The Times (firewall) has reported this morning that:
The accountancy profession was thrown into turmoil yesterday after a High Court judge appeared to rule that practitioners had a duty to advise wealthy clients to avoid tax.
The case is bizarre. It revolves around Hossein Mehjoo, an Iranian refugee. He sold a fashion business in Britain and has now successfully sued his local accountancy firm for £1.4 million claiming that it had failed to advise him of an offshore tax avoidance scheme. As the Times notes
Mr Justice Silber found that a “reasonably competent” accountant would have recognised that, as a “non dom”, Mr Mehjoo was eligible for tax schemes not available to ordinary UK citizens.
And it adds:
Mr Mehjoo, 53, should have been advised to enter a scheme called the Bearer Warrant Scheme (BWS), the Judge said. Until it was shut by Revenue & Customs in 2005, a BWS allowed wealthy non-doms to transfer ownership of a company to an offshore trust, which could then sell the company while avoiding capital gains tax.
Astonishingly it was said:
“The defendants had a contractual duty to advise the claimant that non dom status carried with it potentially significant tax advantages,” Mr Justice Silber found. The judge described the BWS as a “tax mitigation” scheme, noting that “the main reason for creating the trust would be to enable the client to receive the capital ... tax free”.
And:
The duty to refer a client to a tax specialist was comparable to a GP's duty to refer a patient, the judge said. “Surely if the GP knows that there might possibly be types of treatment known only to specialists ... that should trigger a duty to advise,” he said.
As the times note:
Richard Murphy, head of Tax Research UK, said: “The time has come for the Government to protect ethical accountants. These bearer warrant schemes were based on an incredibly dubious premise – it was a load of make believe.”
I know: I knew of it. KPMG, at least, marketed it.
But the real point is that just when it is agreed that tax avoidance can be abusive and that it is morally repugnant the Court has now real it is a legal requirement for an accountant to undertake this anti-social activity, or they can be sued.
Three things follow: first, honest accounatnts nbeed legal protection. Second the scope of the general anti-avoidance rule needs to be extended to protect accountants and third it has to be made explicitly clear in law that no accountant has a legal duty to abuse the spirit of the law.
If we want an honest accountancy profession (and some of us do) then the government has to act.
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Not sure I am with you on this one. Accountants shall advise in the limits of legality; the check whether what is legal is also ethical should be made by parliament. There shall not be any non-dom exemption or the like, here and in virtually all other matters I am fully with you.
I do not believe in any plea for “moral” or “voluntarily ethical” behaviour or so. Any solution that comprises something like Corporate Social Responsibility is failed from the beginning. You guys better keep making the case that the system be overhauled and the rules be changed, not that someone shall refrain from unscrupulous but legal activity. Better make what is legal but unethical simply illegal. And if an action goes clearly against the spirit of the law, it shall be construed illegal before court.
No accountant should be required to advise a client toi undertake tax abuse
What’s most repugnant about what the judge said is the dodgy analogy with a doctor ‘referring’ a patient. What? As if tax avoidance is analogous to a healing process. To separate the legal from the ethical is absurd – Richard, when clients get tax advice is the adviser contractually bound to offer tax ‘mitigation.’? If so, then the nature of the contract between client and advisor needs to be looked at.
I couldn’t disagree more with Frank or agree more with Richard.
The trope that accountants must provide services that they don’t want to provide – for ethical and/or practical reasons – is frankly ridiculous. You might just as well say that BP has a legal obligation to tell me whether they produce green petrol, just in case I might like green petrol.
Furthermore, in purely practical terms, for accountants to get involved in complex schemes they have no skills to handle would be, in my opinion, fundamentally unethical and commercially stupid.
The route I’ve taken is to include this paragraph in my terms and conditions/engagement letters:
“We neither advise on nor participate in any tax planning scheme which we believe may be construed as abusive tax avoidance, on the basis that the inherent risk of attack by HM Revenue & Customs is always unacceptable – for both you and us. We do, of course, respect absolutely your right to seek alternative advice from or transfer your business to another firm if you disagree with our position on this issue.”
That may or may not be enough to protect my firm but, fundamentally, the notion that I can be obliged to provide a service I wish positively not to provide sounds to me like a breach of human rights.
Well said Nick
Accountants shall be required to work in the best interest of the client and respect the law. Judges should not become arbiters of moral or ethics, this is the job of lawmakers.
