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Giving advice under ambiguity in a tax setting


In the presence of ambiguities in tax law, practitioners are known to exploit them to the advantage of the client as they have more leeway in interpreting the law. This study examines four factors that may influence tax practitioners' recommendations to clients under tax law ambiguity. The results show that practitioners are sensitive to the risk propensity of their clients in the presence of ambiguity in tax law. It appears that practitioners are concerned over losing clients, and providing the type of advice (conservative or aggressive) in accordance with clients' risk propensities is paramount to maintaining their clientele base. Further, practitioners with higher personal risk propensity are more willing to stretch the boundaries of the tax law towards the extreme end of the aggressiveness continuum for aggressive clients. The same can be said of those practitioners from larger firms, who perhaps have more resources to support their practitioners in devising aggressive forms of creative compliance
for their clients. Bigger practitioner firms also tend to have clients from larger firms which generally have more convoluted transactions than do smaller firms, thereby providing more opportunities to avoid tax. Feedback from practitioners suggests that communication with clients was crucial in their role as practitioners. This interaction could take the form of mere feedback of information through to discussion and/or negotiation as required to resolve a tax problem or issue.

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Dr Lin Mei Tan
Lin Mei Associate Professor, School of Accountancy, Massey University, New Zealand. - Current at 05 December 2013
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