Legal Professional Privilege and Accountants

Discuss about the Legal Professional Privilege and Accountants.

Introduction:

The primary focus of this report or study is the Legal Professional Privilege and the Accountants’ Concession. Through this report an attempt has been initiated to critically analyse and discuss the above two topics. An extended research had been undertaken in order to gather information regarding the Legal Professional Privilege and Accountants’ Concession. After such research an integrated and concise summary of it has been attempted to deliver through this report. For the ease of understanding, the body of the report has been broken up into three parts. In the first part a brief idea about Legal Professional Privilege and the Accountants’ Concession have been offered to the readers along with appropriate examples of the same[1]. In the second part, an extended and explanatory of the Accountants’ Concession have been carried out. Under this segment every aspects of the accountants’ concession have been displayed. Moreover the rule has been analysed critically bearing in mind the key factors such as its process, application or applicability, the documents that are essential in the process, its impact over the client and accounting professionals or tax practitioners, etc. After studying all the aspects properly an overall conclusion is provided about Legal Professional Privilege and the Accountants’ Concession.

At last the third portion of the report focus over the impact of the entire law of Legal Professional Privilege and the Accountants’ Concession on Australia. The objective is to determine that whether Australia under the international practice is “out of step” or not. Besides these it is also equally essential to identify that whether the time has come when the clients of Australia should have permission to that legal protection or not notwithstandingthe fact they ask for advice from any tax practitioner or professional.

At the end of the report a suitable conclusion about the final outcome that have been derived from the study have been added to give the report a noteworthy finish. This conclusion can also be used as a moral or gist of the entire study or report[2].

The rule or regulation associated to the law that secures the communications that happens in between any client and their respective lawyers or legal practitioners from being revealed due to coercion of the court is referred to as Legal Professional Privilege. While on one hand the law of legal professional privilege in Australia is hugely reflecting the other Commonwealth Jurisdiction, similarly on the other hand there exist considerable noteworthy qualifications and amendments to those privileges that are particularly for Australia and for its states[3].

Talking about the history of Legal Professional Privilege, it can be observed that the rule was first discovered during the 16^th century. Moreover this law was a privilege that was detained by a law practitioner rather than the client of the lawyer in reality. From the English common law privilege the legal professional privilege was originally developed in Australia. The below mentioned points describes the manner in which the basis for legal professional privilege can be explained in the context of Australia.

• Complete disclosure of information shall be encourage by a client to its respective legal or law practitioner;
• Alternative dispute resolution shall be encouraged while litigations must be discouraged;
• It must one of the primary motive to safeguard the privacy of the client;
• Access to the justice must also be protected.

Under the legal professional privilege, there are primarily two major privileges:

1. Legal Advice Privilege – This privilege ensures that the communications that takes place between a lawyer and a client is kept confidential. Not only have these, the evidence of such communications been also to be kept confidential as well. However, this law has an exception that only those communications is to be kept as secret which are interchanged for the sole purpose of seeking advice in respect to legal matters only[4]. Moreover, this law does not provide any protections to the communication that are held with other third parties.
2. Litigation Privilege – This law provides safeguard to confidential communications as well as evidences of such communications among a legal practitioner and a client or even a third party and also between a client and a third party but the condition must be that such communication shall be established for the primary purpose of gaining any legal advice only[5].

Thus if all the information provided by the client is authentic and the client also act accordingly to the advice given by the legal practitioner then there shall be no space for any obligation or legal issue to arise against the client. In the same way if the lawyer prepares appropriate advice on the basis of the documents and information furnished by the client then there shall arise no legal issue against the legal practitioner or the lawyer as well.

Accountants Concession

According to the Australian Taxation Office, the administrative concession, which the Australian Taxation Office have granted to the customers or clients of the professional of accounting advisers, is termed as the Accountants’ Concession. It is stated that under the rule of Accountants’ Concession the ATO will not ask to gain access to few advice documents[6]. These advice documents are generally referred to as non-source documents and restricted source documents[7].

As per the law of accountants’ concession it make the point clear that as the ATO have all access to the power of seeking access to most of the documents but there must be some documents or a class of document which will be kept confidential among the client i.e. the taxpayer and his tax practitioner or professional accounting advisor[8]. Thus the client have the option to discuss about his/ her rights and any obligations that falls under the taxation law with the accounting advisor in relation to such documents.

