being paid by those receiving higher levels of income.
In addition, and in common with other jurisdictions,
employers are subjected to employment related taxes on
salary payments to employees (Crawford & Freedman,
2010) in the UK, these are national insurance contributions
(NICs). Arctic Systems’ services to clients were performed
by Mr. Jones, who worked full time, whilst Mrs. Jones
worked approximately 5 h a week. Arctic Systems earned
pro?t which could then be distributed as either salary or
dividends; the latter creating a lower tax and NIC liability
than the former under the UK tax rules. A contentious as-
pect of the arrangement therefore was the level of salary
paid. While Mrs. Jones’ salary was set at a reasonable com-
mercial rate for the services she performed, Mr. Jones’ sal-
ary was arguably not commensurate with the level of
professional expertise he provided. A consequence of this
salary arrangement was that the pro?t available for distri-
bution as dividends by the company was higher than it
would otherwise have been had a market salary been paid
to Mr. Jones. This was on the advice, once again, of their
accountant, and was clearly tax driven (Gammie, 2007).
Gammie observes that ‘‘[g]iven the national insurance pen-
alty that attached to withdrawing amounts as salary rather
than dividends, they would have been mad, badly advised
or major benefactors of the state to adopt a different
course. If governments design a tax system that dictates
particular outcomes, it should be no surprise when rational
people adopt the course that produces that outcome’’
(2007, p. 2). Hence, although we note here that some ele-
ment of ?nancial gain appears likely to have in?uenced
Mr. Jones’ business format decision, exploring the wider
desirability and appropriateness of a tax system, which
permits such behaviour, is beyond the scope of this paper.
The key point here is that, motivation aside for the mo-
ment, this arrangement was not in any sense unusual
and constituted widespread, common practice as part of
the accepted and normalised ?eld doxa.
However, HMRCinterpretedthe situationdifferently–as
a breach of the compliance boundary – and applied the set-
tlements legislation to Mr. Jones. They issued Mr. Jones with
a tax bill claiming that dividends paid to Mrs. Jones as a
shareholder of Arctic Systems were effectively income
belonging to Mr. Jones and taxable in his hands at a higher
rate of tax. HMRC’s rejection of the tax planning of the Jon-
eses presented an alternative or ‘‘competing discourse’’
(Bourdieu, 1977, p. 168) of their tax behaviour as non-com-
pliant, unacceptable tax avoidance. Although at ?rst sight
we might interpret HMRC’s actions as anattempt to ‘re-edu-
cate’ the Joneses (the process of managing external and
competing discourses – Bourdieu, 1977), basing their chal-
lenge on the settlements provisions created a con?icting
rather than competing discourse that disturbed ?eld doxa.
HMRC’s application of the settlements provisions was
exceptional since they had rarely been used to tackle tax
avoidance in recent years, and there existed an apparent
common and shared understanding (prior to this case) that
the provisions only applied to blatant arrangements to
alienate income streams to other parties, most commonly
through the use of trusts (HMRC, 2003). The rules had cer-
tainly not previously been applied in a situation analogous
to that of Arctic Systems. Hence, HMRC’s regulatory re-
sponse con?icted with ?eld doxa, and was unanticipated
by the taxpayers, their advisors and the tax professional
community more broadly.
This unprecedented and unanticipated shift in HMRC’s
view of this practice boundary is illustrated by the re?ec-
tion of Mark Lee (then Chairman of the Institute of Char-
tered Accountants in England and Wales – ICAEW)
18
:
Although some aspects of the Revenue’s April guidance
on the settlements legislation were previously known
. . . key elements affecting everyday situations were
not. Many taxpayers have taken actions, often with pro-
fessional advice that re?ected best practice, which they
18
In CIOT et al. (2004); seehttp://old.tax.org.uk/showarticle.pl?id = 1933
(accessed 16 June 2011).
L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321 313
believed to be in accordance with the law, but which is
now coming into question.
The fundamental difference between the regulator’s and
taxpayer’s interpretation of practice caused this compliance
boundary, alreadya site of technical andregulatorycomplex-
ity, to move from a position of prior consensus (stable doxa)
to one of dynamic contention, uncertainty and anxiety.
Drawing on Bourdieu here, existing regulatory processes
rely partly on the ‘illusio’ of determinacy – i.e., that prac-
tice(s) have exact and discernible limits. It is the illusio that
shores up ?eld practice and through processes of misrecog-
nition puts thembeyond challenge. In this way, illusio legit-
imises regulatory authority, bringingcontrol andstability to
a ?eld (Bourdieu, 1979). Within this case it follows that we
might anticipate that the normalising in?uence of the ?eld
illusio would allow the dominant regulator’s interpretation
tobe unchallengedbythe less powerful taxpayer –the latter
accepting it as an intrinsic ?eld feature. Indeed, HMRC rou-
tinely challenge assessments without invoking resistance,
but the nature of HMRC’s regulatoryresponse inthis dispute
resulted in it being perceived as unfair and unjust.