Parliament and civil society should do the utmost to make sure that the law does good, not bad.
But as I said, in substance, ie as regards what is to be considered as good or bad, we are in the same boat.
I’ve spent this morning reading the judgment. I know you won’t have had time to. The judge praised the defendant accountant as an ‘honest, decent and competent accountant’, but after consideration of what would have happened if non-dom status had been raised, concluded that the taxpayer would have undertaken BWP, since no adviser would (at the time) have regarded it as risky. Damages were due on the basis of what would actually have happened; Purnell’s only _duty_ was to get his client’s status right. Once that followed, somebody else would have told him about BWP, which on the facts would not have failed, as it was clearly legal at the time (otherwise claimant wouldn’t have got his damages). See issues a & b at para 61; c et seq go to quantum of damages rather than accountants’ duties. Sorry, but the Times headline misrepresents what the judge actually said.
I think the Times accurately reflects the sentiment and reality of the decision
I stand by what I said and think
I have had a number of notes from accountants agreeing with me
@Frank
These days, unfortunately, we tax advisers (I work in the tax planning department of an accountancy firm) are required not only to consider what is legal, but also the intention of Parliament. The GAAR guidance is very clear that the Government rejects the Duke of Westminster doctrine which stated that a person may take whatever action he pleases within the law to mitigate his liability.
Unfortunately decisions like this illustrate that what the Government would like the law to be, and what the law actually is, are not the same thing. We advisers are being pressed from both sides here, which is really unhelpful. It is helpful that at last there’s beginning to be some recognition of this from Richard et al.
I helped write the GAAR remember
And want honest accountants protected
I have always said that – there’s been no change from me
Now the justice system in the UK is enjoying tea with the “Mad Hatter”…
Maybe an ethical accountant should say to their client ‘there are ways to reduce your tax bill, but I consider them unethical, therefore I won’t advise you on them. If you want to find someone else who will, go ahead’.
It’s probably worth reading the actual judgement rather than relying on The Times spin on it.The main point is that the accountants didn’t have sufficient expertise to advise on a matter that they took on.
It is actually the “referral issue” that appears to be the key point:
“The Defendants had a contractual duty or concurrent tortious duty as reasonably competent generalist accountants in October 2004 to have advised the Claimant that (i) he had, or very probably (or alternatively might have) had, non-dom status; (ii) non-dom status carried with it potentially significant tax advantages; and (iii) he should therefore take tax advice from a firm of accountants or tax advisers who specialised in advising individuals who had (or might have) non-dom status”
The judge didn’t say that they had to advise him on the scheme. It just so happens that the client would have gone on to use an avoidance scheme, or so the judge concluded.
That issue is easy enough to guard against in an engagement letter, as others have suggested, and by not advising on issues that is not an area of expertise.
Those at the trial suggest that the Times is right to me
Richard, before your reply I had assumed you had actually read the judgement. Have you read it yet?
Sufficient – and some is noted above
I’m sorry Richard, I can’t let that stand. It’s the case report which sets the precedent, not second hand, unattributed hearsay. There is nothing in the judgment which imposes a duty on any accountant to promote avoidance, and your unsubstantiated assertion that someone told you something which supports your inflammatory spin on it is totally unhelpful. I might as well say that I heard something which supports the written judgment; only difference is I’ve got some evidence to back me up.
From a person who does not give their identity that’s priceless
My sources are I think 100% reliable
Richard. That is an ad hominem argument against the anonymous comment. You should know better than that.
The judgement, if you read it sufficiently to understand the judge’s reasoning, is very clear indeed.
A person who is there may have not had time to understand and deliberate the judgement when given verbally.
The accountants failed to take suitable advice on a specialist tax issue. That is what the problem was. The scheme is merely what the claimant would have done were he to have received the proper advice at the time. It effectively quantifies the foreseeable loss.
It was the lack of taking qualified advice that was the issue.
And the defence was they did not need to – and I gather the expert evidence strongly supported that view
No wonder it is being appealed
High Court judges get such things wrong
I am saying this judgment is wrong
Richard
The judge was not persuaded by the defence or the expert evidence.
To quote the judgement at p113:
“Mr Warburton accepted that he was unable to say that he had read all the material documents or all the relevant evidence submitted by Mr Kilshaw even though he should have read it to see if it might have influenced, supported or changed his views.”
If that is the expert evidence you are relying on, I would suggest that the paragraphs around there are good reason to consider its reliability.