In the concept of taxation, the law of accountant’s concession is such that while assessing the tax return or any other documents or information for the purpose of taxation ATO will not general ask for some documents from the client unless there are some illegal or fraudulent activities involved. These documents have been separately categorised by the ATO that are often termed as Restricted and Non-Source documents. The later portion of the report states about these documents in a detailed manner.

Critical analysis accountants concession:

Accountants’ concession as stated earlier is the law under which ATO cannot seek for certain information from the taxpayers for the documents that falls under this category. This is also termed as administrative concession.

Now as per section 263(3) of the Income Tax Assessment Act 1936 it is stated that every taxpayer shall provide considerable assistance to the ATO individuals or auditors in assessing every necessary documents carefully. The ATO states that the taxpayers must have the right to consult privately with other advisors of non-legal nature about the tax affairs of himself/ herself besides communicating about the same with professional those are qualified to be safeguarded by the legal professional privilege[9]. It is also to be noted that the accountants’ concession which the Australian Taxation Office provides is purely a concession of administrative in nature. As it is acknowledged by the court that there is an entitlement to expect by the taxpayers in general that in respect of the matter related to accountants’ concession own guidelines will be followed by ATO, therefore this law has no legal existence. The extent of accountants’ concessions and in what manner the ATO will handle several kinds of documents is set out in the following portion of the report[10].

Now it is important point to declare that the each and every different document will be treated separately on the basis of the nature and types of each documents[11]. The ATO have primarily divided the complete range of documents into three major categories. First is the Source Documents, second one is considered as Restricted Source Documents while the third one is known as Non-Source Documents. While the ATO and its auditor will have or rather seek complete access to the source documents, similarly in case of Restricted Source and Non-Source Documents primarily there is no provision to ATO to seek information regarding these but in some special circumstances the ATO can ask to gain access to these documents[12].

In the following part a brief overview about different categories of documents are provided. As mentioned earlier that the key document has been divided into three categories such as Source Documents, Restricted Source Documents and Non-Source Documents.

Source Documents are categorised as such documents to which the ATO officers have complete access. The source documents include the following types of materials:

• Documents that are arranged for the purpose of execution, formation and formal recording of any transaction and which also describes the context and objective of that operation or arrangement[13].
• Records of accounting that include journal, ledger, working papers related to the statement of financial analysis, statement of profit and loss and balance sheet as well.
• Audit papers and documents of permanent in nature that consists of information relating to history of the organization, chart of accounts and the command chain as well.
• Memorandum of Association and Article of Association, contracts of continuing nature, etc.
• Working papers related to taxation purpose which also include the tax return such as those papers that are used for preparing the reconciliation statements and trail balances.

Restricted documents are referred as those documents that includes advice related to taxation and which are arranged by any external accounting professional about how a transaction or an operation can be planned. These documents form an essential portion which identifies about the scenario that has originally occurred[14]. In this process it also offer an understanding about the strategy for taxation or the particular course of action that has been applied. Through these there are chances of issues in which an integral elements is frankness. The ATO officers in some rare and exceptional cases or circumstances will seek for access to these restricted source documents. In general the ATO officers or auditor never ask for assessing those documents which are termed as Restricted source documents unless there are any major issue[15].

In general Non-source documents are those documents which consists of advice or assistance provided by an external accounting professional subsequent to completion of any transaction. The fact will also have to bear in mind that the assistance or advice so provided must not have any impact on or affect the recording of that transaction[16]. The non-source documents consists of all such papers of temporary or non-permanent in nature on the most recent audit files which has been achieved by an external accounting professional during the following scenarios:

• Any Audit of Statutory or Prudential in nature;
• Any report in relation to due diligence; or
• Working paper and document for the purpose of taxation that merely defines the opinion of an accountant.

Similar to the restricted documents, in case of non-source documents the ATO will not look for gaining access to these documents. But in some rare and exceptional circumstances, ATO might seek for access to these non-source documents[17].

Some examples of the non-source documents are listed below:

• Documents such as Engagement Letters;
• Documents related to the plan of audit;
• Documents such as letters of confirmation, analysis of various tests, commentaries and schedules of workings.