Ventry (2008) reminds us that the perception of being
treated fairly is crucial for regulatory stability. Without
this perception, HMRC’s actions damaged the ?eld illusio
– their view was not normalised. This destabilises the ?eld
and disrupts doxic understandings of the rules of the game,
concurring with the ?nding of Lawler (2004, p. 120) that
regulators’ decisions must ‘‘accord with doxic truths’’ or
face their authority being contested. Within the Arctic Sys-
tems case, we interpret HMRC’s regulatory response as
moving against the logic of the ?eld doxa, destabilising
the ?eld, causing uncertainty and undermining their regu-
latory authority. The loss of illusio allows the taxpayer to
challenge and contest the regulator’s response.
Although the fracturing of consensus emerges initially
from the apparent shift in the tax authority’s stance away
from the previous consensual interpretation of the regula-
tions, this became deeper and more divisive when resisted
by the taxpayer. This divergence created further tension
and uncertainty in the ?eld, leading to dissonance between
the parties and a rapid loss of the ?eld stability – the reg-
ulatory ‘dance’ becomes out of step (Braithwaite, 2009)
and prompts a shift in the ‘motivational posture’ of the tax-
payer towards confrontation.
What resulted was an intense boundary con?ict fuelled
by a signi?cant shift in HMRC practice. The exceptional
nature of this shift is suf?cient to suggest that HMRC
sought to use regulation, not as a tool to defend or impose
the established order, but as a means of imposing a newor-
der through the reinterpretation of an important boundary
in the tax ?eld. Drawing on the work of Gieryn (1999),
HMRC’s regulatory response could be interpreted as an at-
tempt to re-draw rather than defend (reposition as op-
posed to regulate) the boundary. Its actions suggest that
its regulatory motive was more focused on addressing
unsatisfactory structural disparities in the tax system
(the macro concern), rather than the regulation of this par-
ticular individual’s tax affairs (the micro-concern).
In addition, in terms of HMRC’s regulatory strategy, its
actions do not appear ‘responsive’ in that there is no evi-
dence of a preliminary assumption that the Joneses were
cooperative, nor of any sensitivity towards them or the
wider environment. These would be expected of regulators
operating models of responsive regulation (Baldwin &
Black, 2008; Braithwaite, 1985). It appears that HMRC, at
best, misplaced the Joneses within the regulatory pyramid
(see Fig. 1 above). Instead of categorising them at the base
of the pyramid – as ‘willing and informed’ taxpayers –
HMRC positioned them higher up, warranting more strin-
gent enforcement regulation. This misplacing is concerning
since evidence links levels of tax compliance with the per-
ception of the tax system as fair and just (e.g., Braithwaite,
2003). Additionally procedural fairness is an important
underlying condition of compliance, which is improved if
taxpayers feel that they have been treated respectfully,
honestly and impartially (Murphy, 2003). By incorrectly
classifying the taxpayers, the belief that HMRC was acting
in a principled manner was undermined, which Gergen
(2001) identi?es as important for ?eld stability. The
resultant destabilising effects also had signi?cance beyond
the parameters of the case itself since a much wider
audience of interested parties were watching HMRC’s
actions, and HMRC itself serves a much wider public and
governmental interest. Indeed, the stability and perceived
fairness of the tax system is fundamental to its successful
operation.
Hence, aspects of HMRC’s regulatory habitus (particu-
larly motive and strategy) were not seen as fair, which
destabilised consensual ?eld doxa, as well as compromis-
ing the taxpayer’s trust in the tax system and, as the
dispute escalated, their wider ability to regulate it.
The dispute escalates: new ?elds introduced
Mr. Jones subsequently disputed the tax assessment,
facilitated by ?nancial support from the Professional
Contractors Group (PCG) – a trade association established
in 1999 to protect the interests of small, self-employed tax-
payers operating as freelance contractors who had been
targeted by HMRC. The PCG’s creation was catalysed by
the regulatory agenda of HMRC, resonating with Neu’s
(2006) observationthat ‘social groupings are formedandre-
formed by the peculiarities of the ?eld’. Many of the PCG’s
members operate as one or two person limited companies,
andit describes itself inits logo as: ‘The voice of freelancing’.
Fuelled by PCG support, the site of regulation shifts.