But, regardless, saying the judge is wrong is one thing. But it does not support your contention that he said as there is an obligation on advisers to “undertake tax abuse”.
He clearly does not say that anywhere in the judgement.
But that is rightly what it will be interpreted to mean
The appeal will succeed, I hope
Richard
If you meant that the defence might successfully appeal, that is irrelevant to your assertion of what the judgement says which is what I am slightly confused by. The judge obviously doesn’t imply that accountants are obliged to advise on abusive arrangements in the slightest.
So, do you mean people will “rightly interpret” the decision that accountants should undertake abuse? That addresses the point we are discussing but I can’t imagine you mean that.
I suspect that you might have listened to somebody who is a bit too involved with the case, which is not advisable for making comments in the cold light of day to a national newspaper.
The national news paper interpreted the case as I did
So do many others
So do some who were there
Many are shocked by the non-taxpayer’s behaviour
And the reasonable belief will be exactly as I have suggested – unless you make all abusive schemes known t a client you are liable
And I am entirely satisfied that is what the decision means
Richard
None of these people that you are asserting agree are necessarily suitably qualified to comment on a negligence case. And you rubbish arguments from unnamed sources yourself. You haven’t named whose opinion is worthy of your respect.
Besides, The Times quoted you, so I would have expected you to have read the judgement, not rely on other peoples’ opinions.
The judge appears to not have wanted to find in the favour of the claimant if anything.
“563. I know that this judgment will be a great disappointment for Mr. Purnell, who obviously was an accomplished accountant and who was determined to help his clients to the best of his ability. Sadly, he erred by failing to advise the Claimant to take the advice of a non-dom specialist after many years of successfully helping the Claimant and I hope that he understands why I have reached my decision.”
Richard, you have not quoted any of the judgement that has not been paraphrased or abridged by The Times to support your assertions. The judgement does not support your central assertion at all.
We disagree
I thnk you wilfully ignore the substance of the judgement
That’s your right
As it is mine to disagree
I think it is fairly obvious we disagree, Richard, there’s no prize for pointing that out. And I don’t think I have suggested you are not allowed to disagree.
But you have not offered a single argument to support your assertion above.
I simply cannot understand how you have arrived at your conclusion.
I have now replied
This debate is concluded: you have not presented an argument
Richard, are you really saying that, as a tax advisor, I have to go in the office tomorrow and dust off all the old tax avoidance schemes that haven’t been used since HMRC introduced the disclosure regs? As otherwise I will be in contravention of what the letter of the law compels me to do. What takes priority: my moral duty to not advise on tax avoidance or my new legal duty to do the exact opposite? Help!
If you do not want to be sued and you know a scheme is available the law seems to say you must make the client aware of it
That is of course morally wrong
But this case is quite clear – it is your duty to make sure the client has access to advice on such abuse or you can be sued
You decide what risk you want to take
I’ll be interested to see what the PII market says
Richard
I cannot find a single person whose opinion I consider reliable on this sort of thing who agrees with your analysis. Not one.
I appreciate you won’t name your reliable sources. But you have dismissed anonymous sources yourself so I don’t see how you can use that as a crutch for your argument.
The decision isn’t a good decision in my opinion, but it goes nowhere near saying what you suggest it does. And I cannot find anybody who knows what they are talking about who agrees.
We are talking about a proper legal analysis here. NOT what people might be led to believe the decision might possibly mean when given misleading quotes. And given that you were obviously spoken to with regards to the Times report, it appears you might be the source of your own evidence.
Given that, without a proper legally sound analysis of the judgement from you, I cannot see any basis for your headline or the contents of the post.
I do not believe you have properly considered the case before offering a quote and now feel obliged to back it up. The belief among accountants that the law obliges them to offer abusive schemes is incredibly detrimental and I cannot begin to fathom why you would propagate such a belief.
I feel morally bound to post this as I believe that anybody in the profession reading this must not simply take your word regarding this case. And it is a complex area that is not within your area of expertise. Unless you have had a significant number of negligence cases raised against you.
Richard, there are people who might take the above post as advice.
Would you at least agree that individuals should not simply rely on their own judgement on complex legal matters such as negligence and consult somebody who is suitably knowledgeable and experienced?
That is both the point of the case, and the point I feel morally obliged to convey here.
