Changes proposed in accounting ethics to deter corporate tax dodging

The International Ethics Standards Board for Accountants released a proposal for revising its code of ethics to address concerns about accountants helping companies avoid paying taxes.

The exposure draft, released Friday by IESBA, comes in response to complaints of widespread tax avoidance by multinational corporations and revelations by the International Consortium of Investigative Journalists in the Pandora Papers and the Paradise Papers of the involvement of prominent accounting and law firms and banks in facilitating such tax strategies.

The proposals from IESBA, which is affiliated with the International Federation of Accountants, aim to strengthen the ethical expectations for accountants who work at companies and in public practice when performing tax planning activities for their employers or providing tax planning services to clients.

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"The accountancy profession plays a trusted role in facilitating the efficient and effective operation of a jurisdiction's tax system and in making it a pillar of the economic system," said IESBA chair Gabriela Figueiredo Dias in a statement Friday. "However, it is crucial that there are clear and robust ethical guardrails when professional accountants assist their employing organizations' and clients' tax planning to safeguard the public interest. These timely proposals are also designed to provide professional accountants with practical guidance to navigate the ethical challenges in this complex area."

The proposed ethical framework would explain the types of threats to compliance with the fundamental ethics principles of the accounting ethics code that might be created when professional accountants are involved in tax planning. It would establish a clear principle that professional accountants should recommend or otherwise advise on a tax planning arrangement only if they have determined there's a credible basis in laws and regulations for it.

The proposal would require consideration of the reputational, commercial and wider economic consequences that could arise from the way stakeholders might view the tax planning arrangement before determining whether to proceed with the recommendation or advice. It also provides practical guidance to help accountants navigate situations of uncertainty when carrying out tax planning.

In addition, the exposure draft deals with other practical matters, including disagreement with the client or management or those charged with governance, as well as documentation. 

The proposals come after an extensive amount of fact finding and outreach by IESBA with its stakeholders, including three global roundtables in April 2022. The IESBA is asking for comments on the exposure draft through its website by May 18, 2023.

The IESBA plans to hold three webinars where members of its Tax Planning and Related Services Task Force will explain the key proposals in the exposure draft on Feb. 27 and 28.