Wikborg Rein Newsletter: When it comes to tax advice, what is confidential?
| 7th December 2010What should you tell your tax advisor? Or, more importantly, how much of what you tell your advisor may be subject to disclosure without your consent? Recent decisions by the European Court of Justice and the English Court of Appeal have significant implications for tax advisors and their clients.
Legal professional privilege protects communication between a professional legal adviser and their clients from being disclosed without the permission of the client. A recent decision by the European Court of Justice in Akzo Nobel Chemicals Ltd and Akcros Chemicals Limited v Commmission of the European Communities (Case-550/07 P) issued on 14 September 2010 decided that emails exchanged between a company manager and its in-house lawyer was not covered by legal professional privilege. The court regarded in-house lawyers as employees, rather than independent professionals.
Another recent decision by the English Court of Appeal in Prudential PLC and Prudential (Gibraltar) Ltd v Special Commissioner of Income Tax and Philip Pandolfo (HM Inspector of Taxes) [2010] EWCA Civ 1094 on 13 October 2010 upheld, and also restricted, the principle of legal professional privilege.
This decision held that information disclosed by a client to other tax advisors—even if it is legal in nature—is not protected by legal professional privilege. Clients may be compelled to disclose this information to a third party, for example, in disputes and other legal proceedings, regardless of whether permission has been granted or not.
In this case, Prudential sought to extend the existing rule of legal professional privilege to advice on tax law given by accountants. The English Court of Appeal decided that this privilege would only be confined to members of the legal profession acting in a professional capacity, mainly on the ground that it promotes public interest in the administration of justice by ensuring effective legal representation.
Although this is not a new development, the case does highlight and reaffirm the need to carefully manage your tax advisors. Chee Fang Theng, a Tax Director based in the Singapore office of the Wikborg Rein Alliance, believes this decision should be a gentle reminder.
“Taxation is a very sensitive area—the implications of getting things wrong can be very serious. When it comes to providing optimal advice on legal tax structures and on points of tax law, your advisors need to know as much as possible about your business in order to get it right.'
“However, if your business is ever challenged, you must consider how much of the confidential or proprietary information you disclose could make it into the court room or the public domain.” If anything, Chee Fang Theng believes that this highlights the very different roles accountants, in-house lawyers and external lawyers play in the overall management of tax portfolios.
“I believe it is essential for legal advisors to focus on our areas of expertise: legal interpretation, representation, and dispute resolution, and to work closely with the tax accountants, in-house counsel and other tax advisors—basically for all of the client’s advisors to work together to ensure the best outcome.”
The implications of these decisions in Singapore should be similar, that tax advice given by legal professional advisers acting in the course of giving legal advice will be protected by legal professional privilege.
