Why it’s important for Australia to get data regulation right
ATO may break law by pressing big four on privilege claims: barrister
“Well meaning but overzealous” Australian Tax Office officers who ask accounting firms to hand over information on clients it is investigating risk breaching legal professional conduct laws, a tax law academic has warned.
The warning comes as the ATO seeks to draw a line under spurious legal privilege claims in disputes with big business with a new protocol on when firms should seek protections over material requested by the ATO.
It also follows a long legal battle between the tax office and global accounting giant PwC that failed to resolve the issue, after the Federal Court ruled in March that the firm had incorrectly claimed privilege over 58 per cent of documents the ATO requested from its work for meat producer JBS, but that such claims must be decided case by case.
The PwC case was part of a push by the ATO to force more transparency in the big four’s work for multinationals, after a slew of cases in which the firms had used increasingly novel interpretations of legal privilege to withhold tax and auditing information from regulators and shareholders.
However, in a new paper published in the journal Australian Tax Forum, University of Melbourne lecturer and Victorian barrister Eu-Jin Teo says tax office staff carrying out ATO orders may be breaking the law in doing so.
Mr Teo suggested that actions by the ATO that seem to undermine reliance on legal professional privilege could breach the Legal Profession Uniform Law, which carries criminal sanctions.
Under the professional laws, people cannot “cause or induce or attempt to cause or induce” a law firm or lawyer to breach their professional obligations, of which respecting legal privilege is one.
Mr Teo said ATO officers who suggested to firms that their clients would be treated better if they dropped privilege claims, or that the tax office would assume claims were invalid or a sign the client had “something to hide” could be seen as inducing such a breach.
Telling a firm that its claims would be subject to more scrutiny than other firms - as the Federal Court has heard may occur with multidisciplinary firms such as the big four - or that their claims may be subject to legal challenges and the “likely media attention” that went with that might also constitute inducement, he said.
“Well-meaning but overzealous ATO officers, in pursuit of their laudable objective that the legally ‘correct’ amount of tax be paid, may expose themselves to criminal culpability if they seek to pressure practitioners in relation to claims of legal professional privilege,” Mr Teo warned.
He said the ATO had been “bellicose in its opposition to claims of legal professional privilege” lately and had been insisting that, “in its view”, lawyers who were making “unfounded privilege claims” may be breaching the tax commissioner’s orders.
The tax commissioner’s case against PwC continues, with the firm in the process of handing over the documents over which it had incorrectly claimed privilege.
Find out the inside scoop about Accenture, Deloitte, EY, KPMG, PwC and McKinsey. Sign up to our weekly Professional Life newsletter.