I offered the statement because my reaction was that this was how the case would be interpreted
And those I have spoken to agree with that
The accountant lost because he did not make available advice on tax abuse
That means any accountant now has to make available advice on all available abuse – even if by referral
Therefore I am right
And my sources agree
So your argument is absolute nonsense and action to protect the profession from attack from those who say there is a legal obligation to abuse is essential
Respectfully, if you cannot see that then you should not be in pratice
Richard
I suggest you re-read your headline and post and consider this:
There is a difference between saying how something may be perceived by the public and what the legality of an issue is. Your post is rhetoric. It does not quote anything of substance from the judgement and relies on interpretation by a journalist.
You have not offered your evidence with reference to the decision. If you cannot do that (without filtering it through The Times) then I cannot follow your logic. It is simple as that. Your conclusion is baseless.
Your source is irrelevant unless it wishes to be known.
It is you who have offered this conclusion as your opinion of the law in a national newspaper. With reciprocated respect, if you cannot explain the points discussed in the judgement yourself, you should not have offered your opinion to a national newspaper.
See my blog on literalism this morning
That is somewhat of a deflection from the main point Richard and I would appreciate you continuing the discussion here where the main thread is.
The quotes you take from the Times lack context and have been edited by the reporters to give the angle on the story they want. As source material it is a completely unreliable gauge of what the decision means.
Provide a link to a source that agrees with you and I can actually explore the argument there. Otherwise you are simply providing a lot of heat, but no light.
I have made my case
Now stop wasting my time
And you have not answered a single question, which is very telling Richard.
Have you properly read the decision?
And who is this mysterious “source” you refer to?
Sources are sources
Mitch
You need to understand the judgment before stating to what it means.The accountants did not fail to take suitable advice and neither did they properly fail to refer. You need to know something before you can refer it and they did not know that the claimant was a non dom and neither did they know that a non-dom (questionable whether he was actually non-dom anyway)could change the situs of a UK assest and then remit the proceeds of sale back to the UK so as to avoid 10% CGT. Mr Justice Silber failed to understand the claim and certainly failed to understand tax law. The claimant got lucky and might not be so when this goes to appeal. Accountants have a duty to refer all clients to a so called specialist who might be able to help them avoid tax – I don’t think so.In any event the claimant conculted a number of so called tax specialists 9his solicitors being one) and none of them advised on BWS planning. The Judge also failed to appreciate creating a trust for teh sole purpose of taking all money back to the UK makes teh trust a sham. Bad judgment and one that has appeal all over it.
Has it been noticed that Mr Mehjoo was a refugee from his home country. We took him in, and I am quite happy with that. Then he doesn’t want to pay tax in the country that took him in when he was a refugee and gave him opportunities he would not have had otherwise. The hypocrisy is outrageous.
Agreed, entirely
Regardless of whether or not the judgement was about tax avoidance or professional negligence I find the tone of the last comment uncomfortable close to that of the Daily Mail’s attitude to asylum seekers. Do we expect some sort of quid pro quo when we grant refugee status?
Yes
There are duties that flow from a clam to reside in a state
At a most basic level to pay its taxes
I suspect many asylum seekers do not have the luxury of ‘choosing’ which state will provide them with a permanent shelter from oppression and possible even violence and death in their home country. I think we should expect of them no more than we expect from non-asylum seekers, applying the same laws and standards to everyone. If not, we are in effect punishing them again for having had the misfortune to have been forced to flee their homeland.
I am not expecting more
I do not expect this of anyone
Are you serious, Iain? You think that expecting the guy to pay tax like a British person would have to is punishment? The whole point of the schemes being discussed is that they are only available to non-doms.
I really object to being tarred with the Daily Mail brush for saying that refugees should pay their taxes. It suggests you don’t really have an argument but are bandying about the “R” word as an alternative. You will note that I made very clear I was happy about accepting refugees in my first post.
I would question where his domicile really is, actually. If he is a refugee, he presumably can’t really go back. There is an argument that a refugee has acquired a new domicile of choice.
A rather good point
But if he was non-domiciled, then Parliament has set out ways in which he can mitigate his UK tax liability. The rules for non-doms are there because (rightly or wrongly) non-doms are seen as net contributors. If an accountant failed to identify that he was non-domiciled and therefore entitled to favourable tax treatment (as Parliament intends) then that is a failing on the part of the accountant. It is akin to not advising someone to deduct expenditure from trading profits or put money into ISAs: non-dom tax planning can range from shonky avoidance to plain vanilla planning as Parliament intended (i.e., making use of the remittance basis). The avoidance scheme (which, like so many tax avoidance cases, is now a product of its time) is just quantification of the amounts he could have saved at the time.
