‍‍‍Risk+management+ethics

Risk Management Ethics in this entry refers to corporate standpoint of understanding ethical dilemmas with tax avoidance as risk related issues. These risk management practices are hence tied with tax haven and Corporate Social Responsibility practices. On the other hand risk management dialect can be seen as a corporate attempt to address ethical issues in operational level.

Ethics and Morality
The term ethics in the taxation field is complicated and it is often used interchangeably with 'morality'. For this entry we shall use the terms ‘ethics’ and ‘ethical’. By ‘acting ethically’ we will mean doing something that, for example, society as a whole or specific groups within would perceive as ‘good’, and ‘acting unethically’, the converse.

Originally ‘morality’ suggests a stern set of duties that require us to subordinate our natural desires in order to obey the moral law. Very often, morality is assumed to have a religious basis. These indications of ‘morality’ are features of a particular conception of ethics, one linked to the Jewish and Christian traditions, rather than an inherent feature of any ethical system.

In the context of taxation, however, ‘ethics’ is a term most commonly used to mean a set of values or principles which should be of universal application – in other words ‘normative ethics’, which define what we ought to do or should do. However, taxation is also discussed, debated and reflected upon outside practice in ways that help clarify those values or principles.

Risk Management Ethics
There are several possible issues that pressure companies to address ethical issues in in risk management context. Here are shortlisted some areas as known in the literature. Some issues are more directly related to the corporate deliberations and others are more relevant with the field of tax advisors (e.g. the big four) who help the companies to plan their tax issues.

//Ambiguity in the tax law//
Tax legislation is applied to the often complex business and personal transactions. Often it is not clear how every case should be dealt with leaving a multitude of choices from which to select. Problems arise when actor is facing ambiguity in the legislation.

//Multiple stakeholders//
Tax practitioners have responsibilities towards multiple parties when carrying out their professional duties. These parties are for example shareholders, employees, customers, suppliers, regulatory authorities (including Government), trade unions, etc. Ethical issues might arise when addressing these multiple stakeholders while they might not share the same expectations.

//Tax practitioner aggressiveness//
Tax aggressiveness has been linked with ethical attitude of the practitioner. By this it is predictable for the aggressive actor to take more pro-taxpayer positions in the same situations than others would. Simultaneously it is presumed that taxpayers ethical beliefs about tax evasion would highly correlate with tax compliance.

//Business managers//
Middle and lower management are often dealing with pressure to compromise personal ethical standards. The daily work of tax advisers is not without complexity. They are also business managers, often with junior staff reporting to them and client portfolios to manage, who are required to deal with the dilemmas involved in managing or working in any business.

//Reputational Issues//
Various scandals have tarnished taxation field resulting in criticism of the area's ethical profile. Tarnished reputation may be addressed with focus on improved ethical behavior and attitudes of individual members.

//Competition//
Competition can cause individuals to compromise ethical considerations.

//Stres//s
Accounting practice is involved with sizable stress bringing additional pressure to the tax practitioner profession. Stress i n accounting work situations is evidenced by certain suboptimal behaviours. These behaviours include: a reduction in the amount of time given by the accountant to each task; the blocking out of new information; the appearance of giving up or only being superficially involved; and a negative or cynical attitude towards issues. All of these behaviours may lead to decreased ethical behaviour.

//Self-regulation//
As members of various professional accountancy and tax bodies, each of which will have their own codes of ethics, tax practitioners are largely afforded the privilege of self-regulation (e.g. in the UK and Ireland). However, in recent years some regulation has been introduced in the United States (including tax pre- parer penalties). If it is perceived that the self-gov- ernance system is not functioning as it should in the UK, there may be public pressure on policy makers to re-assess the independent status of the accounting and tax professions.