 

As stated earlier that there are certain circumstances under which the ATO officer or auditor might sought to gain access to the restricted documents and the non-source documents. Such situation includes the following:

• In situations where the client i.e. the taxpayer or may be the accountant denies to serve the documents related to the source
• In such situation where the source document are unavailable at that point of time for example if they are kept in any other places or overseas and cannot be provided within a short time period[18].
• In case if the source documents or papers are not available at all such as if they are misplaced or damaged.
• In situation where the information provided in the source, documents are not adequate or unsatisfactory and where the judgments are considered in order to provide a primary understanding about the transaction that is involved[19].
• In circumstances where there are significant and considerable grounds to consider that any act of fraud or evasion or an offensive act or an activity of illegal in nature have taken place under the TAA.

From the International point of view, in order to safeguard the confidentiality of advice provided by an accountant or accounting professional or tax consultants legislative actions have been undertaken by various authorities. In Australia, these authorities offers prospective model for privilege related to tax advice[20].

In order to extend the common law attorney-client privilege (termed as legal professional privilege in this case) was enacted by the United States in 1998. Under this extended privilege every communication between a taxpayer or client and a tax practitioner which would have been privileged if they had been with an attorney are covered. Moreover this privilege related to tax advice in United States in applicable only on matters or cases of non-criminal nature[21]. This privilege is not applicable for those communication where participation in tax shelters are promoted.

As far as the United Kingdom is concerned in matter of providing privilege, it was observed that a limited privilege of legal existence regarding the documents and communication with the tax consultants are being offered by the country[22]. Under certain conditions this privilege excepts a tax consultant and the client or either of the one from the compulsion to arrange for documents and information to give any reply to the notice of the tax authority. However, this law does not provide any protection to those information which in general describes other information or tax returns or other documents which are arranged by any tax advisor.

Similarly, it was also found that a legal or statutory privilege for the purpose of operation and tax laws effect with a registered tax adviser was made to keep the tax advice documents confidential by New Zealand in the year 2005[23]. Under this privilege it was stated that it is applicable to those information which might be required by the Inland Revenue Department to furnish in order to control or implement their functions. This privilege also state that it does not take any responsibility to safeguard documents of tax advice which are created with an intention of committing or supporting or upholding any unfair or illegal activity or objective[24].

The majority of the taxpayer has main interaction with the Australian Taxation Office at the time of applying for the TFN. The individual tax payer has the option to engage with the taxation system at the time of TFN directly or through the agent. In order to ensure that the taxpayer understands the obligations the tax office has implemented number of initiatives. The education gap that have been identified on the education and service related to tax a awareness programme have been lunched. It has been observed that the individual clients that are trying to do tax related work alone are performing online. The individuals are provided the digital support to manage their tax related work in an effective manner. This has helped the individual to track their progress in an effective manner. The individual is required lodge their tax return online. However, it is the responsibility of the taxpayer to ascertain that all the incomes are included in the tax return. This helps in minimising the incorrectly reported income. The ATO is also improving the self-help service so that the individual tax preparer can improve the tax return and compliance. In order to improve the self-help service the tax office is performing consulting procedure. The tax offices have been able to identify the inaccurate claims that have become more sophisticated. These steps have been undertaken by the tax office for the improvement in the tax related services. It can be said that overtime and the change in the policy will be able to eliminate the need for the individual return, as the tax office will have the required data. In this manner, the tax office has been able to eliminate all the shortcoming and has taken steps to ensure that all the requirements are fulfilled. Therefore, it can be said that yes in Australia protection are provide to client that manage tax on their own.

Conclusion:

After studying the entire report, one should be able to gain substantial knowledge about the concept of Legal Professional Privilege and Accountants’ Concession as well. In this report an extensive overview regarding the Legal Professional Privilege has been provided which also makes one enable to understand how in reality this law provide privileges to the legal practitioners and to the clients as well. Similarly through this report one should also be able to get significant understanding about the Accountants’ Concessions and the different types of documents that are involved with it. Through the study of accountants’ concession it was observed that there are some documents to which ATO or its officer has no legal access unless there are some fraud involved in the matter. Along with this through this report one shall be able to understand about the different types of documents that are involved with accountants’ concession such as non-source documents, source documents and restricted document. Moreover after making a brief comparison among Australia and other developed countries such as UK, US and New Zealand it was observed that Australia is far behind from these countries in term of utilising these privileges and law in an effective manner. Hence it can be recommended that Australia shall take corrective and appropriate measures to make the proper and best possible use of these privileges in favour of the clients and as well as for the lawyers or law practitioners as well.

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