At a glance
By Gary Anders
The Australian Taxation Office (ATO) acknowledges the right to arrange one’s financial affairs through tax planning and tax-effective investing to keep tax payments to a minimum.
But does tax planning stray into the grey when accountants facilitate the creation of complex corporate structures, using entities incorporated in low-tax offshore jurisdictions, to help their companies or clients reduce – or eliminate – tax payments?
That’s what the International Ethics Standards Board for Accountants (IESBA) has addressed with the launch of a suite of global standards on ethical considerations in tax planning and related services, which will come into effect on 1 July 2025.
The new standards, which are incorporated in the IESBA Code of Ethics for Professional Accountants, have been designed to establish a clear framework of expected behaviours and ethics provisions for use by all professional accountants.
In particular, IESBA says the new standards respond to public interest concerns about tax avoidance and the role played by consultants in light of revelations in recent years. Such scandals include the Paradise and Pandora Papers leaks that exposed the widespread use of offshore tax structures by world leaders, billionaires, celebrities and corporations.
“Moving away from a purely mechanical and legalistic approach, the goal of IESBA’s Tax Planning Standards is to provide a principles-based framework and a global ethical benchmark applicable to tax planning services and activities,” IESBA stated when launching the framework in April.
IESBA wants the standards to be a consistent point of reference for all professional accountants and other tax professionals when dealing with tax planning “to ensure due consideration of public interest as well as potential reputational, commercial and wider economic consequences for their clients or employing organisations”.
“As scandals in recent years have shown, though some behaviours may be legal under the letter of the law in certain jurisdictions, the ‘grey area’ of tax is not always the ethical way forward,” IESBA chair Gabriela Figueiredo Dias, stated.
Understanding the IESBA framework
In undertaking tax planning activities, IESBA wants accountants to comply with the fundamental principles and apply its conceptual framework to identify, evaluate and address compliance threats.
A significant aspect of the new standards, contained in the IESBA’s “Final Pronouncement” Revisions to the Code Addressing Tax Planning and Related Services, places an onus on accountants to consider the broader implications of tax planning arrangements.
Section R280.14 states: “In addition to determining that there is a credible basis for the tax planning arrangement, the professional accountant shall exercise professional judgment and consider the reputational, commercial and wider economic consequences that could arise from the way stakeholders might view the arrangement.”
It continues, in 280.14.A1: “The reputational and commercial consequences might relate to personal or business implications to the employing organisation, or implications to the reputation of the employing organisation and the profession from a prolonged dispute with the relevant tax or other authorities.
The implications to the employing organisation might involve adverse publicity, costs, fines or penalties, loss of management time over a significant period and potential adverse consequences for the employing organisation.”
Meanwhile, Section 380 states that accountants must understand the laws and regulations that limit or prohibit certain tax planning arrangements and obtain an understanding of the nature of tax planning activities to ensure they have a credible basis.
Accountants must use their professional judgement in this regard. If they determine that a tax planning arrangement does not have a credible basis in laws and regulations, IESBA says accountants are required to explain their rationale to their manager or other responsible individuals within their organisation or advise on an alternative arrangement.
Onerous or impractical requirements
While broadly supportive of the IESBA changes, CPA Australia believes some aspects of the sections impose onerous or impractical requirements that do not necessarily properly consider the dynamic between professional accountants (PAs) and those charged with governance, and don’t accommodate the variety of tax engagements that occur.
“In contrast to audit engagements where PAs are responsible and accountable for the auditor’s report that is furnished by the PA, we highlight the fact that taxpayers are ultimately responsible for the accuracy of their tax return regardless of who prepares it or the advice they may receive in the course of managing their tax affairs,” CPA Australia stated in a submission to IESBA in 2023.
“Taxpayer choices about their tax affairs rest with the controllers of the business (e.g., the Board of Directors, partners in a partnership, company directors) and not professional accountants in public practice (PAPPs) or public accountants in business (PAIBs) such as in-house tax managers.”
Belinda Zohrab-McConnell, regulation and standards lead at CPA Australia, says registered tax agents in Australia are already subject to the Code of Professional Conduct, established under the Tax Agent Services Act 2009.
In addition, members of CPA Australia and other accounting bodies are subject to the APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board (APESB). The APESB has recently issued an Exposure Draft on the inclusion of the IESBA standard into the APESB Standards APES 110, to which CPA Australia have provided a submission.
"If you’re going to be involved in tax planning, you’ve got to be up with this. This is not something you do in your spare time because it’s not just setting up a structure. What they really refer to here is a credible structure."
However, she says the new standards go a lot further by obligating accountants to consider the reputation of a business.
“We disagree with that. We felt that that’s really the role of those charged with governance, the owners, the directors, the partners. That is not the role of the advising tax accountant, because they’re not in the position to have all the necessary information to take that into consideration.”
Zohrab-McConnell adds that the standards also recommend in-house accountants resign if they can’t reach agreement with their business over a tax planning arrangement.
“It’s quite normal even between very ethical tax professionals to have disagreements around tax planning structures and arrangements.
“As the standards say themselves, there are grey areas, and that’s the whole point. So, we don’t consider that it’s particularly appropriate to recommend that [accountants] have to resign simply because they’re taking a different view.”
Professional competence and due care
Dr Gerard Ilott FCPA, former senior lecturer in accounting at CQUniversity and a member of CPA Australia’s Ethics & Professional Standards Centre of Excellence, says the IESBA standard ultimately comes down to professional competence and exercising due care.
“The big requirement is, you’ve got to know what you’re doing,” Ilott says. “These provisions really make it clear that tax planning is no place for a novice accountant. You need to know your accounting, you need to know your tax law, and you need to know what’s going on in the environment.
“So, if you’re going to be involved in tax planning, you’ve got to be up with this. This is not something you do in your spare time because it’s not just setting up a structure. What they really refer to here is a credible structure,” he says.
Ilott suggests that professional accountants should stay away from the grey area that butts up against illegality.
"There’s nowhere an obligation that a client should be given advice which results in them paying more tax than they necessarily should."
“If you have to work hard to rationalise a scheme that is probably legal, then stay well away from these arrangements.”
It’s critical that accountants always keep thorough documentation, justifying all their decisions and recommendations, Ilott says.
Michael Walpole, Professor of Taxation Law at the University of New South Wales, says accountants have an obligation as professionals to give advice that minimises tax obligations.
“There’s nowhere an obligation that a client should be given advice which results in them paying more tax than they necessarily should. And if the arrangement is such that it does, the professional can be sued for malpractice.
“So, that problem has not gone away. But there is this added requirement in this evaluation, that the professional must also exercise their judgement and consider the reputational commercial and wider economic consequences that could arise from the way the client’s stakeholders might view an arrangement.
“I think that is quite a big step forward, and when I say forward, I’m saying I broadly approve of this, but others will say that that’s not the professional’s job.”