19
Cooper and Robson (2006) observe that the location of reg-
ulation affects both its outcome and legitimacy. In the Arctic
Systems case, what began as a private interaction between
the tax authority and the taxpayer (represented by a tax
intermediary) shifted to a more public arena as it moved
into the legal ?eld. Moving into the public arena also intro-
duces other parties into the game, whom Gunningham and
Grabosky (1998) suggest may act as surrogate regulators
in a process of ‘smart regulation’. However, there is no
evidence to support that in this case. On the contrary, it ap-
pears that support lay with the Joneses and not HMRC as the
19
We are grateful to an anonymous reviewer for highlighting this within
the case.
314 L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321
dispute emerged into the public glare. Had the Joneses
accepted HMRC’s assessment ‘‘their situation would now
be subject to an HMRC interpretive gloss on legislation that
Parliament did not intend to apply to their situation’’ (Gam-
mie, 2007, p. 4). Hence, if the regulation had remained in the
private sphere, tax practice would not only have signi?-
cantly changed, but a contrary outcome would have been se-
cured against the taxpayer. However, as the dispute moved
into the public sphere, this permitted other parties, such
as the PCG to support the Jones’ resistance. The move into
the public sphere also allowed the emergence of a popular
media-painted picture of the Joneses as innocent victims
who merely enacted the advice of their professional advisors
to incorporate and hence followed widespread tax practice
in this regard. Indeed, in 2006 the Joneses were given the
LexisNexis Butterworths’ award for ‘Tax Personality of the
Year’ (Harris, 2006). The support of the media and PCG did
little to quell HMRC’s aggressive regulatory response as they
responded by embarking on an increasingly intense and pro-
tracted legal wrangle to impose their revised ?eld doxa
through confrontational, enforced regulation rather than
through more responsive tactics. Hence HMRC’s actions
pushed the regulatory practice further into the public sphere
that ultimately also moved the outcome in the taxpayer’s
favour.
The legal dispute was taken through the full hierarchy
of the UK tax appeal system. Initially the two Special Com-
missioners hearing the ?rst appeal found in favour of
HMRC, on the Senior Commissioner’s casting vote.
20
The
taxpayer appealed to the High Court and lost in 2005.
21
The taxpayer subsequently appealed to the Court of Appeal
that found in the taxpayer’s favour by three to nil. HMRC
were initially refused leave to appeal against this decision,
but petitioned the House of Lords for permission that was
granted. The ?nal decision in the Arctic Systems case was
subsequently decided by the House of Lords in July 2007.
22
It was held that the arrangement was a settlement, but be-
cause of the special exclusion that applies to spouses the
rules did not apply to Mr. Jones. HMRC was therefore found
to be incorrect in seeking to tax Mr. Jones on the dividends
paid to his wife. The decision was unanimous in the House of
Lords, although different views were expressed by the ?ve
judges as to the reasons for ?nding in favour of the taxpayer.
This is an important aspect of the case
23
and highlights the
fuzziness (the potentiality) of the tax compliance boundary.
Until the courts had ?nished their deliberations, the Jones’
actions were only potentially illegal and although the ?nal
decision was that they acted legally, along the way, there
was considerable difference of opinion among the judges
hearing the case. As Tiley observed, ‘‘matters were ?nely
balanced’’ (2006, p. 298). This underscores the indetermi-
nacy of law and the complexity of the tax regulatory ?eld
in its relationship with the juridical ?eld (Burton, 2007).
The fallout from the decision
The day after the House of Lords’ decision, the Govern-
ment released a ministerial statement, together with some
guidance to taxpayers, the content of which strongly sug-
gesting that this outcome was anticipated. Aprevious docu-
ment issued by HMRC in November 2004 in response to the
Court of Appeal decision was entitled A Guide to Settlements
Legislation for Small Business Advisers. In addition to promis-
ing to update this guidance, the government now signalled
an intention to change the legislation in respect of what
has come to be known as ‘income splitting’ as follows:
The Government is committed to maintaining fairness
in the tax system. The case has brought to light the need
for the Government to ensure there is greater clarity in
the law regarding its position on the tax treatment of
‘income splitting’.
This signalled an intention to broaden the scope of ‘at-
tack’ on income splitting by taxpayers who are married
or in civil partnerships beyond the Arctic Systems type of
situation (Loutzenhiser, 2007). While acknowledging the
de?ciency of the law in terms of its clarity, the government
nonetheless appeals to a notion of fairness, suggesting that
notwithstanding the decision of the courts, there remained
an inequitable tinge to the outcome.
It might be considered here that this pattern of events
constitutes normal tax regulatory practice – an individual
appears to transgress the rules and the regulator’s re-
sponse is to enforce compliance through the force of the
law – the cat-and-mouse regulatory game of tax practice.
However, we consider this interpretation of HMRC’s regu-
latory behaviour to be limited in a number of ways and in-
stead offer an alternative Bourdieusian interpretation.