The rules for don-doms are there because they are the legacy of an intensely racist period in UK history
Please don’t make silly claims as to intent which facts could never support
I have long argued that the domicile status is illegal
I don’t understand your point Richard. My point is that the remittance basis is a Parliament-intended tax relief and taking advantage of it is not tax abuse (without insertion of contrived steps). It’s pretty clear on the statute books. To fail to advise a client that they are eligible for it looks to me like negligence. Don’t side step the legitimate points commenters are making.
I didn’t
I made it clear you suggestion on intent was wrong
That’s exactly what I just said though Richard: why not address what the judgment actually says? That’s what your blog post purports to be about, after all. You seem to me to be spreading misinformation. That would be fine if you would engage with criticism and back up your assertions – instead it seems you prefer to distract and focus on non-points.
Read comments to someone else just now
I am spreading totally logically based and soundly reasoned interpretation of the consequence of an appalling decision
Richard, the basis for my intent comment: “The Government recognises that non-domiciled individuals (“non-domiciles”) can make a valuable contribution to the UK economy — through the money they spend here, the funds they invest, the skills they bring as employees and the tax they pay.” That is to what I referred when I said that the Gvt thinks of them as net contributors. I did not say whether it was right or wrong because that is another question and is not relevant to my point. My point is that the remittance basis is on the statute books and is intended to reduce tax liability. Telling someone they are non-domiciled is therefore not telling them to engage in tax abuse. The tax avoidance scheme here goes to quantification. Are you able to address my point, now that we have cleared that up?
I do not think we have cleared that up
I do not agree with those comments
I have long argued the domicile rule is tax abusive
I do not know Richard or any other of the participants in this debate and I am not a UK citizen, but I am a professional tax advisor/chartered accountant and understand the defendant’s situation in this case quite well. Furthermore I also understand the pressures under which the defendant had to work, especially in the light of constantly changing legislation on the one hand and constant ethical pressure from people like Richard and most governments on the other hand.
To my mind, under no circumstances should it be expected from tax advisors to apply any person’s or any government’s supposedly public ethical requirements or needs and wants, as well as trying to professionally advise a client on what is the best way forward for him to legally pay the least amount of tax. (note my use of the word legally, not ethically, the only ethical thing here is to apply the law, as it stands at that stage, it would be unethical towards one’s client to try and interpret any person’s or government’s ethical stance on a legal situation).
What the defendant did wrong here is to not refer the case to a tax advisor and that is what the judge is punishing him for, not in any way any ethical stance he took (except maybe an “unethical” stance not to refer the case, if that really is his defence). This is what makes it so difficult for us professional people, we have to try and do the best for our clients, even if we do not always know all the answers. (I have a lot of sympathy for the defendant).
It seems Richard does not want to know the above and I can see from his responses he does not like it if someone has a different viewpoint to him, but I must say I agree with several of the other commentators, that he is misinterpreting this case and that the Times’ headline definitely gives a different interpretation to the judge’s verdict.
There is a very strong body of opinion that says what you are suggesting is profoundly unethical – even this month’s ICAEW Tax Line argues professionals have a duty to consider the ethics of schemes and welcomes the GAAR for that reason
As a long time practitioner I fully understand the issues
I think the judge was wrong
I think the appeal should stand
I think your literal approach that of the tax abuser seeking to exonerate their behaviour
And I have condemned it for a long time
“To my mind, under no circumstances should it be expected from tax advisors to apply any person’s or any government’s supposedly public ethical requirements or needs and wants, as well as trying to professionally advise a client on what is the best way forward for him to legally pay the least amount of tax.”
Fair enough if that is your view. You forfeit the right to describe yourself as a professional, however: you are a mere technician. It follows that all the rights and privileges associated with professional status must be withdrawn. Those include a right to be judged by your peers as to whether you have met the professional standards set largely by your professional body, in your work, with the concomitant risk of uninsured liability in cases such as the one referred to; the right to limit practice to those who have professional qualifications recognised by a professional body; professional confidentiality privileges etc
That is certainly what neoliberals and right wing governments would prefer: they dislike professional bodies because they represent a limited alternative power basis which protects the practitioner in some circumstances: just as trade union privilege did before it was largely dismantled. That was the template: professionals imagine they are immune: but without the ethical basis for their privilege there is no conceivable defence for that privilege and it will disappear. Be careful what you wish for and consider the meaning and value of professional status and its source.
