Comparative standards of legal advice privilege for tax advisers and optimal reform proposals for English law
| DOI | 10.1177/1365712715592832 |
| Published date | 01 October 2015 |
| Date | 01 October 2015 |
| Subject Matter | Articles |
Article
Comparative standards of
legal advice privilege for tax
advisers and optimal reform
proposals for English law
Rebecca Mitchell
Northumbria Law School, Northumbria University, UK
Abstract
The widely accepted rationale for legal advice privilege between client and lawyer applies
equally to tax advisers giving their clients fiscal legal advice. This article undertakes a com-
prehensive comparative analysis of standards of legal advice privilege for tax advisers in the
United States, New Zealand and Australia. It then reviews the current limited tax advisers’
privilege found in Sched. 36 to the Finance Act 2008. Based on evaluation of these comparative
models, optimal proposals are made for a tax advisers’ privilege in English law.
Keywords
legal advice privilege, non-disclosure right, tax advice, tax advisers’ privilege
Introduction
The widely understood rationale for legal professional privilege is to encourage candour from clients
when discussing their affairs with their lawyer, which better enables the lawyer to give accurate legal
advice and which therefore makes it more likely that the client will conduct their affairs in accordance
with laws and regulations.
1
Whether or not the latter part of this rationale is true is debatable, given the activities of some transac-
tional lawyers in large law firms. According to Loughrey, ‘it is certain that at least some of transactional
lawyers’ work involves creative compliance, which involves lawyers adopting strained and technical
interpretations of the law in order to defeat its purposes’ (2014a: 740).
Corresponding author:
Rebecca Mitchell, Northumbria Law School, City Campus East, Northumbria University, Newcastle upon Tyne NE1 8ST, UK.
E-mail: rebecca.mitchell@northumbria.ac.uk
1. Upjohn Co vUnited States 449 US 383 at 389 (1981); R (on the application of Prudential plc) vSpecial Commissioner of
Income Tax [2013] UKSC 1, [2013] 2 AC 185 at [117]–[118] per Lord Sumption at [143] per Lord Clarke.
The International Journalof
Evidence & Proof
2015, Vol. 19(4) 246–269
ªThe Author(s) 2015
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DOI: 10.1177/1365712715592832
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However, the privilege does exist in English law and can extend to legal advice relating to tax avoid-
ance schemes, provided that advice has been given by a lawyer. So, if the above rationale is accepted,
why limit the privilege to lawyers? Surely the public good is equally served by extending the privilege to
fiscal legal advice given by tax advisers, such as accountants. Other jurisdictions have accepted this
argument and, recognising the inherent unfairness of limiting legal advice privilege to the clients of law-
yers in these circumstances, have extended privilege, to various extents, to tax advisers. Due to the
underlying goals of the relevant legislation and the historical approach taken to extending privilege to
non-lawyers in the relevant jurisdictions, the methods of doing so vary. In each case limits have been
imposed due to particular concerns around tax collection and the position of tax collection agencies. The
extension of a more comprehensive legal advice privilege to tax advisers in English law has been con-
sidered on a number of occasions but, to date, legislation has not been introduced and the courts are
unwilling to plug the gap via developments in the common law.
This article explores the different approaches to this issue that have been considered, or adopted, by
legislatures in the United States, Australia and New Zealand and considers the limited tax advisers’ pri-
vilege currently in place in English law. The extent of the protection given in these jurisdictions, and the
relative merits of the different approaches taken, will be evaluated. It will be argued that a more com-
prehensive tax advisers’ privilege should be introduced into English law and an appropriate model for
legislation in this area will be proposed.
The article begins with consideration of the legislative provisions introduced at federal level in the
United States in 1998 to extend common law legal advice privilege to tax advisers. The rather different
legislative approach taken by New Zealand, introduced in 2005 with the creation of a separate non-
disclosure regime for tax advice documents, is then explored. Consideration of proposals in Australia
for a tax advisers’ privilege follows, together with an examination of the scope of the currently available
accountants’ concession. The limited tax advisers’ privilege in English law, found in Sched. 36 to the
Finance Act 2008, is examined and consultations around extending legal advice privilege to tax advisers
are considered. The article concludes with optimal proposals for a tax advisers’ privilege in English law,
based on evaluation of comparative law.
The legislative provisions in the United States at federal level
There has been a form of privilege with respect to tax advice for communications between a client and
their tax adviser since 1998 at federal level in the United States. Section 7525 of the Internal Revenue
Code applies to communications between federally authorised tax practitioners and their clients.
2
Form-
ing part of the background to the introduction of s. 7525 was a desire to level the playing field between
tax advisers and attorneys in relation to giving tax advice, to avoid unfairness to the taxpayer. In Con-
gressional debate Senator Connie Mack (R., Fla), sponsor of the Bill which introduced s. 7525,
3
described the current law as imposing an unfair penalty on taxpayers depending on their choice of tax
adviser.
4
Petroni also refers to Congressional concern regarding the ‘competitive atmosphere between
the two primary tax practitioner groups: accounting firms and law firms’ (1999: 845).
The section did not create and define a new type of privilege: the legislators chose instead to give such
communications the same level of confidentiality which would apply if the communications were
between a taxpayer and an attorney. This approach therefore means that the privilege is subject to the
same limitations as the attorney/client privilege. For example, it can be waived by the client in the same
way that attorney/client privilege can be waived, voluntarily or through disclosure of relevant commu-
nications to third parties (Glynn, 2002: 116). It covers only communications that would be covered by
2. Internal Revenue Code, § 7525(a)(1).
3. Internal Revenue Service (Service) Reform Bill, enacted as the Internal Revenue Restructuring and Reform Act 1998.
4. 144 Congressional Record S7643, S7667 (daily ed., July 8 1998).
Mitchell 247
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