4.39 Privilege of Tax Opinions and Client Communications

Primary Reference to Article 27 – Matters Concerning Tax Advisors

There is an increasing trend around the world where tax authorities have been granted the benefit of legislation to force taxpayers and tax advisors to disclose information on a taxpayer's affairs. Very often there are penalties or other sanctions imposed on a taxpayer where tax opinions and other confidential communications between tax advisors and taxpayers are not disclosed. These communications often deal with the interpretation of uncertainties in legislation, caused to some extent by the complexities of the tax systems themselves and lack of guidance.

These measures serve to undermine the confidentiality of advice provided by tax advisors to their clients, even where it is covered by traditions of privilege.

There is no dispute that a tax administration should be entitled to all reasonable factual information concerning transactions which a taxpayer undertakes. However, it is not generally appropriate for the analysis of the tax consequences of these transactions to also be made available to the tax administrations as a matter of course. Taxpayers should not be prejudiced by the fact that they have obtained professional advice, absent circumstances of (possibly) blatant and abusive tax avoidance.  Most strikingly, taxpayers should not be prejudiced and required to provide internal tax opinions concerning a current dispute with the tax authorities.  Such undermines the principle of fundamental justice and the right of a taxpayer to freely seek independent counsel on the interpretation of tax laws.

What justification is there for inclusion of privilege in a Taxpayer Charter?  By definition it indicates something not necessarily available to all and it is suggestive that there are areas beyond which tax authorities may not go.

For most, privilege is to do with the taxpayer and is normally associated with litigation where each party needs to be assured that the advice and representation they are receiving is confidential. Breach of that privilege would be a serious violation of the human rights of a defendant and, as such its appearance within a charter should only be to affirm mutual recognition of its existence and the extent of its application.

Non litigation privilege, referred to here as legal advice privilege, is the subject of much debate given that on one hand, non-lawyer tax advisors are seeking to establish that it applies equally to them as it does to lawyers.  On the other hand, tax authorities are pushing to obtain full access to advice given to taxpayers by tax advisors as part of the disclosure of information process. Legal advice privilege is most common in countries which follow the UK system of common law from which that privilege is derived.  Rights to non disclosure vary in other jurisdictions and have been a major part of the questionnaire survey we have undertaken, the results of which are detailed within this document.

Whether or not legal advice privilege should be included within a Taxpayer Charter is an open question which carries political rather than legal weight.  What is clear, though, is that the inclusion within a charter of a clause indicating the existence of privilege and the extent to which it applies would lead to greater certainty and understanding of what is or is not private. It would also lead quickly to the establishment of a level playing field for legally qualified tax advisors and those that have another appropriate professional qualification. We think that can only improve the quality of tax administration.