Former ATO deputy flays ‘abuse’ of legal privilege
Former ATO deputy commissioner Mark Konza believes legal professional privilege (LPP) is being wrongly “treated as a benediction” by tax advisers.
Mr Konza, who is now a consultant at law firm Minter Ellison, told The Australian Financial Review that LPP was being used “to sanctify” discussions that had nothing to do with legal advice.
The courts have said LPP only applies when legal advice is provided for the “dominant purpose” of preparing advice for litigation – current or anticipated.
Problem with privilege: former ATO deputy commissioner Mark Konza.
“The ATO has been rightly challenging LPP claims on communications which, for example, concern no client at all, communications which are just promotional materials to enhance the firm’s own business, and communications which contain no legal advice or are not for the purpose of supporting legal advice,” Mr Konza said.
He declined to comment on PwC, which is under the spotlight over emails that reveal it used LPP as it tried to cloak plans to win new clients with confidential government tax policy information.
However, he said the misuse of legal privilege was an issue of long-standing concern.
The latest tranche of PwC emails, released last week, show that LPP was routinely applied to all internal discussions on how to exploit information provided by its former head of international tax, Peter Collins, through his role as an adviser to the government.
Legality concerns
They show – with names redacted – that there was significant concern about the legality of the scheme and dealing with information that was clearly confidential.
One on October 9, 2014, said: “I ask that you don’t circulate it beyond us or discuss it outside PwC – it would really put PwC Australia and me in a real bind.”
Later, in the same email, the consequences are raised: “I note in Australia a few years ago, despite some tax shelter reporting regimes in other countries, such regimes were not deliberately pursued in favour of a regime of penalties for promoters of tax schemes.”
A day later, another email said: “Did you intend to attach the confidential document? Fully understand your position on that, by the way, and if you mean just keeping it quiet ... that’s fine.”
On April 15, 2015, Mr Collins wrote: “It is OK to tell clients this consultation has been happening (eg a meeting today) but the details of the proposals are subject to confidentiality undertakings and not approved by cabinet yet.”
Internal PwC email from October 2014.
Mr Konza spent 18 years at the ATO, retiring in 2020. His last decade was as a deputy commissioner focused on corporate taxpayers.
“I think the ATO had become concerned that, in some quarters, legal professional privilege was being treated as a benediction, an invocation which sanctifies the secrecy of any communication,” he said on Sunday.
“LPP is a very important protection in the law which needs to be itself protected – both from diminution but also from potential abuse that might undermine its acceptance.”
In addition to the dominant purpose test, he said there was also a public interest test “which people claiming LPP should consider if they realise that their activities might be considered irregular”.
“LPP should be cherished by the law profession, which includes protecting it in every way,” he said.
“If the community begins to believe that LPP is something the ‘big end of town’ use unfairly, challenges to it could become more dangerous than just enquiries by the Commissioner.”
The ATO had a significant victory in the High Court over mining giant Glencore in 2019 and is battling PwC over a privilege claim related to its work for JBS, the world’s largest meat producer.
It has said that dozens of audits of major multinationals had been interrupted by privilegeclaims and warned penalties and legal proceedings may await advisers who made “reckless or baseless LPP claims in an attempt to withhold facts and evidence from the commissioner”.