Well said
Interesting discussion.
I do accept there are analogies with the medical profession, because there are ethical considerations for all professions and those standards are, in fact, what makes them professions. Those are the principles which are under attack for doctors and, judging from this, also for accountants: they have already been undermined for other groups which used to be professions. Fact is that a strong professional code is what confers the right of a practitioner to maintain his independence. Curiously all governments pay lip service to devolution of power and yet for decades all alternative sources of power have been diminished, with greater and greater centralisation as a consequence. This is the heart of the attack on democracy, because we are not all on the same side and different interests needs strong representation and strong voices.
Let us take this case as reported and as discussed here. On the one hand it is suggested that this makes accountants liable if they do not promote abusive tax avoidance: on the other this is denied and, as I understand it, it is viewed instead as a responsibility to refer to a specialist if one is a generalist GP.
Let me accept the latter point: let us say that the accountant need not give such advice himself but must, as a matter of professional competence, recognise that abusive tax avoidance would reduce the client’s tax liability and must advise the client to seek the assistance of a specialist.
Given that specialist has expertise in tax abuse, this is not different, in my mind at least, to placing an obligation on a doctor to refer a patient to an organ trafficking specialist who might be able to prolong the patient’s life through eg. purchase of kidneys bought from the poor of developing countries. If such a traffic was legal abroad (which is not beyond the bounds of possibility, at least given that some states pay for blood donations) do we think that a doctor should have any such obligation? It is slightly different since such traffic is not legal in this country, so far as I am aware. But that is not fatal to the hypothetical because the scheme involved an offshore trust, which operates under foreign law, if I understand it correctly. There is no law in this country which prevents a person going abroad for treatment which is legal offshore, but not here: unlike, for example, the law on abortion in Ireland in the past. This can be illustrated by those who go to Switzerland for euthanasia, for example. Is it right to place a doctor in the position that he must advise all patients with terminal illness that they have that option?
The question is certainly one of ethics and not of law, and to pretend that ethics have no place within a profession using simplistic analogies with a part of the picture, is not tenable. To me it is a shocking misunderstanding of the very nature of a profession. I rely on the fact that if the government makes a law which is unethical and harmful to one group, doctors will take an ethical stance and will refuse to implement it; and will be protected in that refusal: else they are all Mengele if the law so decides.
I distrust this kind of partial analogy: it is the same sort of thing as ” an economy is like a household”: simple, plausible and wrong
Incidentally, no doctor is under an obligation to refer a patient for an abortion
Indeed, Richard: a good illustration of my point. The question of professional ethics is central to the idea of a professional per se. The judge appears to have picked an analogy to support his conclusion, without considering the ethical foundation of that particular obligation and how it relates to other matters also related to professional ethics. It is, at best, lazy.Professional ethics is a truly complex area.
That is a false analogy Richard.
A GP is required to refer the expectant mother for scans, aren’t they? They are, like other professionals required to refer them to suitable specialists.
They are not required to refer for abortions
An abortion is not the same as a scan
You may need to brush up your gynae knowledge
What a load of posts. But a number of respondents have appeared to have missed the point I think. It is analagous to me that say that in the early 19 Century I, as a business lawyer should have recommended slavery to my industrial client as an alternative way of organising his labour force,slavery being legal then.
It’s not just about the letter of the law, even the Institute Of Chartered Accountants has embedded in its Charter to act in the Public Interest. And the Institute is now going even further and I quote its President Martyn Jones “The public benefit is at a higher level than public interest and working to that is better”.
Precisely
Fiona
I must say I hope you are not trying to tie me to your analogy of the doctor and the illegal trade in kidneys, euthanasia etc!
Obviously any professional should act ethically, but what exactly is ethical tax schemes or not is a matter of viewpoint. Firstly, if professionals are going to be judged on their ethical or unethical use of tax schemes, governments will have to ensure that they act ethical in all instances with taxpayers’ money. This may be the case in the UK, but I can assure you is not the case in all countries.
Secondly, our profession clearly recognises the difference between tax schemes to abuse the situation and legal tax avoidance. Again this is a matter of viewpoint and it seems as if someone like me and Richard would not view this altogether the same in all cases!
