It is a commonly accepted practice for management or directors to manipulate the information presented in corporate financial accounts so that advantages or even tax relief may be obtained from the tax administration. The information may then be presented in a modified manner for the stockholders and general public. A separate presentation is frequently developed for the management of the corporation. The process is sometimes known as 'window-dressing'.
In 1993 it was argued that the level of business secrecy operating in France was causing that country to lag behind other industrial countries in business intelligence, leading to reluctance to communicate useful business leads to colleagues in other companies. Much more commercial information is held confidential by the government than in other countries. In Japan it is common practice to minimize public disclosure through corporate income statements or balance sheets. Many items, such as currency transactions, are deliberately omitted from such documents. Inconsistent depreciation policies are used whereby straight-line and declining-balance procedures are alternated as required to dampen surging or diminishing profits. By cross-trading corporations sell shares they own to affiliates as a means of generating large amounts of cash which are then treated as operating profits, although the shares are still effectively owned by the parent corporation.
2. Apart from the need for secrecy in a competitive environment, the system does permit investors who wish to remain anonymous to have their affairs handled by third parties. Disclosure of identity can be considered as an infringement of privacy. In addition, the system avoids considerable legal and administrative complexities, to the advantage of general flexibility.
Widely divergent taxation laws make it impossible today to make a simple and uniform tax declaration across boundaries. The complexity of taxation law and the multitude of incentives and exception force companies to hire tax specialists. A minority of companies seek the most taxed way. It is a commonly accepted practice to seek the least taxed way.
3. The tax forms prescribe a certain form of presentation of the accounts, which are far different from the information required by shareholders, banks, labour unions and the general public. It is therefore necessary to present the financial information for each target group in the format and with the details that they need. It is not window dressing, but rather responding to the needs of each target group.