Rethinking ethics of taxation

Paying taxes, a new ACCA report points out, has been described as the price we pay for a civilised society. In recent years, though, it has been harder to justify that statement, particularly when it comes to taxation of businesses. The Panama Papers revealed the scale of tax avoidance worldwide, adding momentum to concerns that the global corporate tax system, particularly in the digital age, is no longer fit for purpose.

The discussion has also put the role of professional accountants in the spotlight and, in April 2024, global standards relating to tax services were incorporated into the International Ethics Standards Boards for Accountants (IESBA) Code of Ethics for the first time. IESBA noted at the time that the use of tax avoidance schemes can harm companies’ reputation and credibility, as well as the public interest.

Taking IESBA’s Code into account, ACCA has released an updated version of its regulatory and policy positions on the taxation of companies. The report, Global policies on taxation of companies: Principles and practices, points out that much has changed since its policy position on tax was last updated in 2014, not least the perceptions of the role of business in society and the priorities of governments.

Wrong priorities

It argues strongly that current tax systems focus on the wrong priorities. Multinationals dominate the business landscape, supported by legal systems that recognise businesses as legal entities in their own right. But the success or failure of these enterprises is measured through a series of ‘abstract financial measures’, says the report, which has resulted in incentives that can drive ‘objectively undesirable’ behaviour.

Taxation is based on the logic that maximising financial profits is the best outcome – but in today’s world it is increasingly difficult to argue that prioritising profit will also produce the best outcome not just for the business and its investors, but for the environment and society as a whole. Decisions may be taken that meet the legal requirements of the business, but not the expectations of society, while decision-makers are distanced from the real-world implications of their actions.

Breakdown in trust

In recent years this has led to a breakdown in public trust, and far greater scrutiny of companies’ tax arrangements. Some regulators now require businesses to publish formal statements on their approach to taxes and tax planning, and many businesses have signed up to voluntary codes of conduct for their tax affairs.

The report sets out ACCA’s regulatory position on the taxation of companies, which reflects IESBA’s Code, but also goes beyond it in some areas – for example, by requiring advisers to advise clients specifically not to proceed with tax planning for which there is no credible basis in laws and regulations.

ACCA’s report puts forward a clear message for professional accountants working in companies, as well as those in practice. It urges decision-makers to be ‘even more creative’ in their approach to tax, ‘looking to tax not simply as a way of funding the resolution of problems, but even as a way of preventing their occurrence’. A tax policy for the future, it says, ‘should aim to promote tax as a force for good, and ACCA is keen to engage with all relevant stakeholders to help make that a reality’.

Sound policies

ACCA’s regulatory position on taxation is based on the principle that tax advice does not present any unique issues of ethical conduct for professional accountants, and the Code of Ethics and Conduct remains the primary reference point. The guidance in this report sets out ACCA’s agreed policy positions, which have been developed in consultation with a range of employers, professional bodies and policy experts.

Policy positions for four sets of stakeholders are set out: company decision-makers, professional accountants who are advisers or employees, policymakers and the profession as a whole.

In the case of companies and corporate decision-makers, while companies have a commercial imperative, they ‘also need to consider the wider impacts of their tax policies and recognise that some approaches to tax will be seen by some people as unethical even if they are legal’.

ACCA also ‘believes greater transparency on tax treatment and how decisions on tax are made would benefit companies’ reputations and help a wider range of stakeholders to understand the issues and complexity, and how these affect the organisation’, consistent with the general direction of integrated reporting.

Professional accountants, it adds, ‘have a duty to advise their clients and employers on all options for maximising profits and prospects’, and this duty recognises that taxpayers have no obligation to pay tax beyond the requirements of the law. But it adds that accountants also have a clear duty to advise on the risks and the ethical dimension, including reputational issues, associated with each option. ‘Not to do so could lead to the possibility of committing professional misconduct.’

Different approach

On the wider question of policymaking, ACCA suggests that a different approach to company taxes could be required as business continues to digitalise, ‘including considering whether corporate tax itself is workable at all in the new global environment and, therefore, whether other forms of taxation of corporates need to be developed’.

The report concludes that ‘policymakers can be too quick to see accountants as part of the problem’ as taxation has become increasingly complex, ‘but the profession is and should be part of the solution’.

Professional accountants, it says, should work with policymakers ‘to develop approaches that work for business and allow companies to be competitive and profitable, while also meeting wider considerations of social responsibility’.