Introduction
Nowadays, the increasing of crisis about code of ethics in business has alerted by the social.
More specifically, the abundance of well-publicized examples of cheating, greed, and hypocrisy has created some alarm about the general state of personal ethics (Josephson, 1988).
Oliver North, Ivan Boesky, and Jimmy Swaggart cases are the best examples in recent year.
Davis and Welton (1991) find professional ethics and ethical behaviour become topics of renewed interest to the business community.
Frankel (1989) finds the behaviour and performance of professionals, as well as public expectations have affected by the economic, social, legal and political events in recent years, which are higher than their expectations of businesspersons (Jamal and Bowie, 1995)
Professionals are increasingly exploring ways to improve professional service and regain public confidence and need to reassess their moral roles in society, and their professional codes (Frankel, 1989).
This paper investigates the usefulness of codes of ethics to against the tax planning and tax evasions.
What Is Professional Ethics?
Every profession has their own code of ethics, which sets out their expectations of a member’s behaviour and the boundaries within members have to operate to gain the confidents from the public to apply expert knowledge.
Using the code of ethics could help to clarify the profession’s values provides a reference points for decision making and can be used as a framework for discipline.
Hogan (1973) defined ethics as normative systems of rules of conduct developed to provide guidance in social or interpersonal settings.
ICAEW state that in the performance of any professional service, a member shall maintain objectivity and integrity, shall maintain professional knowledge and skill at the level, shall respect the confidentiality of information acquired, and shall comply with relevant laws and regulation.
Professional ethics is not just about complying with the letter of the law but also about applying the spirit of principles, rules and guidelines.
Reality it is about cultivating the right attitude of mind.
Common example we can list out is claiming expenses for personal use by using business profit might be considered unethical by most however taking office property (pens,papers….) for personal use has a different view by most.
Conflict
Many professional ethics issues are about conflict and in particular the conflict between professional duties and personal interest. In order to act ethically, a professional expert must be sure that they are protecting the interests of others rather than themselves.
Ethical conflict also driven by the obligation of duties to a variety of stakeholders.
For examples, Certificate Public Accountants often experience ethical conflict between the responsibility to the client and public. (Adam, 1995)
Brooks (1989) notes codes for Canadian accountants do not answer the question about the burden of responsibility go to whom if accountant misrepresents some fact.
A further source of professional conflict occurs when professionals working in business corporations conflict.
This problem often faced by a new professional bringing knowledge and learning outside the company to another company which has different professional cultures. (Raelin, 1991)
What is Professional Conduct in Relation to Taxation?
Professional conduct in relation to taxation is a pan-professional guidance, which assists and supports members on their professional conduct in relation to taxation; and on applying the fundamental ethical principles to tax-specific situations concerning the relationship between a member, client and HMRC.
The guidance is followed by all members of ICAEW dealing with tax whether in practice or in business along with members of five other co-author professional bodies listed above. In addition, many other bodies and non-member professional firm also adopt it as best practice.
ICAEW expects its members to maintain the highest standards of practice and professional conduct. The guidance is designed to help members maintain high standards and forms part of the wider ICAEW regulations and guidance. The guidance itself is based on the five fundamental ethical principles that all chartered accountants are expected to follow (namely integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour), so reinforces in a tax context existing overarching guidance and standards expected.
The use of codes of conduct
Cohen and Pant (1991) note the code of conduct assists the profession in its ongoing relationship with society and its desire for self-regulation, to resolve the tension between its pursuit of autonomy and public’s demand for accountability, and to enunciate visibly its professional norms (Frankel, 1989).
The code is a vehicle which assures the public, clients and colleagues that members are competent, have integrity, and that the profession intends to maintain and enforce high standards (Ward et al., 1993).
Meyer (1987) states codes could help members of a profession to question their values.
Codes often serve as a basis for adjudicating disputes and a support system against improper demands. (Frankel, 1989)
Avoiding Tax
The United State uses a self-assessed taxing system that relies on voluntary compliance by taxes.
Intentional non-compliance is a serious and pervasive problem even though most taxpayers still voluntarily comply with the existing tax law.
Research of Slemrod (1992) finds out approaching $100 billion annually lost from non-compliance in the United State.
A research has generated to investigate the relationship between ethics and tax evasion and the result has shown that specific ethical beliefs about tax evasion more highly correlate with compliance than deterrence factors (Carroll, 1987; Etzuoni, 1988; Roth, Scholz, and Witte 1989; Smith, 1990).
Avoiding tax by ‘bending’ the rules of the tax system is not illegal, but it is seen by many as operating within the letter rather than the spirit of the law. Countries set out in laws how their taxes should apply; businesses are expected to pay their taxes due under the law. The issue falls into the realm of ethics because businesses have a choice about their approach to interpreting the law and hence paying taxes. Whilst remaining legal in all it does, where a business draws its ethical line regarding how to interpret the tax laws and arrange its affairs, is subject to a good deal of discretion. This can extend to where it pays its taxes. Tax avoidance has been branded by some as an ‘immoral’ and unethical practice that undermines the integrity of the tax system.
How to avoid tax?
The Double Irish and Dutch Sandwich tax Strategies.
Tax Planning v. Tax Evasions
As part of good governance, companies will seek to minimise their tax liability through ‘tax planning’, making the most of the tools and mechanisms which the government makes available to them specifically for this purpose: allowances, deductions, rebates, exemptions, etc. They will make choices about how to pursue their business goals in the light of all the implications – which include the tax consequences.
While tax planning is seen as compliant behaviour, tax avoidance is more of a grey issue. The term ‘tax avoidance’ is used to refer to legitimate but maybe aggressive use of things such as financial instruments and other arrangements to obtain a tax result not intended, or anticipated by, the government. The use of overseas tax havens is one example. Most of the debate about tax avoidance has centred on the taxes businesses pay on their profits – corporation tax in the UK – but other taxes can also be affected, including VAT.
“Tax avoidance’ is different to ‘tax evasion’ which refers to a situation where a company tries to reduce tax liability by falsely suppressing income or inflating expenditure, recording fictitious transactions, etc. Evasion is fundamentally illegal.
Tax evasion consists of illegal and intentional actions taken by individuals and firms to reduce their legally due tax obligations, by underreporting incomes, sales, or wealth, by overstating deductions, exemptions, or credits, or by failing to file appropriate tax returns. Although measuring tax evasion is notoriously difficult, there is widespread evidence that tax evasion is extensive and commonplace in nearly all countries. Schneider and Enste (2000)