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Leading up to the International Colloquium entitled “Tax Evasion, Corruption and the Distortion of Justice,” which will be held on Zoom on the 21st of June 2023, we are releasing a synopsis of the article “Encouraging Ethical Tax Compliance Behaviour: The Role of the Tax Practitioner in Enhancing Tax Justice,” recently published in the Duke University Law School’s Journal of Law and Contemporary Problems.
Join for free on Zoom what promises to be a fascinating discussion using the following link (free registration): https://mmu-ac-uk.zoom.us/webinar/register/WN_WIFxM5jFQdyirlNFkCYtAA
The event is aimed at disseminating the publications included in the Special Issue “Tax Evasion, Corruption and the Distortion of Justice,” which has been edited by Prof. Diane Ring, Dr. Costantino Grasso, and Dr. Lorenzo Pasculli, and has been recently published in the Duke University Law School’s Journal of Law and Contemporary Problems. The articles included in the Special Issue will be discussed with top-level experts and relevant stakeholders to establish a fruitful knowledge-exchange process.
“The Role of the Tax Practitioner in Enhancing Tax Justice” has been authored by Dr. Elaine Doyle, who serves as Associate Professor in taxation at the Kemmy Business School, University of Limerick in Ireland. During the International Colloquium, the article will be discussed by Prof. Khrista McCarden, who is Hoffman Fuller Associate Professor of Law at Tulane University, and Dr. Margherita Smarra, who is Researcher at the Università degli Studi del Molise.
“The Role of the Tax Practitioner in Enhancing Tax Justice" explores the role of tax practitioners as intermediaries between taxpayers and tax authorities in facilitating complex transactions that reduce tax burdens. The article argues that addressing tax non-compliance requires not only system design reforms but also exploring the incentives of tax practitioners. The author draws on qualitative and quantitative research studies to examine the ethical landscape and reasoning of tax practitioners.
The article is divided into four main sections, excluding introduction and conclusions. In the first session, the article preliminary explains that compliance in the tax realm involves the timely filing of information and paying taxes, while tax evasion is the illegal act of not paying due taxes. In this context, tax avoidance refers to reducing tax liabilities without evading the law, but it raises concerns about its appropriateness. Some transactions are encouraged and considered acceptable, while others exploit loopholes or complex structures. The latter approach, which represents non-compliance, decreases government revenue, compromises public goods and services, exacerbates inequality, and threatens democracy. Tax avoidance can have spillover effects, particularly impacting developing countries. Tax non-compliance undermines tax justice domestically and internationally, challenging policymakers and tax authorities.
After having defined tax compliance and the impact of non-compliance, it follows a discussion on the role of practitioners in the tax practice environment and how their actions can undermine tax justice domestically and internationally. Tax practitioners, including accountants, auditors, lawyers, and tax experts, provide tax advice to clients and play a significant role in shaping clients’ tax compliance actions. The fragmented nature of the profession and varying ethical standards create ethical challenges. These professionals face conflicts and dilemmas due to ambiguous tax legislation and the pressure to satisfy multiple stakeholders with different demands.
The pursuit of commercialism and client advocacy has led some tax professionals to prioritize reducing clients’ tax liabilities over the public interest. The article highlights the globalized industry of tax professionals who design complex structures to facilitate illicit cross-border movements of capital, profit-shifting, tax evasion, and tax avoidance. This situation perpetuates the perception that the wealthy engage in tax avoidance while the poor evade taxes. The article raises questions about the moral and ethical responsibilities of tax practitioners and suggests that ethical standards can contribute positively to addressing tax injustice.
The third part discusses research findings on tax practitioners and ethics in the context of tax justice, which can be summarized as follows:
The Perceived Role of Ethics in Tax Practice: Interviews with tax practitioners in Ireland and the UK showed confusion about the role of ethics in tax practice. They believe that following the law is enough, disregarding ethical considerations. This lack of understanding is concerning, as it affects tax justice.
Risk Management in Tax: Risk management is important in tax practice, but it overshadows ethics. Tax practitioners find risk management tangible and actionable, unlike ethics. This emphasis on risk management limits their awareness of justice-related issues.
Ethical Reasoning of Tax Practitioners: Tax practitioners rely less on ethical reasoning in tax-related scenarios due to the importance of legal rules, personal interest reasoning, and organizational culture. They prioritize personal gains over ethics, posing challenges to tax justice.
Firm Size: Large and small tax practices face different ethical issues but the involved tax professionals use similar ethical reasoning. Enhancing tax justice should be applied universally regardless of firm size.
Reputation: Tax practitioners value their reputation for legal protection and client targeting concerns. However, their emphasis on maintaining a good reputation seems to imply that they are more concerned about the potential financial consequences and their impact on reputation, rather than genuinely prioritizing high ethical standards.
Tax Students and Education: Ethical reasoning among tax students is low, as they prioritize personal interests in terms of career progression at the expense of integrity. Educators need to integrate ethics into tax education and raise awareness of tax justice issues.
Gatekeepers: Whistleblowing and formal systems combat tax crimes, but protections for whistleblowers vary. Tax professionals can be whistleblowers, but client confidentiality complicates external advisors' situations.
Corruption: Direct involvement of tax practitioners in tax crimes or corrupt practices is an underexplored phenomenon. However, research findings, including the ones gathered by the VIRTEU project, have demonstrated the potential involvement of tax professionals in corrupt practices. For additional details on this phenomenon see the article "Beyond Bribery: Exploring the Intimate Interconnections between Corruption and Tax Crimes."
The article continues discussing the ethical behavior of tax practitioners and provides recommendations to promote tax justice. It emphasizes the need for educational programs that incorporate tax-related ethical dilemmas and explicitly address tax justice issues. Integrating ethics education throughout training programs, distinguishing between ethics and risk management, and fostering a broader perspective that considers stakeholders beyond the client are crucial steps.
It suggests that professional bodies should understand the views and approaches of tax practitioners regarding ethics, considering the heterogeneity among practitioners in different environments. Attention should be given to smaller practitioners, and their ethical issues should be integrated into training programs to enhance ethical reasoning in larger firms. The self-regulated tax profession should not allow risk management processes to blunt the ethical sensitivity of professionals.
The significance of personal reputation for tax practitioners could be leveraged to improve compliance ethics. The article proposes the use of certificates of trust awarded to professionals who undertake official training emphasizing community interests. Policymakers and professional institutes can develop codes of conduct or guidelines to motivate enhanced compliance, incorporating prescriptive processes that align with tax practitioners' lower levels of moral reasoning.
The article calls for the exploration of uniform professional regulation of tax practitioners worldwide to ensure consistent ethical standards. It also highlights the need to examine the connection between tax practitioners and tax crime or corruption and suggests evaluating their conduct against broader definitions of corruption.
In parallel, another article of the Speciale Issue put forward a proposal aimed at standardizing the legal framework at the international level through the introduction of a convention to counter tax evasion (see the article "Corruption, Tax Evasion, and the Distortion of Justice: Global Challenges and International Responses").
Additionally, the article emphasizes the importance of tax practitioner advisors blowing the whistle on tax crime or avoidance. It suggests providing legal protections for professional advisors and clarifying the degree of artificiality in tax avoidance transactions that qualifies as wrongdoing under whistleblowing regulations.
Overall, the article argues for enhanced ethics training, improved regulation, and a global approach to tax transparency to foster ethical professional conduct, promote tax compliance, and achieve tax justice.
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