The ATO has released a draft Protocol containing the ATO’s recommended approach for identifying communications covered by Legal Professional Privilege (“LPP“) and making LPP claims to the ATO – most likely to arise when taxpayers and practitioners assert that the Commissioner is not entitled see or seize material, because of LPP. This typically arises when the Commissioner serves notices to produce material or give information (under s353-10 of the TAA53) or exercise his power to have full and free access to all places (under s353-15). [WARNING – see below & make sure you don’t give away your clients’ privilege.]

The ATO says it has been developed to assist taxpayers and their advisors when making LPP claims in response to requests for information the ATO makes under its formal information gathering powers. It does this by explaining the ATO’s recommended approach for claiming LPP and providing with information on what can be expected in different situations. It is voluntary to follow the recommended approach.

The draft details a 3-step process for making LPP claims.

  • Step 1: identify the service or engagement giving rise to the communication and assess each communication.
  • Step 2: explain (particularise) the LPP claims on or before the due date specified in the formal notice seeking information and/or documents. [Scope of material privileged and particularity of the description, of that material are key areas of contention – the latter because the result might involve disclosing privileged content.]
  • Step 3: advise the ATO of the process used for making LPP claims, framed around key questions.

COMMENTS are due by 31 October 2021. The ATO advises that “separate workshops will be held with a number of key stakeholders”.

[WARNING – the Law Council of Australia set to work, with the ATO, to produce joint LPP ‘protocol’, but the ATO went its own way, and this is the result. Do not assume that this is the law and that by following it, you’ll avoid trouble. Do not give away your client’s privilege – get legal advice, not administrative guidance that the LCA couldn’t endorse.]

[Tax Month – September 2021] [LTN 184, 23/9/21]

 


LAW COUNCIL OF AUSTRALIAMedia Release

23 September 2021

Some concerns remain for the Law Council over ATO draft privilege protocol

The Law Council of Australia remains concerned about aspects of the Australia Taxation Office’s draft legal professional privilege (LLP) protocol which was released this week for further consultation.

“The Taxation Committee of the Law Council’s Business Law Section has been in consultation with the Australian Taxation Office over a proposed set of guidelines for managing claims to LPP in response to information requests from the Commissioner of Taxation,” Law Council of Australia President, Dr Jacoba Brasch QC explained.

“This work was designed to find a balance between protecting the confidentiality of communications between clients and their lawyers and providing the ATO with information it needs to meet its obligations.

“However, the draft protocol released yesterday, in places, overreaches in the extent of detail of communications that the ATO recommends taxpayers, and their lawyers, provide in order to maintain a claim of privilege, and seeks to impose expectations on lawyers over and above their professional duties and obligations.

“Client privilege has been the basis of the client/solicitor relationship for over 500 years. Clients cannot receive effective representation unless they can speak freely and frankly with their lawyers. Privilege is vital to the administration of justice in this country. Incursions against privilege must be opposed.

“The Law Council will continue its efforts to ensure that ‘best practice’ procedures to enable the efficient and effective resolution of client legal privilege claims raised in the context of investigations by the Commissioner should not impinge upon clients’ fundamental right to confidential privileged communications with their lawyers.”

 


 

Editorial comment

The LCA’s media release talks of ‘lawyers’ (which is natural for a lawyers’ professional association). But I note that there will be plenty of tax practitioners, who are NOT lawyers caught up in this. They will often be in the ‘frontline’, in the drama of a raid, or confronted with a Notice to Produce. They will first, have to ‘twig’ that there may be privileged information to protect, whilst not knowing, in any detail, what the scope of this protection is. In the heat of the moment, they may, or may not, think of getting legal advice and their client may, or may not, be able to afford it. It is therefore dangerous, for the ATO to set up ‘guidance’ which overreaches.

The ATO staff who’ve conceived of the need to exercise these coercive powers; the staff who’ve drafted the notices (setting the parameters of the coercive powers); the staff who are exercising these coercive powers, at the frontline, when time is short and the tensions are high; the staff who are assessing the result of the coercive powers; the staff who are deciding whether to prosecute; the staff who might decide to send out public messages, about taxpayer and tax practitioner behaviour, in audits – are all susceptible to operating from a position of ATO guidance, which ‘overreaches‘.

It is similarly dangerous that non-lawyer practitioners, often take ATO guidance, as their source of information, about what to do. They, and their clients, could be induced to capitulate, to ‘overreach‘.

The ‘feedback period’ (until 31 October 2021) is therefore of great importance. It is important, that this draft protocol, set up by a partisan, be the subject of informed, detailed, and vigorous ‘feedback’ (pushback). The LCA will be making further submissions, in line with the position, the ATO walked away from, and this will identify the areas of ‘overreach’. Additionally, its ‘constituent’ state and territory legal bodies will be represented and/or make their own submissions. The Tax Institute (made up of both lawyers and non-lawyers) has a proud history of giving the ATO feedback – vigorous, when necessary. The various accounting bodies, typically participate when the ATO asks for feedback. Leading (and non-leading) law firms and accounting firms often participate in providing ATO feed back and make representations, even when the ATO hasn’t asked for it. The Inspector-General of Taxation and Ombudsman (IGTO) might get involved. She has to power to act on her own motion. And, you might be reading this and have an idea how you can participate, or help others provide feedback.

It is important for the Commissioner (ATO) to understand that he (they) can commit an offence by ‘causing, inducing or attempting to to cause or induce a [lawyer] to … contravene [their] professional obligations’ (which include lawfully protecting LPP). This offence is established under s39 of the Legal Profession Uniform Law and the equivalents, in non ‘Uniform Law’ jurisdictions.  It will not, then, be just the taxpayer or adviser, who faces prosecution (in this fraught and complex area of LPP). An ATO that operates, in accordance with guidance that ‘overreaches’, would be at risk of prosecution. And, the ATO ought to be wary of it operating in the ‘mindset’, that lead it to part company, with Australia’s national legal body. There are, then, many ways that could emerge badly, for the Commissioner. One or more legal bodies, will be using this feedback period, to put this counterbalancing risk of prosecution, to the ATO. This sort of feedback, could provide a catalyst, for the ATO to approach this topic with care and balance.

The point of this editorial is to encourage feedback, that is appropriate – neither stripping taxpayers of their rights to maintain privilege, nor frustrating the statutory function, of Commissioner, to lawfully raise the correct amount of revenue, for our nation’s democratically established needs.

[26.9.21]