Firstly, as discussed above, the tax practice of the Jon-
eses within the Arctic Systems case had been accepted,
standard and widespread practice (Freedman, 2006) for
some time and as such the taxpayers were merely follow-
ing both government and accountants’ advice, considering
such practice as safe, lawful, low risk and normal. Conse-
quently, there was no transgression of the rules by the tax-
payer that would warrant regulatory action by HMRC.
Secondly, when considering the social processes in-
volved in the interpretation of legal texts, Bourdieu
(1987) describes how powerful ?eld participants manipu-
late interpretations of texts in order to control practice.
We suggest there is evidence of this within this case, where
HMRC uses both an unexpected and unusual interpretation
of the text (tax law) to regularise and control practice con-
sistent with its interpretation. HMRC appears to ignore or
dismiss alternative, widely held interpretations as invalid.
Such manipulated interpretation is made possible by the
imprecision or indeterminacy of legal rules, arising in part
from the inherent ambiguities of language (Endicott, 2001)
and the existence of different normative perceptions
(Avery Jones, 1996). As Lord Justice Carnwath on hearing
the Arctic Systems case in the Court of Appeal observed
24
:
20
[2005] STC (SCD) 9.
21
[2005] STC 1667.
22
For discussions of the House of Lords decision, see Kerridge (2007). For
discussions of the decisions at lower levels of court, see Loutzenhiser
(2005), Loutzenhiser (2006).
23
As highlighted by an anonymous reviewer.
24
Court of Appeal Judgement, [2006] 1 WLR 1123, para. 108
L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321 315
For the ?rst time, [HMRC] seek to apply the concept to
what has been found to be a normal commercial transac-
tion between two adults, to which each is making a sub-
stantial commercial contribution, albeit not of the same
economic value . . . If the legislature wishes such an
arrangement to be brought within a special regime for
tax purposes, clearer language is necessary to achieve it.
This also indicts legislators for their part in the creation
of uncertainty through their failure to provide adequate
clarity within the body of the legislation itself.
Thirdly, HMRC’s regulatory interaction with the tax-
payer was through enforced compliance. This mode of reg-
ulation appears inappropriately matched to the taxpayer’s
likely positioning within the regulatory pyramid (as out-
lined in Fig. 1). The Joneses were arguably ‘willing and in-
formed’ taxpayers, which suggests they should be met
with a regulatory response based in ‘encouragement’
rather than ‘enforcement’. HMRC is not seen to respond
using the tactics of ‘encouragement’ nor those of ‘educa-
tion’ since it withheld useful clari?cation and guidance.
Furthermore, HMRC’s regulatory intent is questionable in
appearing to use regulation to change doxic practice rather
than enforce it.
Lastly, within the boundary negotiations, we consider
that HMRC could be further criticised for deploying silence
(failing to produce guidance texts) and the dimension of
time to exert power within the ?eld by controlling its pace;
for example, not responding or being tardy in responding
to sustained requests for clarity from a number of parties.
Although refusing to formally acknowledge that Arctic Sys-
tems was a test case, HMRC nonetheless delayed decisions
on similar cases pending the House of Lords decision. In-
deed, the publication of HMRC’s view of the scope of the
settlements provision in April 2003 was only in response
to a request for clarity from the Chartered Institute of Tax-
ation (CIOT) and then only managed to produce ‘‘clari?ca-
tions’’ in a ‘‘technical manual rarely read even by tax
specialists’’ (CIOT et al., 2004). Although the professional
bodies continued to request further guidance from HMRC,
this was without success until November 2004. Even then,
the revised guidance met with a cool reception – John
Beattie, President of the Chartered Institute of Taxation
(CIOT) commented that
25
:
The professional bodies have been requesting further
and better guidance from [HMRC] on key issues for over
a year. The ‘new’ guide to the settlements legislation,
published last week, consists almost entirely of repack-
aged earlier comments and does not address the key
areas of uncertainty which we have repeatedly high-
lighted. We have read it from cover to cover, but it deals
onlywiththe blackandwhite andnot withthe important
greyareas, whichremainjust as murkyas before. After all
this time, we hoped for more than a sunburnt zebra.
Withholding (through silence) much needed guidance
texts allowed HMRC to sustain a climate of uncertainty
and anxiety, reinforcing their dominance and control over
the ?eld. Evidence of further aggressive regulatory actions
can be found within their decision to enforce retrospective
claims, and retrospectively applying their developing view.
