Recognising that high standards are critical to retaining public trust in tax advisers, a CFE paper Professional Judgment in Tax Planning - An Ethics Quality Bar for All Tax Advisers - Tax Advisers Europe launched this month seeks to encourage a forward-looking debate on how tax advisors work across European tax systems. It’s a highly topical paper given the heightened interest in the role of tax in the post-Covid recovery of public finances, including the recent G7 agreement on a minimum global corporation tax as well as developments at EU level.
Inspired by the central question of ‘if it is legal, is it acceptable?’, the paper proposes an ethics quality bar based on five key questions to encourage tax advisers to achieve an appropriate balance between the rights and obligations of taxpayers, avoiding abusive tax planning. Informed by key reflections on tax planning practices and major international and national legislation over the last 25 years, the paper addresses key current issues such as taxpayer attitudes and the obligations placed on advisers. While centred on Europe, CFE also sees the potential for wider international relevance, not least given the complementary work on tax planning being undertaken by the International Ethics Standards Board for Accountants.
In the UK, the tax planning standards set out in the Professional Conduct in Relation to Taxation rules have been in force since 2017, and the proposed CFE tax quality bar does not replace, contradict or overrule them. The ethics quality bar concept therefore is largely for consideration in European jurisdictions outside of the UK. Nevertheless, the broad context in which professional judgment is discussed in the paper and the importance of ensuring high ethical standards apply across all advisers are highly relevant for the UK as well.
CFE Tax Advisers Europe represents 33 European tax institutes and associations of tax advisers from 26 European countries – including ICAEW – and is associated with more than 600,000 tax advisers via the Global Tax Advisers Platform.
Times have changed
Attitudes and practices with regard to tax planning have changed considerably in recent years. Societal expectations have largely evolved over this period although experience does still differ across countries. European and international policy initiatives are increasingly targeting abusive planning: for example, the EU has recently introduced new reporting requirements for EU cross-border planning arrangements (EU Directive on reportable cross-border arrangements - DAC 6). This all forms a critical backdrop to the work of tax advisers. Equally, tax services and tax administrations are being transformed through technology. This raises new questions such as where does digitalisation start and stop and at what point does the exercise of ethical professional judgment become critical?
Tax advisers play a valuable role in the proper functioning of tax systems, but this role can be undermined by the abusive tax planning within legal parameters – as distinct from criminal evasion. Abuse arises where there is, for example, manipulation and artificiality in planning arrangements that do not have any genuine underlying economic purpose other than achieving a tax saving. Setting an ethics quality bar can make a substantive contribution to addressing the problem – if it applies effectively to all advisers. In Europe, most countries do not impose market access rules for the provision of tax advice: some advisers are members of a professional body, some are subject to mandatory regulation, others accept voluntary regulation – and a significant number are both unregulated and unaffiliated. The CFE paper is directed at the role of all advisers, irrespective of their status.
The paper is also directed at tax policymakers and tax administrations in the hope that they will embrace the promotion of an ethics quality bar so as to ensure that high professional standards are not undermined within the market. The issues raised in the paper are also relevant to the policy debate on achieving the right balance between regulatory requirements for tax reporting and a conducive environment for business investment. Finding this balance can surely be facilitated where there is confidence in the existence of high professional standards across all tax advisers in our markets.
Five key questions
The proposed ethics quality bar aims to provide a level of qualitative reflection to help underpin professional judgment which steers against advice that is abusive on account of manipulation and artificiality in the use of legal means, vehicles and arrangements to reach a desired tax outcome.
It is based on five questions that all tax advisers should reflect on when preparing tax advice –
- Is there a genuine economic purpose for the tax planning apart from achieving a tax benefit, either now or in the future?
- Are the arrangements artificial or manipulated in a form-over-substance approach to achieve a tax benefit?
- Is the tax planning based on interpretations of applicable international and national tax law which are likely to be considered credible by the courts and informed stakeholders?
- Would the arrangement be implemented if the relevant tax authority had a full overview of every aspect of the planning?
- Are there any other potential reasons why the tax planning could be perceived by policymakers and the general public as abusive?
CFE is particularly interested in views on whether and how the five questions could help to steer all advisers in the direction of an appropriate balance between the rights and obligations of taxpayers, avoiding abusing planning.
Reflecting on the paper, Martin Manuzi, ICAEW Regional Director and member of the CFE committee which prepared the paper, noted “this initiative moves the dial forward significantly in the international debate on this topic. The paper demonstrates the difference which ethical judgment on the part of advisers can make in real business contexts, responding to legitimate societal expectations. Equally, it is important for policymakers and tax administrations to ensure that an ethical bar applies to all advisers in their markets and that this flows through to taxpayers themselves, otherwise the public interest benefit risks being lost.”
Frank Haskew, ICAEW Head of Tax, also commented “the paper is a highly welcome development in the direction of ethical tax planning across European countries. For ICAEW, trust in the profession is a core part of our strategy. We look forward to sharing our experience of the tax planning principles and standards set out in the professional conduct rules in the UK (the PCRT) and hearing the perspective of all interested stakeholders, not just tax specialists. After all, everyone benefits from an efficient and effective tax system based upon advice which is ethically sound.”
What happens next?
CFE will be engaging in a series of outreach and stakeholder engagement initiatives during the summer and autumn to hear feedback from all interested parties. CFE member bodies are also encouraged to use the paper to engage proactively with interested parties in their own jurisdictions.
Find out more
- CFE Discussion Paper: Professional Judgment in Tax Planning – Ethics Quality Bar for All Tax Advisers’
- International taxes | ICAEW: Expert commentary and practical guidance from ICAEW related to international taxes.
- Keep up to date with our European regulatory and policy events and activities.