Do tax practitioners need to exercise moral judgement?

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Over at AccountingWEB Rebecca Bennyworth has posted a thoughtful piece on whether tax practitioners have to exercise moral judgement in the course of their work. She has been slated for by some commentators, but I think her piece reflects the real confusion that exists in this area, and on which all the professional bodies (in the UK at least, and I suspect elsewhere) are failing to give a lead.

She makes a number of good points (for those who can’t follow the link since AccountingWEB have a tedious registration process I reproduce some here). She says for example:

With my head I have no doubt that tax must be a legal issue.

But then adds:

I make no secret of the fact that I am intensely uneasy about some of the more esoteric tax avoidance schemes developed by advisers for the very wealthy and large businesses. I personally find the extremes to which they go distasteful. …I would certainly not engage in more extreme areas of tax planning myself. …. So I am making my own moral judgement about what I will and will not engage in.

Having got to this point she says:

If tax is indeed a moral issue, then who is to make the moral judgement over "how much to pay" if there are many options open to a client or business?

And goes on to ask:

Given that tax is established by rule of law, and gives citizens and businesses a choice about how to organise their affairs, with different tax outcomes, how should the citizen make his choices? And what is the role of the accountant advising him in helping him to come to decisions?

As she, rightly notes:

We have neither been trained nor are we necessarily qualified to make such moral judgements.

This, although I doubt Rebecca intended it that way, is for me the most telling point in the whole piece, and a damning indictment of a so-called ‘profession’, the very exercise of which role does require the exercise of choice in accordance with an ethical code. If in doubt, just try looking up what a profession is in any reasonable source. The necessity for that ethical code shows that the exercise of moral judgement is an essential part of being a professional person. The denial of that role reduces the so-called profession to the level of being technicians. There’s nothing wrong with being a technician, but please don’t suggest it’s professional because by definition it is not. And yet a commentator on Rebecca’s piece (reflecting what is, I am sure a majority view amongst accountants) says:

There is no morality in tax, only rules. Your clients expect you to work to the limit of these rules. In fact the only immoral act is failing to do so - while gladly pocketing their cheque.

I find this incomprehensible. I can guarantee that this person does not leave his humanity at the door when he comes into his office, but that is exactly what he claims to do. It is as if he believes himself an automaton without a moral compass whilst working. That’s sad. I also suspect it is not true, but the failure of any professional body to teach ethics at a sufficiently high standard for him to have not appreciated this point is, I think, a bigger concern.

And I regret I cannot accept Rebecca’s conclusion for much the same reason. She says:

The "moral" or "legal" debate continues, unanswered. What is more to the point, the present Government seems intent on adding fuel to this smouldering fire with the constant use of the phrase "fair amount of tax and NICs". Perhaps it is time for the tax profession to take them on, and ask for this to be defined in law, or for it (and the implied criticism behind it) to be withdrawn from use.

This too shows considerably confused thinking. If ethics has a role in taxation (and I am sure it does) then you most certainly cannot make it law, not least because (as I will show below) it can be about choices between laws. Nor, to answer the inevitable flat-taxer’s comment, can you resolve the issue by simplification. Ethical questions can be very simple. Indeed, the hardest ones are. But that doesn’t make the choice any easier.
To therefore argue that this issue must be resolved by law, or be dropped is to deny the reality of the issue, which is real, and which will not go away (at least, not so long as I and, I suspect, Dave Hartnett have anything to do with it).

So, preamble over, let me make it clear why ethics and tax are inextricably linked.

Let me be clear at the outset though that tax should only be paid if it is legally required. In other words, if there is no taxing statute tax should not be due. I think we can all agree on that. My point is though that this is a starting point. To end the argument there as most accountants, the large firms and the professional bodies seek to do is simply mistaken logic. The reasons are:

  1. You have to know what the law is. Unfortunately any law is a construct of words and words are imprecise as to their meaning. In consequence they will always be open to interpretation. Every morning of every working day two barristers walk into a court in the UK to argue the meaning of tax law, both sure they are right. And without fail, every day one of them is found (not proved) to be wrong. Wrong, that is until another opinion is available. So judgement as to what the law says is an inevitable part of being a professional tax adviser. Those who argue ‘the law is the law and all you have to do is comply with it’ seem to have missed this essential fact. Likewise those who argue that the matter is simple; avoidance is legal and evasion is illegal have forgotten how hard it is to tell what is and is not legal — and I stress, this would be just as true (maybe more true) of a simple tax code. So accountants are duty bound to exercise judgement, and need an ethical (or moral code) to do so. This is fact, not fiction, and to deny it is to deny reality.
  2. You have to decide which law you are complying with. Many complex tax planning schemes involve an international dimension. This is usually because they involve the trade off of one legal system against another. So there is a choice as to which law is to be followed, both as to tax, as to the jurisdiction in which a contract is written, and where it is to be accounted for. Any such choice is moral. It is a moral choice to represent a transaction takes place in one location even though the value was added in another.
  3. You have to decide between options within the law. Most law provides for choice, and so they should. The world is not a simple place and a tax law that tried to be ‘one size fits all’ would not work, which is precisely why the calls for simplicity are misplaced. But, this means judgement has to be used. If that judgement is commercially driven then few would say this creates ethical issues for taxation — including all tax authorities of which I am aware. But when the choices made available in law are abused i.e. a transaction is restructured for the sake of making it appear as if relief is available under a provision when the substance of the transaction is different from that for which the legislation was intended than ethical dilemmas arise. This is why I specifically argue for purposive legislation.
  4. Tax can in some cases become the primary motive for transactions in themselves, or at least for major steps within them. Numerous examples exist where this is the case. This is an ethical choice. Is including a step in a transaction primarily to secure a tax advantage ethical? I suggest not, even if the step is in isolation legal. This is why I am sure a general anti-avoidance principle is required. But I accept, the decision as to what is ‘primarily’ is an ethical one on which judgement would have to be used. And it is already, of course, which again proves that those who argue otherwise are not reflecting reality.
  5. As I have noted elsewhere on this site, the practitioner has a duty to more than one client at a time. They must see the world in the round, not in the micro detail of one client and one case if they are to be a true professional. In other words, externalities have to apply to the practitioner’s work and if that is true then externalities have to be considered in the decision making process. The duty to pay tax is an externality in the decision making process, but which has to be considered. If reputation risk is high (as it seems to be for Microsoft and Apple, so they’re hiding their tax planning) or if legality is in question, as is the case in high profile cases such as Barclays seeking to protect its UK customers with accounts in the Channel Islands from the due process of UK tax law under the guise of banking secrecy, then clearly ethics are a key component in the decision process, and in the way it will be judged. I have suggested Apple, Microsoft and Barclays have acted entirely legally but unethically.

And that is precisely the point: if it is possible to be legal and unethical at the same time the point that this is an issue is proven. At which point the request is not that the issue be dropped, but that accountants learn to deal with it.

So which Institute wants to get on with this? Your members need help. Are you going to provide it, or will you carry on banging the drum of ‘simplification and certainty’ — neither of which will happen, and both of which are contrary to the best interests of your members and their clients?I’m not holding my breath.