ACCA Advanced Taxation (ATX) Practice Exam

What potential ethical issue arises from the tax planning scheme offered to Emma?

1. It may lead to financial losses for Emma

2. It might be classified as a tax avoidance scheme

3. It could generate additional tax liabilities

4. It may comply with all tax regulations

The correct answer is: It might be classified as a tax avoidance scheme

The potential ethical issue regarding the tax planning scheme offered to Emma is that it might be classified as a tax avoidance scheme. Tax avoidance involves legally exploiting the tax regime to minimize tax liabilities, often by using loopholes or aggressive tactics that are not aligned with the original intent of the law. While tax avoidance is legal, it raises ethical concerns because it can undermine the fairness of the tax system and erode the tax base that supports public services. By labeling a scheme as tax avoidance, it indicates that the scheme may be pushing the boundaries of legal tax planning, prompting questions about its ethical implications. In contrast, options that suggest financial losses, additional tax liabilities, or compliance with tax regulations do not directly address the ethical concerns related to the intent and integrity of tax practices. Overall, the classification of a scheme as tax avoidance highlights significant issues regarding the morality and purpose behind the strategies employed in tax planning.