Written by Sue Williamson
Sue Williamson is a legal partner with EY, specialising in tax controversy. She chairs the Tax Institute’s Dispute Resolution Committee.
Legal Professional Privilege (LPP) is a cornerstone legal right that is fundamental to the effective operation of the Australian legal system and the administration of justice (refer to Baker v Campbell (1983) 153 CLR 63, 60 (Gibbs CJ)). It is a right that is owned by the client, not the lawyer. As with all client rights, our role as the lawyer is to protect the right unless instructed otherwise. No adverse inference should be taken because a person refuses to hand over a document that is subject to LPP. No person should refuse to hand over a document claiming that it is subject to LPP unless they have positively determined that the document is subject to LPP.
The ATO has expressed concern that ‘reckless and false’ claims of LPP have been made by some tax professionals to avoid disclosure of documents during tax audits (refer to this AFR article). The establishment of a ‘working group’ to provide scope and guidance on LPP in the context of taxation advice and services was announced on 19 March 2019. A document titled “Scope of Engagement” was circulated in April 2019. The Tax Institute, alongside others, has been appointed to consult with the ATO on the establishment of a new framework to alleviate ATO concerns and to preserve the integrity of LPP in the profession.
From a practical perspective, the ATO is seeking more assurance that legal practitioners are doing the right thing when asserting LPP on behalf of their clients. We can’t dispute that approach. Of course though, the devil is in the detail. What is practical?
In the Scope of Engagement document, the ATO proposes a new ‘independent review’ process where claims for LPP would be reviewed by an independent legal practitioner. There are obvious difficulties with this proposal (such as concerns around potential waiver of LPP, time and costs). Further, there is a lack of clear articulation as to what the ATO’s exact concerns are regarding LPP. Legal practitioners are officers of the Court and have a paramount duty to the administration of justice. Independence is at the core of what it is to be a legal practitioner. While acknowledging that there may be a limited role for independent review in the context of specific disputed claims, the proposal of a wholesale secondary review of all claims for LPP has been strongly challenged by The Tax Institute.
More clarity and articulation by the ATO as to its concerns regarding the operation of LPP from an administrative perspective is essential. The road ahead for this consultation process will be important and will play a large role in ensuring that both regulators and the profession are better able to understand the role of LPP in tax. The importance of understanding what issues need to be addressed and what concerns alleviated beyond a general point of concern cannot be underestimated.
Reckless and false LPP claims do need to be stamped out. However, that is only one side of the equation. More often than not 28 days is allowed to respond to ATO notices. Providing 28 days to gather documents, assess them for relevance and LPP is often not enough. It can lead to “short cuts” and provisional claims that ultimately cannot be substantiated. Scope and guidance on LPP from the ATO needs to include guidance to ATO officers about the timeframes necessary to ensure proper compliance. The system needs to work for everyone.
Let us know if you have any particular concerns with the proposal that you want us to raise during the consultation process.
Members, we welcome your thoughts via the TaxVine Feedback inbox.
Sue Williamson, CTA-Life