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You are the independent expert to the board of a major Australian and global asx listed merchant bank to advise on the advisability of a proposal for the merchant bank to invest and promote to its clients a tax scheme that involves a dividend investment in an overseas financial institution (bank)

The senior management of the merchant bank has put an investment proposal to the board that is very profitable and it involves investing in an overseas bank that has announced a dividend payment to its shareholders. The particular structure involves double dipping of dividends by purchasing, selling and purchasing of shares.

The Australian merchant banks senior staff generally argue that the practice was thought to be a legal loophole which was tolerated - although not endorsed - by the overseas tax authority and the majority of tax advisers consulted have agreed, but not all, with one tax expert stating that in certain circumstances it could be tax fraud. Further tax advice included the statements that the proposal met all legal requirements and that other banks were up to the same thing, noting there was only a remote risk the bank may be associated with a transaction seen by the overseas tax authorities as undesirable. The merchant banks main legal advisers have stated that the proposal is not illegal under Australian or overseas law. The auditors have advised that the proposal will not impact its auditors report.

The merchant bank's board of directors have specifically asked you to consider the following issues

1) what if any australian corporate governance or corporations act requirements could apply to this proposal?

2) what if any australian ethical requorements could apply to this proposal as some of the board members, its staff and the auditors are accountants?

3)What if any disclosure should be provided in the merchant banks financial statement, annual report and the auditors report key audit matters (KAMs)

4)Is this a proposal that you would recommend to the board to action, and why?

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