Senior tax accountant, Bill Dodwell, has made a public call for the abolition of legal professional privilege (LPP) for tax advice, saying it is usually only claimed in the most 'egregious' tax planning.
Dodwell, who is the head of tax policy at Deloitte, made the comment during a debate on legal privilege hosted by Pinsent Masons, arguing that the reason that a taxpayer would want to claim tax advice was privileged would be to prevent HMRC from seeing the advice because it could provide evidence of a tax avoidance motive.
However Sir Stephen Oliver QC - former judge of the Upper Tribunal and former President of the First-Tier Tax Chamber - described legal privilege as 'one of the building blocks of the rule of law'.
The debate entitled 'Legal Professional Privilege - only for the privileged?' follows a Supreme Court ruling in January 2013, in a case concerning insurance company Prudential, who had argued that tax advice given by accountancy firm PwC in relation to a tax scheme should attract LPP and therefore should not have to be disclosed to HMRC.
The court ruled that LPP should only apply to communications between lawyers and their clients and not to accountants or other professionals. Any extension of LPP is a matter for parliament, not the courts, it said.
Jonathan Fisher QC, a barrister from Devereux Chambers argued that the Prudential decision 'ignores the practicality of what is going on in the real world'. Fisher suggested that with Alternative Business Structures (ABSs) now permitted, it would not be too long before lawyers and accountants would be operating in the same firm with files supervised by a lawyer simply in order to obtain legal privilege for the advice given.
He also expressed concern about Dodwell's suggestion that LPP be removed for tax advice, pointing out that, when pushing boundaries, taxpayers should be free to take advice on risks without fear of disclosure. If the advice is disclosable, they may be dissuaded from taking advice and, because tax is complex, they might risk stepping over the line, with tax evasion being a criminal offence.
Tim Johnston of Brick Court Chambers, who acted as counsel for the Law Society in the Prudential case, argued that, as a matter of constitutional law, the common law could not be extended as Prudential had argued. He said parliament had specifically amended privilege legislation in the past to include patent attorneys and they had debated and rejected arguments that privilege should be extended to accountants. On this basis, he argued that the judges could not go against the will of parliament and extend privilege to other professionals.
Several members of the audience raised the issue of lawyers working for accountancy firms, who are not allowed to hold a practising certificate and therefore, as the law currently stands, their advice cannot be legally privileged.
In a straw poll of the audience, a clear majority agreed that the Supreme Court had made the right decision but a small majority thought that there should be parliamentary debate to remove the anomaly for tax advice.
Barrister Graham Aaronson QC, who helped the government to develop the General Anti-Abuse Rule (GAAR), asked from the floor for the audience to be asked whether the Supreme Court decision in Prudential left the law in a satisfactory state. Only a handful of the audience thought it did.
James Bullock, a tax disputes expert at Pinsent Masons, concluded the debate by calling for a Ministry of Justice or parliamentary consultation on whether the law should be changed.
