Proposed revisions to ethical standards for tax planning

IESBA published its exposure draft for comment on 17 February 2022. 

Why does this matter? 

The ethical code, published by IESBA, is adopted by ICAEW and other professional bodies that are members of the International Federation of Accountants (IFAC). The most recent edition was published in September 2022. It forms the basis for ICAEW’s own ethical code. IFAC members are obliged to alter their individual codes of ethics to reflect any changes made to the IESBA code, so any proposed revisions to the code adopted by IESBA will need to be adopted and reflected in ICAEW’s code of ethics.  

Currently, the main ethical code of IESBA (and ICAEW) does not include a detailed commentary on ethical requirements in relation to tax planning and related services. ICAEW and other UK professional bodies and associations have, however, adopted the Professional Conduct in Relation to Taxation (PCRT), which sets out ethical principles in relation to tax matters, going beyond the existing IESBA code.  

The PCRT builds upon the fundamental ethical principles established in the IESBA code, but it is a UK pan-professional body document rather than based on any IESBA pronouncement. The proposed insertion of new ethical requirements on tax into the IESBA code will impact ICAEW as it will need to adopt it into ICAEW’s code.  The publication of the exposure draft raises questions about the scope of the new IESBA revisions and how it will impact on the existing PCRT. With two ethical requirements to potentially consider (IESBA and PCRT), how will the two statements be reconciled to ensure that they provide a consistent and coherent code?   

The proposed changes to the ethical code 

The proposed revisions to the IESBA code are driven by continued public interest concerns about tax avoidance and the role played by professional tax advisers. It is proposed that two new sections will be added to the existing code, namely a new section 380 for members in practice (see Part 3 of the ICAEW code) and a new section 280 for members in business (see Part 2 of the ICAEW ethical code), although the two sections contain many common elements. In broad summary, the proposed changes cover the following areas: 

• considering the types of threats to the fundamental ethical principles in the IESBA code that might be created when professional accountants are involved in tax planning;
• setting a clear principle that professional accountants recommend or otherwise advise on a tax planning arrangement only if there is a credible basis in laws and regulations for it; 
• requiring consideration of the wider reputational, commercial and economic consequences that could arise;
• providing practical guidance to assist navigating situations of uncertainty; and 
• dealing with other practical matters, including disagreement with the client or management or those charged with governance, and documentation.

Most of the above changes are, in whole or part, already included in the PCRT. For example, the PCRT states that any tax planning must be based on a credible view of the law and that the wider reputational issues should be considered. At first reading, therefore, the IESBA revisions may not result in a major change to the existing ethical standards for ICAEW members.   

However, the difficulty is likely to be that the IESBA approach is more prescriptive than the PCRT principles-based approach. Reconciling the two different approaches could present some challenges. 

Next steps

The exposure draft has been published for consultation, which closes on 18 May 2023. A final revision of the ethical code is planned to be published later in the year. The date of adoption is to be announced. Under the original proposals, the proposed date of adoption would be 1 January 2024, but adoption may be put back to a later date, although early adoption may be encouraged. 

ICAEW’s Tax Faculty would welcome comments – please send them to Frank Haskew. 

ICAEW’s Tax Faculty is recognised internationally as a leading authority and source of expertise on taxation. The faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.