Having regard to the complex tax and accounting rules and the interaction between these two disciplines across the globe, the logical conclusion is that tax is no longer the sole playground of lawyers. In fact, it has not been for a number of years. The complex rules had the effect of creating a new breed of tax professional (many non-lawyers) and multi-disciplinary organisations required to be proficient not only in tax law, but also the accounting rules affecting simple and complex transactions alike.

The Department of Treasury in Australia recently issued a discussion paper (the Paper) on the hot topic of legal professional privilege in relation to tax advice provided by accountants. Regular readers will recall our article in the 22 October 2010 edition of Tax Alert where we discussed the Court of Appeal in England decision confirming that legal professional privilege can only be claimed by clients of lawyers and not by clients of accountants, even where the accountant is engaged in the provision of tax advice.

The Paper discusses recommendations of a 2007 report by the Australian Law Reform Commission to the effect that legal professional privilege should be modified or improved in certain circumstances, essentially to cater for accountants providing tax advice.

Concessions made to accountants

Unlike South Africa, the Australian Tax Office (ATO) currently provides for a range of documents to remain confidential under the so-called 'Tax Officer Accountants Concession' despite not being subject to legal professional privilege. The concession works on the basis that certain classes of documents will remain within the confidence of taxpayers and their non-lawyer tax advisers, however, the concession is not enshrined in law meaning the ATO can depart from this practice in exceptional circumstances such as tax avoidance arrangements.

The Paper refers to the fact that Australian taxpayers have expressed concern over consistency in applying and claiming the concession, whereas the ATO believes that alternative models may impede on its information gathering powers and provide taxpayers with the ability to frustrate or delay investigations.

Proposed regime

The Paper deals with two possibilities regarding legal professional privilege in respect of tax advice provided by non-lawyers. The first possibility would be to codify privilege on tax specific advice and provide a code governing its operation in relation to the ATO's information gathering powers - essentially revisiting the current accountants' concession in determining which documents would be covered by privilege.

The second possibility is simply to extend the common law legal professional privilege to tax advice provide by registered tax practitioners. A similar regime currently exists in the United States with the exception that tax advice privilege provided by non-lawyers only applies to non-criminal matters prompting tax practitioners in many instances to refer clients to lawyers so as to ensure information relating to criminal activity would be protected.

The Paper further states that by extending the common law principles would have the advantage of providing equality in terms of competition as tax lawyers and tax accountants are competing for the same business. Interestingly, the Paper states that certain legal firms use privilege as leverage in sourcing work citing that documents are better protected than they would be in an accounting firm.

An important distinction made between lawyers and accountants in the Paper is that lawyers are subject to strict professional and ethical training regimes in order to enter the legal practice. On the other hand non-lawyers providing tax advice are not necessarily all qualified accountants or members of professional associations.

The Paper states that it is questionable whether the current degree of oversight and discipline by the Tax Practitioners Board in Australia over tax practitioners can be equated to a lawyer's obligation towards the court.

In comparing the possible new Australian regime with that of the United States, New Zealand and United Kingdom the Paper concludes that the New Zealand model is more comparable to the current accountants' concession. The New Zealand (and United Kingdom) model is however codified through legislation specifically in relation to privilege for tax advisers and contains documentary exceptions where they have been created for the purposes of committing, promoting or assisting an illegal or wrongful act. The Paper appears to favour codification rather than extending the common law principles to non-lawyers and encourages robust debate through various questions posed on implementing a new regime.

Conclusion

Although codification of privilege relating to tax law advice provided by non-lawyers appears to be the preferred solution, even possibly in a South African context, it is accepted that there may be many arguments for and against such a route. Currently, it is difficult to argue against the fact that tax lawyers in South Africa have the edge over tax accountants as far as it relates to relying on professional privilege.

Written by Ruaan van Eeden, Director, Cliffe Dekker Hofmeyr Tax Practice