Annual reports are important documents for companies and institutions to provide an account of their financial status. But an interesting point to be made about the words used in annual reports is that they can sometimes be a key to unlocking the secrets of corporate tax avoidance.

In essence, linguistics can be used to uncover the inner workings of how a company is using loopholes to avoid paying taxes. For example, phrases such as “tax strategy review” or “fiscal engineering” can be an indication of a company’s efforts to reduce its overall tax burden. Some creative use of language can be used to cloak exploitative tax planning in an innocent-sounding phrases or discussions.

A perfect example is the 2017 annual report from Apple Inc., where they mentioned “tax planning initiatives”. This was in regards to the company’s efforts to maximize their profits by utilizing certain international tax avoidance strategies. Because of this, they were able to pay just 0.005 percent of their global income tax obligations over a three-year period. Other companies have similarly been caught deploying language to mask their tax avoidance strategies.

This has become a popular strategy for large companies, given that language offers more flexibility than the often stringent rules governing taxes. Tax lawyers can use language to re-interpret the financial statements in order to exploit loopholes and minimize their tax bill.

The words used in annual reports can be a tell-tale sign that a company is avoiding taxes. By closely examining the language used, it is possible to uncover the truths behind a company’s financial situation and shed light on even the most devious tax avoidance strategies. Ultimately, the key to understanding the corporate tax avoidance epidemic is to first look closely at their language.