Tax Planning, Tax Risk Management, and Professional Ethics
Tax planning versus avoidance
Legitimate tax planning arranges affairs within the law; aggressive schemes that lack business purpose risk recharacterization by tax authorities. Understand the concept of unjustified tax benefit, the substance-over-form approach, and the indicators that attract scrutiny (circular flows, shell counterparties, mismatched documentation). Traps: a question may present a scheme that is formally compliant but lacks economic substance, and the correct answer is that the benefit may be denied.
Tax risk management
A consultant should identify, assess, and mitigate risks: compliance risk (deadlines, filings), transactional risk (contract terms, VAT treatment), and reputational risk. Know the role of internal controls, documentation of positions, and the value of advance clarification requests to the tax authority.
Professional ethics
Ethical duties include competence, confidentiality, independence, avoidance of conflicts of interest, and honesty with the client and the authorities. A consultant must not assist in falsifying records or in submitting knowingly false declarations. Traps: a client asks the consultant to sign a declaration the consultant knows is inaccurate - the ethical answer is refusal and documentation of the advice.
Worked example
A client proposes routing sales through a related intermediary with no staff or functions to obtain a VAT advantage. The consultant should assess business purpose; absent substance, the arrangement carries a high risk of benefit denial, and the ethical course is to advise against it and document the advice.