The latter resulted in many small businesses being pre-
sented with large and unexpected tax bills, and draws
attention to the personal dimension that runs through
the case. The actions taken by HMRC affected the individ-
ual taxpayers not only in terms of enduring the ?nancial
and practical aspects of this boundary negotiation, but also
in terms of suffering a personal cost – in terms of anxiety
and stress. Mr. Jones’ statement issued immediately fol-
lowing the House of Lords decision in their favour gives
an insight into these costs:
This is the end of three years of uncertainty for us – at
one point we thought we’d lose our home. It’s been
extremely stressful and we’ve been made to feel like
criminals, just for running our own business.
26
HMRC’s regulatory practice is thus seen to create an im-
pact on taxpayers beyond ?scal concerns, i.e., to have a
personal dimension. Positioning regulation as a social and
relational practice allows these ‘human’ costs to be in-
cluded in regulatory analysis and raises issues surrounding
the ethical dimensions of regulation. One of the main prob-
lems is how systemic (macro) concerns and the personal
(micro) concerns relate and are balanced within the course
of the regulation.
It is also notable that the Arctic Systems case is part of a
much wider struggle currently taking place in the UK be-
tween self-employed taxpayers and HMRC, the details of
which are beyond the scope of this paper (see Crawford
& Freedman, 2010; Freedman, 2001, 2006). This raises
some uncomfortable questions for re?ection in terms of
the justi?cation of the severity of HMRC’s regulatory ac-
tions in this case. The regulator could be seen as using a
‘soft’ route to impose new interpretations of tax practice,
where regulatory force was used against an individual in
order to clarify legislation rather than impose it. Further-
more, it is reasonable to assume that HMRC would be
aware that the cost of disputing their interpretation of
the tax avoidance boundary through the hierarchy of the
court system would be well beyond the ?nancial capabili-
ties of many taxpayers, including Mr. Jones. Indeed this
case was only made possible by the ?nancial backing of
the PCG. For most individual taxpayers, the costs of sus-
taining a dispute with HMRC would be prohibitory.
The scope of the impact of HMRC’s actions in this case
were extensive affecting tens of thousands of family-run
businesses. The destabilising of the ?eld created undue
and prolonged uncertainty surrounding the provisions that
hung over these businesses for a considerable period. This
has contributed to the view that the Government is antag-
onistic to small business (Freedman, 2006). As David Kil-
shaw, Head of Private Client Advisory at KPMG observed
(quoted in a bulletin issued on 3 August 2007):
Tens of thousands of couples who run businesses
together will breathe a sigh of relief. The spectre of hor-
rendous tax bills has disappeared. Thousands of
25
Press release dated 23 November 2004, available at accessed on 14 May 2009.
26
Quoted in Hawkes (2007).
316 L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321
businesses have literally been saved from bankruptcy
by the House of Lords.
Tax practitioners’ views of the Arctic Systems affair
were overwhelmingly negative, illustrated by the com-
ment of a prominent tax commentator (Ross Martin,
2007):
The knock on cost to SMEs of this ‘test case’ must be
truly staggering, hundreds of thousands of pounds have
been wasted by anxious business owners on advice over
its duration, and this over and above the cost of legal
proceedings, and of course it was us, the taxpayers,
who paid HMRC’s legal costs.
Interestingly, the ultimate decision of the House of
Lords in favour of the taxpayer presented a further oppor-
tunity for accounting professionals to increase their client
bases and thereby their economic capital. For example,
KPMG’s weekly tax brie?ng commented on the House of
Lords’ decision and its implications for clients in several
of its newsletters in July and August 2008, stating: ‘‘Please
get in touch with your usual contact in KPMG’s Tax and
People Services practice if you have any queries on how
this affects you and your business’’. This illustrates the
ongoing inventiveness of social agents in taking commer-
cial advantage of shifts in relationships and practices with-
in ?elds, and to some extent, their contribution to fuelling
the practice and business of tax avoidance.
The attempt by HMRC to cast the arrangement as being
unacceptable tax avoidance, and of the taxpayer, Mr. Jones,
as someone not paying his fair share of tax, was an attempt
to rede?ne the scope of the tax practice and the position of
the tax avoidance boundary rather than regulate it. Their
interpretation was out of line with extant ?eld doxa and
ultimately judged as incorrect. Their regulatory pursuit of
the Joneses was via enforcement, driven forward through
escalating levels of legal action. In using an aggressive reg-
ulatory mode, HMRC undermined ?eld collusio and pro-
voked an ultimately unsuccessful legal battle, against
much smaller actors within the ?eld. Its regulatory actions
in this regard have, perhaps at best, been criticised as a
‘‘lazy approach to policy making’’ (Freedman, 2006).
Our analysis of the Arctic Systems case raises concerns
about further aspects of the operation of the tax system
in terms of other, largely hidden, boundaries that it
touches upon. One such boundary is that between market
and non-market transactions, wherein both the tax and
accounting systems fail to recognise the latter (Mumford,
2010). Much of the focus of valuation models within
accounting and tax practices draw heavily on market-
based, economic conceptions of events and transactions.
