ACCA Advanced Taxation (ATX) Practice Exam

What can a tax advisor do if a client insists on using a scheme that is seen as aggressive tax avoidance?

1. Proceed with the engagement under strict monitoring

2. Advise the client to reconsider but remain involved

3. Immediately resign from the engagement

4. Report the client to the tax authorities

The correct answer is: Immediately resign from the engagement

In situations where a client insists on utilizing a scheme that is considered aggressive tax avoidance, it is essential for a tax advisor to uphold ethical standards and compliance with tax laws. Resigning from the engagement is the most appropriate action, as it allows the advisor to distance themselves from the unethical activity and mitigate potential reputational damage and legal ramifications for both themselves and the client. By resigning, the tax advisor ensures that they are not complicit in any actions that could be viewed as tax evasion or that may lead to penalties or legal issues down the line. Ethical practice is crucial in tax advisory roles, and remaining involved in aggressive schemes could compromise the advisor's integrity and professional standing. Other options, such as advising the client but remaining involved or proceeding with strict monitoring, may imply tacit approval or involvement in the questionable scheme, which could create further complications. Reporting the client to tax authorities is an extreme action that could damage the advisor-client relationship and is typically not the primary step taken by a professional advisor in such situations. Resigning allows the tax advisor to maintain their ethical responsibilities while also protecting their own career and reputation.