Thirdly, the defendant in this case, again, has been judged not on his ethical viewpoint, but on the fact that he did not apply his mind professionally to the extent that he could at the very least tell the client of such a legal tax avoidance scheme (which it was at the time), for which he could the refer the client to someone else, if he ethically did not want to advice on it. I am sure, if he told the client that there is a scheme like that, but because he feels it is an unethical, albeit legal, scheme, he advises against it, but he could refer him to someone or at the very least advice the client that the client could find someone to further advise him on that, the judge would have had to rethink the judgement and awarding of damages.
This whole debate began because Richard and/or the Times misquoted or misinterpreted the case or the judgement and that still stands, no matter whose ethical viewpoint is exactly correct!
Your logic pre-dates the General Anti-Abuse Rule
It is not now valid in UK law
The GAAR isn’t retrospective. All tax avoidance cases are out of date by the time they hit the court.
But current behaviour happens in real time
I don’t doubt that, but we can’t apply today’s standards to yesterday’s behaviour.
The issue based on the decision arises today
Pieter
I am indeed trying to get you to think about what professional status actually means. That is why I used the analogy which the judge appears to have invoked in a very partial way. You may not think it legitimate to accept his invocation and then to extend it, but to me this is the heart of the issue and thinking about ethics is crucial to all claims to professional status.
You now say “Obviously any professional should act ethically” but it seems to me that is at odds with your earlier statement “To my mind, under no circumstances should it be expected from tax advisors to apply any person’s or any government’s supposedly public ethical requirements or needs and wants”. I have the impression that you have not really given a great deal of thought to what professional status actually means: that is not a criticism of you: it is a common position in many professions and it has had a number of effects IMO: most importantly it has rendered many professions impotent to resist the attack on them and has ultimately removed that status. Doctors are the latest in a long line of professions to face that attack – the neoliberals are not stupid and they do not take on the strongest groupings without refining the technique on weaker groups first. The medical profession is probably the best organised and has the most choate and embedded ethics of all the professions: it is taught to doctors both overtly and by being an intrinsic part of the process of professionalisation. Yet I an not confident they will win the fight nonetheless for the concepts which undermine professional status are by now widely accepted.
” if professionals are going to be judged on their ethical or unethical use of tax schemes, governments will have to ensure that they act ethical in all instances with taxpayers’ money.”
That part of your post is central to what I am raising. You cannot give your conscience into another’s keeping. Your behaviour is not dependent on the actions of others. We do not accept that excuse from children and we should not accept it from adults, and especially not from professionals. They will always be asked to do unethical things and they must always test those demands against an independent standard. Since individuals vary in both their values and their interest in such matters, professional bodies prescribe the minimum ethical standards for their members: that is probably the best we can do and there is also scope for members to take a conscience stand in opposition to those minimum standards. But to pretend that the state of the law is an adequate substitute for professional ethics is to misunderstand the importance of strong voices independent of the interests of government. Democracy depends on the representation of different groups in circumstances where it is legitimate to resist changes harmful to one of those groups and invisible, or a matter of indifference, to those who are not members of that group. Professional privilege is not a perfect answer to that requirement: but to pretend that there are only individuals with identical interests and government which represents those interests is to ignore the reality of capture when only one voice remains. That is where we have come to and an organised voice will normally trump individualised protest just as a professional army will win over a mob. We see a pretence that the business lobby is not organised so we should not worry about capture: believe it if you like.
The distinction between legal and illegal abuse is of no help because it is perfectly possible to make things legal or illegal at will. But if the law is changed to make theft perfectly legal that does not alter my view that thieves are not nice people nor my position that they ought to be prevented from thieving. If that view is widespread (and I think it is) then eventually the legalisation of theft will trigger a lynch mob: for the majority are not represented by the thieves who have so captured government as to enable them to pass those laws. That is not to say that all tax abuse is theft btw: merely to illustrate the wider point. The law cannot function when everybody is intent on finding ways around it: see the Huhnes as an example of that. Respect for the rule of law demands a greater commitment to it than the literalism Richard refers to elsewhere. Certainly there are grey areas: that does not alter the central point by one jot. Your third paragraph is merely the elevation of pontius pilate to the gold standard of ethical behaviour: it is not how his hand washing is normally interpreted, however
Pieter –
I’m moderating my tone for the sake of propriety, but you are babbling a lot of utter, utter crap.
