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ACCA Applied Knowledge · Business and Technology · Regulation and financial crime

A client proposes a complex series of transactions that has no commercial purpose other than creating a tax saving, and which technically meets the wording of the law but defeats its evident intention. The accountant is asked to advise. Which statement is most appropriate?

The scheme is aggressive tax avoidance. It follows the letter of the law but not its intention, and has no commercial purpose, so the tax authority may challenge it. The accountant should weigh the risk to professional integrity and reputation rather than treat it as either clearly safe or clearly criminal.

  1. AIt is legal on its wording, so there is no professional or ethical concern
  2. BIt is aggressive avoidance that may be challenged by the tax authority, and the accountant should consider the risk to integrity and reputationCorrect
  3. CIt is automatically tax evasion and must be reported as a criminal offence

Explanation

Artificial schemes with no commercial purpose sit in a grey area: not evasion, as there is no concealment, but they may be challenged under anti-avoidance rules and raise ethical concerns about integrity. Option A ignores this. Option C wrongly equates all aggressive avoidance with evasion.

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