A UK law firm Farrer & Co recently published an article entitled “Tax reputation for high-profile individuals and corporations – being ‘legal’ is not enough”.  Although it is a UK article it provides some important points for Canadians who are looking at schemes that are “too good to be true”.  I have blogged about what CRA terms “abusive charity gifting tax schemes” and other inappropriate schemes involving Canadian charities.  It is important that taxpayers not only consider the tremendous financial cost of investing in such schemes but also the reputational costs.

“Tax reputation for high-profile individuals and corporations – being ‘legal’ is not enough”

The memo notes;

“It is sometimes suggested that there is a clear dividing line between “legal” tax avoidance and criminal tax evasion, and anything goes so long as it is on the right side of the line. As a number of high-profile individuals and companies have found out to their cost in recent months, however, the reality is not so simple.

Because tax savings can be hugely valuable, there is market pressure within the tax industry to give tax avoidance proposals the green light. The greater the extent to which a financial adviser or tax professional’s business model relies on artificial tax avoidance schemes and deliberately tax-optimised transactions (as opposed to ordinary tax planning or compliance), the more likely he or she is to advise that something is “legal” when HMRC and (perhaps more importantly) the courts would not agree. In other words there is no clear dividing line marking the boundary of what is “legal”, and the promoters of an avoidance scheme can be commercially motivated to give what turns out to be the wrong answer.”

The memo goes on to discuss a number of reasons why firms may be wrong when they advise that a tax avoidance scheme is appropriate.