This excludes the possibility of incorporating others types
of events and transactions whose value remains unrecogn-
ised. Within this case, Mrs. Jones’ contribution to the fam-
ily company was considered only in terms of the paid work
she performed, and no consideration was given to her un-
paid labour. Another in?uential boundary here lies be-
tween marriage and co-habitation. If Mr. and Mrs. Jones
had not been married, the case would not have arisen be-
cause the settlements provision would not have applied
(Tiley, 2006). Prior to 2005, the settlements rules would
not have applied to same-sex couples either, and even
now they only apply to same-sex couples who have en-
tered into a civil partnership. Wosner (2005) raises the
question of whether this apparent discrimination against
married couples is in breach of the Human Rights Act
1988. These additional boundaries raise interesting issues
in relation to the impact of accounting practices and the
use of tax law in framing societal norms and ?eld doxa,
which although beyond the scope of this paper are worthy
of further study.
Conclusion
In this paper, we have drawn on Bourdieu’s conception
of social practice, synthesised with notions of boundaries
and regulation to tease out and interpret the relational as-
pects of intra-?eld boundary practice. Popular depictions
of tax avoidance as ‘taxpayer bad/state good’, or as a mat-
ter of legal determinacy, obscure the complexities and
in?uences of relationships on regulatory practice and pro-
cesses within the tax ?eld. Applying a Bourdieusian ap-
proach to a critical tax avoidance incident – the Arctic
Systems dispute – we explored the interactions of actors,
in terms of what is valued and defended, within this regu-
latory ?eld. In common with other regulatory ?elds, the
tax ?eld experiences complex compliance boundary nego-
tiations as sites of ?erce power struggles where consensus
is sought, or imposed. Additionally, in recent years, there
has been an important shift in regulatory practice gener-
ally from command and control approaches to more
responsive regulation. This shift is evident within HMRC’s
self-declared move towards the latter. By unravelling the
detail of this boundary struggle, with its consequent shifts
in the balance of power, authority and control, we develop
an alternative and relational understanding of aspects of
regulatory practice as it develops at the practice boundary.
From a Bourdieusian perspective, relative stability and
certainty in the tax compliance game emerges from the
relational interactions, or collusion, of the dominant play-
ers (tax professionals and the tax authority), which main-
tains HMRC’s illusio of legitimacy to control, act and
regulate the ?eld. This normalises the tax practices of
dominant actors through demonstration of mastery, i.e.,
professional capital over the rules, hence controlling the
tax game. Collusio thus produces and reproduces the status
quo within the ?eld. In the Arctic Systems case, however,
struggles over the boundary of tax avoidance intensi?ed,
in an unexpected way, beyond the normalised limits of ac-
cepted ?eld practice. HMRC’s interpretations and actions
created an unacceptable disruption to the normalised
game and balance within the ?eld which became upset –
the illusio became disrupted. We interpret this as brought
about through a number of regulatory actions, emerging
from particular relational positions.
Firstly, the tax authority (mis)interpreted the taxpayer’s
practice by framing it as an act of non-compliance, crossing
the boundary of acceptable tax avoidance. This was prob-
lematic to the ?eld – in that their view was so strikingly
out of line with the wider and longstanding ?eld doxa that
positioned it as accepted practice. Disruption of the illusio
L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321 317
made the usually concealed presumption of HMRC’s legit-
imacy visible. This in turn makes possible a shift in the nat-
ure of the relationship between taxpayer and regulator
that permits challenge of the regulator’s actions.
Secondly, HMRC’s erroneous framing of the taxpayer’s
actions was compounded by its regulatory classi?cation
of the taxpayer’s behaviour, positioning them higher in
the compliance pyramid. Such positioning consequently
in?uenced HMRC’s regulatory relationship with the tax-
payer. In turn this dubious positioning triggered a third
problematic action, namely an enforcement mode of regu-
latory response from HMRC, which further disrupted ?eld
doxa. HMRC’s regulatory relationship with the taxpayer
became changed and characterised by the adoption of
aggressive regulatory strategies to enforce compliance.
This shift to an enforcement habitus resulted in HMRC
deploying an increasing range of legal actions, bringing
the full weight of the legal process to bear against the Jon-
eses. The regulatory relationship hence becomes one of the
‘command and control’ of a deviant taxpayer rather than
one that sought compliance through responsive regulation.
