A LEADING tax accountant says the Government's proposed code of practice on tax avoidance in service companies will not work. Marshall Byres, chairman of tax services at Ernst & Young, said there was no way to enforce a code of practice because it was not a law. He was talking about the Government's attempts to crack down on individuals using service companies as a means of reducing their tax burdens. He said the Government had been forced to abandon its plan to legislate to close the tax loopholes because it was an impossible task, and instead had opted to have practitioners agree to a code of conduct on fringe benefits. 'It remains to be seen who will sign the code of practice,' said Mr Byres. Sole practitioners who cannot incorporate, such as lawyers and accountants, often charge the service company a higher fee than their costs, thus minimising the tax paid by them. One point likely to be in the code of practice is the limiting of the mark-up of fees paid to the service company. In Britain, a mark-up of 12.5 per cent was standard, but in Hong Kong that figure should be about 25 per cent, according to Mr Byres. Service companies often provide benefits, such as cars, which are classified as a business expense and so not taxed. Mr Byres said the Inland Revenue Department had identified about 25,000 cases of service companies being used to minimise tax, but legislating against avoidance was particularly difficult. 'Those using service companies to minimise their taxes are engaging in legal tax avoidance, not evasion. It is a form of avoidance which may not be challengeable under current tax law.'