ATO criticised for LPP stance
The Australian Taxation Office’s suggestion that it may require independent review where legal professional privilege is claimed over tax documents has received pushback from the Tax Institute.
In a submission to the ATO following a consultation paper provided to the National Tax Liaison Group (NTLG) Legal Professional Privilege (LPP) working group, the Tax Institute’s president Tim Neilson called for the suggestion to be ‘abandoned’.
The Tax Institute of Australia is a member-based association for tax professionals.
The consultation paper from the Australian Taxation Office had considered implementing a “full LPP review”, which would require a legal practitioner “being independent of the privilege holder and the adviser” to review the documents and form an opinion about privilege in respect of each relevant document to maintain a valid LPP claim.
Calling the approach “inefficient, time-consuming and very costly”, Mr Neilson noted there was no requirement for such an approach in examinations by other federal government regulators.
He also flagged that legal practitioners are bound to professional conduct rules and owe a paramount duty to the court.
“The ATO should explain why concerns regarding the independence of legal practitioners arise in the context of ATO examinations and why existing professional conduct rules are not sufficient to deal with these concerns,” Mr Neilson continued.
The ATO’s concern over the use of LPP was raised at its NTLG meeting last year, where it said that LPP was being claimed on an “industrial scale”.
“In an increasing number of cases, we are seeing claims of privilege over thousands or even tens of thousands of documents: when we ultimately obtain the documents sometimes (presumably inadvertently) even in the same production process (for example, as attachments to other emails) they were clearly never privileged,” the ATO said.
Tax Commissioner Chris Jordan more recently raised the growing issue, vowing to crack down on the misuse of LPP.
“Don’t misunderstand me — we’re not opposed to legal professional privilege as a concept. We want taxpayers to be able to get the right and proper legal advice,” Mr Jordan said at the Tax Institute’s 34th National Convention.
“But when lawyers are claiming privilege on thousands or tens of thousands of documents — and we have seen this — we start to wonder if it’s a genuine claim or an effort to conceal a contrived tax arrangement.
“It all comes back to fairness: are you using legal professional privilege because you have a genuine need, or as a way to cheat the system?” Mr Jordan queried.
“We’ll be taking a tougher stance in the future.”
More guidance required
The ATO has been asked to give a clearer and more detailed explanation of its concerns, with the Tax Institute suggesting that the ATO provide guidance with examples setting out its concerns, and not merely expressing issues of principle.
“If such guidance is not provided, it may leave practitioners with the misleading impression that the ATO is concerned about LPP generally rather than only being concerned about specific scenarios where LPP is being claimed,” Mr Neilson said.
“It is our view the protocol should outline best practice. The consultation paper should state that the majority of professional advisers are making valid privilege claims. The ATO could then set out the areas of concerns and make it clear that blanket claims for privilege will not be acceptable without further justification.”
Lawyers Weekly has previously reported on the ATO’s setting of its sights on law firms misusing professional privilege to “obfuscate the facts and frustrate investigations”, as well as its promise to crackdown on legal professional privilege to hold large market taxpayers to account.