The court has the right to penalise a professional tax practitioner for not offering all options for avoiding tax? that HAS to be nonsense. Seriously – another good way to avoid paying tax would be for the client to withdraw all of his capital from any financial products whatsoever and live on his savings… no income means no tax. Simple! I don’t think any judge in his right mind would issue a smackdown to a tax professional for failing to highlight that option though.
Have you considered that a tax practitioner may look at an avoidance scheme and say to themselves, quite reasonably, that it’s only a matter of time before HMRC slams the door on this abusive nonsense and my clients might run the risk of hefty interest charges, not to mention reputational risk if advised to proceed? That being so, not mentioning the scheme to the client might be the best way of protecting their interests in the long run… removing temptation and all that. Such a practitioner should be slapped by the courts as a result? Codswallop.
Saying ‘ethics have nothing to do with tax planning’, and ‘all that should be considered is whether or not the scheme works per the black letter of the law’ is a childish, short-sighted, willfully ignorant and (increasingly) moribund point of view.
The DofW judgement that serial avoiders used to hide behind is dead. There’s a GAAR in place which is just the beginning. All of Europe is opening its eyes to automatic info exchanges and country-by-country reporting… and, probably most importantly, the British Press (universally – from the Grauniad to the Daily Fail) is condemning tax avoidance wherever its discovered. Face facts – it’s no longer acceptable to hide from your responsibilities as a taxpayer. That means it’s DEFINITELY no longer acceptable to facilitate it.
Accountants and tax advisers know precisely what unacceptable tax avoidance is… if they don’t, they’ve no business being in practice and certainly have no business claiming to be professionals. Knowing what it is, they should now accept that it’s not big or clever to pursue it, sell it or in any way facilitate it no matter how much their clients offer to pay them. Britain is sick of being ripped off, at home and abroad, by those who want to enjoy the benefits of a civilised society whilst letting others pick up the tab.
All the weasel words in the world won’t change that principle now.
So I would urge all accountants and tax professionals to advise clients to act with some basic bloody decency and pay their way like everyone else does. Those schools and hospitals and streetlights and police and armed forces and state pensions and agriculture programmes and housing programmes and roads and environmental protection measures aren’t just going to pay for themselves, you know.
Yours,
Disgusted of Tunbridge Wells
James. If we agree with Richard we expect the same standards from everyone then why mention refugee status? The only inference to draw is that you expected more. To me this is treating the refugee differently and subjecting them to a test of a higher standard.Just like the Daily Mail.
Well, I am sorry if you take it that way
Though this discussion must be taking up a great deal of your time, Richard, you have managed to get the question of professional ethics firmly on the agenda and, at last, engaged with, for or against. Brilliant!
A point from the past that might be worth repeating: I believe that you and I share a belief that what most clients want most of the time is that we keep them as safe as we can from the possible consequences of an unexpected knock on the door from HMRC, a service they accept entails paying their taxes, not searching for demonstrably unintended applications of law that will artificially reduce those tax bills.
I’d like also to thank Fiona for her thoughtful contributions which have articulated my sentiments in a way I could not have done.
Thanks Nick
Thanks for your kind words, Nick. I am sometimes hesitant to comment because I am not an accountant and have no knowledge of the more technical aspects discussed here. But ethics is the concern of us all. It is occasionally helpful to zoom out, I think
Nick, I also agree with your second paragraph. I think most (but not all) tax professionals think the same too and do not promote tax avoidance to their clients. Most clients – rich or poor – simply aren’t interested. That’s why I, and I guess others, get so worked up when the entire tax profession regularly gets written off as neoliberals, right-wingers, tax dodgers, immoralists etc if they simply don’t agree with Richard’s conclusions. Surely disagreeing on something (perhaps strongly) doesn’t automatically put you in the other camp?
Nick proves I don’t do that
As do other accountants
I am highly selective, based on evidence
Richard,
The truth is that the verdict took current practice a stage further. Not only must tax advisers inform clients of potential tax schemes, they must now keep up to date with the many different varieties of schemes particular to the client’s circumstances. For me this is a step too far, I’m a professional adviser and I didn’t notice these schemes on my exams.
However, every scheme comes with massive risks and complexity. HMRC’s new powers will only make such schemes more risky and more complex, therefore I would not necessarily consider it to be in the client’s interest to enter into such a scheme and the judge should have reflected that.
Charlie
Agreed – and this environment is wholly unacceptable
Glad you agree