Institute responds to the IESBA proposals on tax planning and ethics

On 18 May 2023, the Institute responded to the International Ethics Standards Board (IESBA) invitation for comments on their “Proposed Revisions to the Code Addressing Tax Planning and Related Services”. The proposals to amend the Code of Ethics for Professional Accountants are based on recommendations following extensive stakeholder engagement and review by the IESBA since 2019. The review was in response to increased public attention on the topic of tax avoidance, revelations arising from the “Paradise Papers” and the “Pandora Papers”, and global focus on the legality of tax mitigation schemes.

The proposals define ‘Tax Planning and Related Activities’ as “a broad range of services designed to assist a client, whether an individual or an entity, in structuring the client’s affairs in a tax-efficient manner”. The IESBA builds upon the principles-based framework of the Code of Ethics and outlines the responsibilities of all professional accountants in respect of these services. Further requirements and guidance are included for Professional Accountants in Public Practice (PAPPs) and Professional Accountants in Business (PAIBs).

The key IESBA proposals include:

• Outlining professional accountants’ public interest role in relation to tax planning services;
• Requirements in respect of any anti-avoidance legislation court or tax authority rulings, and addressing non-compliance with laws and regulations;
• Requirements for establishing a credible basis for tax planning advice and carrying out a ‘stand back test’ that considers “the reputational, commercial and wider economic consequences that could arise from the way stakeholders might view” the tax planning arrangement;
• Examples of ethical threats that can arise from providing tax planning advice, including potential steps professional accountants can take to either eliminate or safeguard against these;
• Requirements for communicating with clients or employers, including steps to take in the event of disagreement in respect of tax planning; and
• Requirements in relation to obtaining second opinions, referring or recommending third-party tax planning solutions or advisors.

Some of the key points in the Institute’s response to the IESBA proposals focused on:

1. The current size of the Code of Ethics and the opportunity to embed some of the proposals into existing requirements of the Code, including the Conceptual Framework;
2. Concerns regarding the broad definition of ’tax planning’ and the necessity to include ‘related services’, which are typically more closely associated with routine compliance, such as the filing of tax returns and representing clients on compliance issues using tax authorities’ dispute-resolution mechanisms;
3. Requesting further guidance on ‘credible basis’ and ‘stand-back’ tests, and positioning of these as part of the Conceptual Framework alongside other professional judgement requirements.
4. Highlighting the important role of professional accountants in reducing the risk of unexpected tax costs for all taxpayers and ensuring higher compliance rates and collection of tax by assisting clients and employing organisations navigate complex local and global tax requirements;
5. To consider the primacy and responsibility of local tax authorities in the enforcement of tax compliance, the policing of appropriate tax planning and their independent mechanisms to be first arbitrator in making a ruling rather than a court of law or a professional body;
6. Highlighting the issue of competitiveness in the accountancy profession, the capacity of the profession to police and enforce new standards, and the need for a level playing field that ensures tax advisors who are not professional accountants are also accountable to high standards of ethical behaviour; and
7. Providing suggestions in areas such as identifying threats and implementing adequate safeguards, the consideration of multiple uncertainties, and further considerations of the context and role of Professional Accountants in Business in respect of tax planning.

The Chartered Accountants Ireland response to the IESBA is available here. The IESBA proposals are available on their website here.

Níall Fitzgerald, Head of Ethics and Governance, Chartered Accountants Ireland