For some time there has been a divergence of opinion between the Australian Taxation Office (ATO) and taxpayers (and their advisers) as to the scope of the common law privilege that attaches to communications between a lawyer and their client for the purpose of providing legal advice, commonly referred to as Legal Professional Privilege (LPP).
LPP applies to prevent documents being obtained by the Commissioner under his formal information gathering powers and thus is an important curtailment of the Commissioner’s otherwise extensive information gathering powers.
At the National Tax Liaison Group (NTLG) meeting held in November last year (the minutes in respect of which were released this week), the ATO outlined concerns it has with the approach being taken by certain firms in relation to claims for LPP over documents sought in connection with an ATO review or audit, particularly in relation to a transaction.
A key aspect of the ATO’s concern appears to relate to non-lawyers providing advice or being primarily responsible for a matter and having a legal practitioner involved to claim that any such advice is subject to LPP. Specifically, the ATO has concerns with:
Engagements conducted in all real senses by a non-lawyer (from instigation of the engagement/transaction to its delivery), with the primary role of the legal practitioner being to ‘rubber stamp’ the 'deliverable'. The lawyer’s involvement is minimal at best and often only late in the piece, often at the direction of the non-lawyer.
The ATO is also concerned that broad claims of privilege are being made without any regard to the nature of the documents being claimed to be privileged. To be subject to LPP, the document must have been created in connection with a legal practitioner providing legal advice.
In a clear warning to the tax profession, the ATO has claimed that instances where an adviser seeks to assert LPP over documents without sufficient work being done to substantiate such a claim may lead to the ATO taking action against the adviser.
The ATO also suggest that LPP is being used to hide what it claims is fraudulent behaviour relating to advisers proving ‘commercial’ reasons for a transaction.
The ATO states that there will be a ‘range of cases in the short to medium term’ testing the scope of LPP – indeed, the High Court is due to hear a case involving the ATO and the scope of LPP. So for taxpayers it’s a case of wait and see, but in the meantime paying particular attention to the protocols regarding obtaining legal advice and considering whether the team delivering that advice is entitled to LPP is prudent.