Lastly, HMRC’s regulatory relationship with the tax-
payer was further challenged by its demonstration of sym-
bolically violent aspects in terms of its text manipulation
(particularly its erroneous interpretation of the Jones’ tax
affairs). This symbolic violence is also illustrated by HMRC
remaining persistently silent (i.e., failing to ‘respond’)
when guidance was sought, delaying decisions on similar
cases, withholding written guidance and failing to clarify
key issues. Taken together these draw into question the
‘responsiveness’ of their regulatory approach. This leads
us to interpret HMRC’s regulatory actions, not as the legit-
imate defence of tax principles, but as disruptive regula-
tion. This manifested through the instigation of
protracted legal action, controlling the timing of guidance,
and issuing retrospective claims and delaying other deter-
minations – in an attempt to command and control alleg-
edly ‘deviant’ taxpayers towards its subjective view of
compliance. Additionally, regulation that relies on legal
process to reposition practice puts it beyond the ?nancial
reach of most taxpayers. Indeed, without the funding of
the PCG, the Joneses ability to resist and defend against
HMRC’s actions would not have been as robust. Moreover,
the legal case with its favourable taxpayer outcome may
not have come to fruition. The ?eld of taxation therefore
is not immune to, nor isolated from, the in?uence of other
signi?cant actors within the ?eld, including accounting
practitioners and professional groups.
Collectively, these actions demonstrate a breakdown in
the consensual tax relationships with the ?eld. HMRC’s
actions are not interpreted as representing their claimed
tactics of responsive regulation and by instigating regula-
tion in this way mutual trust was also undermined – a nec-
essary condition for responsive regulation to operate.
Additionally, public money was wasted on pursuing legal
cases and hence the interests of taxpayers and wider soci-
ety were also compromised by HMRC’s regulatory choices.
A Bourdieusian unpacking of the relations within the
case therefore prompts a more critical questioning of the
tax regulator’s actions and practice, and paints a different
and perhaps more troubling picture of the regulatory land-
scape. In particular, it lays its behaviour open to some tough
questioning in terms of whether it is fair, reasonable, appro-
priate or professional. HMRC’s aggressive regulatory actions
(confrontational enforcement with signi?cant legal and po-
tential ?nancial sanctions) demonstrate reliance on puni-
tive strategies – more typical of a traditional command
and control approach. This is not to deny that instances of
tax avoidance collectively have the potential to be an issue,
nor to claim that the legal process itself is damaging to tax
regulationsince regulationcanderive stabilityandinterpre-
tive certainty from legal determinations. Although punitive
strategies are useful tools in HMRC’s arsenal of methods to
regulate tax practice, to be a bene?cial stabiliser they must
be used appropriately, or risk the contrary effect (Gergen,
2001) as witnessed within the Arctic Systems case. Indeed,
here HMRC’s erroneous interpretation of the taxpayers’ af-
fairs and its legalistic regulatory response destabilised the
?eld, creating uncertainty of practice. Thus, what our paper
does question is whether HMRC’s approach to tackling the
potentially big issues through an aggressive regulatory pur-
suit of an individual taxpayer is acceptable. From a Bour-
dieusian stance, HMRC appear to utilise the fuzzy
boundary (where practice is open to interpretation) as an
opportunity to adopt a position, in terms of it running con-
trary to existing doxa, and deploy regulation as a tool to
transform ?eld doxa in line with its non-doxic position. In
other words, what appeared at stake for HMRC was the big-
ger picture of tax compliance in relation to income splitting
between husbands and wives, rather than its concern with
the individual taxaffairs of the Joneses –a macrorather than
micro-focus. The ethics of seeking to achieve pivotal
changes in tax practice through the pursuit of an individual
taxpayer is questionable.
Little research has been undertaken in terms of explor-
ing regulation as an ethical practice. Potential explorations
could draw on the work of Buchholz and Rosenthal (2006)
and Messner (2009), who argue that organisations as well
as individuals can be considered as moral agents and con-
sequently hold ethical responsibilities. This may open up
the path for discussion of the ethics of compliance regula-
tion that considers both the needs of the individual and the
organisation (the micro and the macro). Although outside
the scope of this paper, this is an important area for further
investigation.
Our Arctic Systems analysis suggests a need for HMRC to
better balance their wider regulatory accountabilities (as a
public body), with its regulatory duty of care to individual
taxpayers. Traditional, old style command and control reg-
ulatory practices may have led to more clearly de?ned posi-
tions and relations in regard to the habitus of regulator and
regulatee. However, the move towards responsive regula-
tion perhaps blurs these positions, intensifying the require-
ment for the regulator to become more attuned to the
habitus of regulatees in order to better respond in the reg-
ulatory ‘dance’ (Braithwaite, 2009). HMRC’s ability to adapt
rests partly on its capacity and/or willingness to invest in
developing an institutional, regulatory habitus that can be
responsive within its interactions with taxpayers, i.e., to
appropriately classify taxpayers (interpret their habitus)
and respond to each accordingly (adjust its institutional
habitus).
