Why we need a Code of Conduct for Taxation

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Accountancy Age featured the following article by me this morning on its editorial pages (link to follow):

Tax has always been close to the accountant's heart. Once it was simple: the only questions were how much tax was due and what, if anything, might be legitimately done about it.

But as with everything else over the last thirty years or so, tax has become complicated: globalisation, money market liberalisation, ease of access to offshore increases in wealth, and the tax authorities quest to keep up with these trends have all contributed complexity to taxation.

Complexity is something accountants can handle. It's part of their role to manage it for others. But complexity has created two things. The first is increased opportunity for abuse, both by the taxpayer, and in the eyes of some at least, by governments. Second is the need for responsibility, because the option that complex law provides to business to structure transactions in ways that suit commercial needs carries with it a duty not to abuse the trust implicit in that process.

Both aspects of complexity have led to much confusion. Accountants who want the flexibility that tax law provides resent the apparent volume of law that it creates and complain that governments have been rigid in their application of the letter of the law. Misunderstandings have arisen.

It's now widely appreciated that change is needed. The UK Revenue and the OECD are moving to a risk based approach to tax management. Practitioners discuss issues such as tax and corporate responsibility. But what is needed is a framework for this discussion. That is why the Tax Justice Network and the Association for Accountancy and Business Affairs have commissioned a Code of Conduct for Taxation.

At its core this Code is a statement of six principles, each with three explanatory notes. They specify the fundamental principles which we propose as a basis for compliance by the three different parties to this debate.

For taxpayers the focus is on the need for openness, accountability and transparency of all transactions, wherever and whenever they arise and to whoever they are reported.

For governments the requirement is to create purposive law backed by a general anti-avoidance principle, and a reporting structure that ensures everything is 'on the record'. In addition, government has to improve its own reporting so that it too is accountable. This relationship is reciprocal.

For advisers the task is to ensure they assist complete disclosure and to match tax planning to the economic reality of the transactions on which they comment.

The principles are easily stated: the challenge is to put them into practice. Nothing less will do though in a world where we all win from trust, openness and accountability. That's why this Code is important.