By Tania Hayes Accountancy resources Why ethics matter in the profession of accounting 17 May 2013 Google’s appearance at the Public Accounts Committee this week and Amazon’s UK profit disclosure highlighted yet again the complexity of tax avoidance in the UK. AAT’s Head of Conduct & Compliance, Tania Hayes, argues that dealing with tax avoidance is not just a case of following the laws of the land – it’s about acknowledging accounting as a profession and that integrity matters. Kevin Reed’s post on AAT Comment last week highlights what he perceives to be the absurdity of accountants having to make moral judgments exclusive of accounting and the law. But is it the exercise of a moral judgment, or is there more to it than that? Why the fact that accountancy is a profession matters Ethical practice and professional judgment are the key distinguishing features making accountancy a profession as opposed to a trade or occupation. Anyone can read the Highway Code and know the rules of the road – it requires no professionalism. If taxation legislation followed the same route, then there would be no need for the services of professional accountants – people and companies could sort out their own affairs with no ambiguity to navigate. Professional accountants are expected by the public (and the profession itself) to act with integrity – that is to say being straightforward and honest in all professional and business relationships. No one argues that legitimate tax planning to minimise a client’s exposure to tax contradicts the public interest. But complex, artificial, aggressive and abusive tax avoidance schemes devised by professional accountants, and scrutinised by lawyers, cut to the heart of this principle. And it is this distinction which lies at the crux of the issue. Tax avoidance is not illegal. However, tax avoidance which is designed contrary to the fundamental principle of integrity is most definitely unethical. Accounting professionals have to be cognisant to self-interest threats in the context of providing taxation advice and services as, let’s face it, behind every attractive and complex tax avoidance scheme will be significant fee income to the firm; providing a competitive advantage over those practitioners who would exercise a more cautious (or indeed ethical) approach to aggressive tax planning. Accounting and the law: why ethics are essential Abiding by the law is another ethical principle, as is the exercise of professional competence and due care. Abusive tax avoidance borders on professional incompetence, when your client may, in the long run, suffer detriment as HMRC seeks restitution of its tax entitlement, with lengthy and costly litigation ensuing. It may also cause your client significant reputational damage should the media pick up on any practices it considers contrary to the public interest. The legislator’s conundrum Anyone who has ever been involved in the drafting of legislation, rules, or regulations will know that it is impossible to foresee every eventuality and legislate for it. This is why professional judgment may be required to look at the ‘spirit’ of the legislation – translated as meaning the intention behind it. One thing we can be certain of is that Parliament did not intend for large multinationals to pay next to no tax on swelling coffers generated in the UK (but perhaps syphoned out of the country depending on their tax arrangements), while individuals and SMEs provide comparatively disproportionate contributions to the public purse. Does Starbucks’ arbitrary tax payment make everything OK? Indeed, given the long queues in the morning, I had never thought of Starbucks as being a benevolent organisation selling not for profit coffee until I read their tax avoidance expose, and I know that its shareholders were certainly not left with that impression. It’s U-turn and ‘tax donation’ in light of the public backlash in the UK is open to interpretation as to whether the organisation had reflected on its own integrity in its tax affairs, or whether this is another example of its philanthropy. Let’s look at the catalyst for the rise in the profile of ethics as a de minimis requirement for public interest activities. We had the MPs expenses scandal, when they all cried ‘it wasn’t against the rules’, immediately undermining confidence in the ability of the rules alone to deliver a public interest outcome (as is the case in point with tax legislation). This was followed in relatively quick succession by the phone hacking scandals, indeed illegal activities, but not quelled from an individual moral perspective which should have had alarm bells ringing at the very least. Why the law of the land doesn’t always work So we’ve got a situation here where the rules have let down the public interest, and reliance on individual morals has let down the public interest. This is where a Code of Professional Ethics within a profession comes to the fore. It creates expectation on practitioners. It builds and maintains public trust and confidence in professionalism. It creates a benchmark for which you can manage client expectations of how you are expected to, and should, work. So how do we square the circle referenced by Kevin Reed? Let’s reflect back on the words of Catherine Chamberlain FMAAT, an AAT Past President: ‘as an accountant, I ensure that while you don’t pay a penny more tax than you need to, you don’t pay a penny more tax than you should’. This statement articulates the test required of accountants in exercising their professional judgment, and distinguishing their role in the marketplace, and balancing the needs of clients to have access to advisors who protect the most favourable position for them. They need to do all this without compromising on wider obligations to society, as enshrined through the fundamental principles. In short, professional ethics square the circle. Watch Accountancy Age editor, Kevin Reed, and AAT member, Jenni Frost, debate Starbucks’ tax avoidance in the UK: Tania Hayes is AAT's Head of Professional Standards & Strategy.