318 L. Gracia, L. Oats / Accounting, Organizations and Society 37 (2012) 304–321
Such responsive regulation might require less reliance
on tax avoidance practice being contested through legal
channels and the courts, and more reliance on developing
regulation as emerging from relational processes of social
construction. Hence, we suggest that expanding regulatory
inquiry to include perspectives that position and develop
regulation as an interactive or re?exive process – a social
and relational process – mediated via socio-cultural inter-
actions between the tax authority and taxpayers – might
encourage what Black (2002) refers to as a deeper and
more productive ‘regulatory conversation’. This might also
offer potential for adapting responsive tax regulation to be-
come more relational in a way that would harness a focus
on more cooperative and inclusive regulatory responses.
A key issue for the regulator then is to better understand
the limits of its existing regulatory practice, acknowledging
its practice limitations and to drawinformatively onthe les-
sons fromthe Arctic Systems case. There is a needfor greater
dialogue between ?eld participants about the challenges
faced, where information is shared and interests converge,
making possible a more relational form of regulation. This
would perhaps give rise to more stable regulatory outcomes
emerging from ‘‘the product of shared meaning and negoti-
ated positions’’ (Humphrey et al., 2009, p. 822). Relational
regulation would respond to what appears missing at the
regulatory boundary of tax compliance – i.e., the mecha-
nisms that allowmeaning to emerge as shared understand-
ing through cooperative and consensual practice that
recognises multiple perspectives. This new ‘game’ of rela-
tional regulationwouldrequire a reshaping of HMRC’s insti-
tutional habitus such that it engages with taxpayers and
their advisors in a different way; responding sensitively
and appropriately to taxpayers (or ‘customers’) depending
on an informed classi?cation of taxpayer disposition (habi-
tus) as part of its claimed agenda of responsive regulation
(Fig. 1). This might offer a means of creating more stable
tax avoidance practice that wouldalsorespondtoPicciotto’s
warning that ‘‘tax reform should not be viewed as a techni-
cal contest . . . conducted only within closed circles of ex-
perts’’ (2007, p. 30). One bene?t for HMRC of more open
discussion is that it may guide the regulator away from
using regulation as a device to reposition practice bound-
aries and towards using regulation to more appropriately
secure compliance within existing boundaries. The respon-
sibility for repositioning boundaries would therefore be
relocated outside of the practice of compliance regulation.
Although Star and Griesemer in their study of other regula-
tory ?elds (1989, pp. 388–389) caution that achieving
consensual, re?ective practice involves ‘‘considerable la-
bour at the boundaries through processes of translation,
negotiation, debate, triangulation and simpli?cation’’, we
contend that such labour is necessary if meaningful shared
practice norms are to evolve within the tax ?eld.
The relative neglect of tax practice as an object of schol-
arly attention within the accounting literature, particularly
beyond studies of the tax practice of large multi-national
organisations, is a cause for concern. In some jurisdictions,
for example the UK, this feeds into a skewed policy making
dynamic where regulatory decisions are made in respect of
both substantive tax rules and their practical operation
without being scrutinised and held to account by the
scholarly academic community. Thus, in terms of ?eld
power relations, this confers power on both the regulator
and the professionals to construct shared understandings
(collusio) of the complex boundaries within and around
the ?eld, which in the absence of critical incidents, such
as the one we examine here, potentially have dysfunctional
effects. There is considerable scope for challenging the
orthodox positivist approaches to tax scholarship within
the accounting literature by using interpretive and critical
methodologies, such as those used in this paper, particu-
larly in terms of framing aspects of taxation, including
tax avoidance, as distinct (albeit interdisciplinary) social
practices. The in?uence of mainstream economics, psy-
chology, and law colours received understandings of the
practical functioning of tax systems and needs questioning.
One way this could be achieved is through broader, more
situated research, that explores ‘tax in action’ and exam-
ines the linkages and relationships between tax, account-
ing and regulatory practices and the in?uence of the
wider contexts in which these practices operate.
Beyond the tax ?eld, this paper has shed light on the
relational aspects of boundary construction and mainte-
nance as an integral part of ?eld practice. This includes
not only boundaries around social ?elds, but also those
within ?elds, as points at which struggles for ?eld capital
intensify. Consensual understandings of the scope and lo-
cus of intra-?eld boundaries are not static, and can be chal-
lenged through critical incidents. Within these ?eld
participants call into question ?eld doxa, which may result
in boundary shifts or more subtle shifts in power relations,
as demonstrated in the Arctic Systems dispute.
Acknowledgements
We would like to thank David Cooper (Editor) and two
anonymous reviewers who were particularly generous
with their time and suggestions for shaping the paper.
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