In recent years, there has been a blurring of responsibilities between
the legal and accountancy professions, particularly when it comes to tax advice. Lawyers frequently advise on tax matters
which would previously have been within the remit of accountants, and
accountants often given advice on the legal implications of tax schemes. The blurring of the lines becomes even more marked with the introduction of multi-disciplinary practices. However, a recent Supreme Court decision has
confirmed that if you want to keep your tax planning discussions with your
advisers confidential, then you will need to instruct a practising lawyer,
rather than an accountant or a non-lawyer tax adviser.
The UK Supreme Court has ruled that legal professional privilege (LPP) should only apply to communications between
lawyers and their clients and not between clients and accountants, even when the accountants are giving legal advice. So in essence, the identical conversation between a client and his adviser regarding his tax affairs will be covered by LPP if he is talking to a lawyer, but not if he is talking to an accountant.
In the case of Prudential plc v Special Commissioner of Income
Tax, HMRC had served
Prudential with notices demanding the disclosure of documents related to a tax
avoidance scheme promoted by PricewaterhouseCoopers (PwC). Prudential resisted disclosure on the grounds
that the documents contained legal advice on tax matters, from, amongst others,
the accountants PwC. The Supreme Court rejected
this, saying that LPP could not be extended without legislation to do so, and that
to extend the concept of privilege through court interpretation would lead to
unwelcome uncertainty in an area where there is clarity on what the current law
means. Lord Neuberger said:
"The suggestion that it should apply in any case where legal advice is given by a person who is a
member of a 'profession [which] ordinarily includes the giving of legal advice'
suggests to me that this is an inappropriate formulation for us to adopt, as it
would carry with it an unacceptable risk of uncertainty and loss of
clarity in a sensitive area of law.”
As far back as 1983, the Revenue Commissioners recommended the extension
of LPP to tax advice given by accountants and tax advisers belonging to certain
professional bodies, but this did not get governmental backing was never acted
on.
Not surprisingly, accountants are very unhappy at this situation. Michael
Izza, Chief Executive of the Institute of Chartered Accountants in England and
Wales, said:
"The current position on LPP is unprincipled and anti-competitive for individuals and businesses who we believe should be able to seek the best professional advice upon the same terms whether from lawyers, accountants or indeed other appropriately qualified professionals. The way in which legal services are provided is changing as a result of the Legal Services Act with the creation of Multi-Disciplinary Practices. As a matter of urgency, Parliament needs to find a way to resolve how issues such as LPP are addressed within these new structures."
"The current position on LPP is unprincipled and anti-competitive for individuals and businesses who we believe should be able to seek the best professional advice upon the same terms whether from lawyers, accountants or indeed other appropriately qualified professionals. The way in which legal services are provided is changing as a result of the Legal Services Act with the creation of Multi-Disciplinary Practices. As a matter of urgency, Parliament needs to find a way to resolve how issues such as LPP are addressed within these new structures."
In the meantime, tax lawyers will no doubt be making hay whilst the sun
shines.
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