I have always considered myself a tax lawyer. This is notwithstanding that I spent more of my career as a practitioner working in an accounting firm rather than a legal office. After all, the notion of a tax lawyer conjures up exotic and sophisticated images (à la The Firm and Tom Cruise) in contrast to those of a dowdy bespeckled tax accountant. Admittedly, this self-image was badly shaken early on at the 1990 Deloitte Touche Tohmatsu Melbourne office Christmas party. The partners had arranged for the party to continue at the Hyatt on Collins Street nightclub where Deloittes’ staff would be admitted for free. Upon presenting at the entrance, the bouncer took one look at me and said “You look like an accountant, so you can come in”.
So, what is the difference between a tax accountant and a tax lawyer? Thirty-two years later this has now been considered judicially, at least in the context of legal professional privilege: FC of Tv PricewaterhouseCoopers 2022 ATC ¶20-821; [2022] FCA 278.
Background
During the 1980s, the ATO stepped up its audit activity. Identifying an opportunity, accounting firms derived the “prudential audit” product. Better to have your accounting firm undertake a “friendly” tax audit to identify risk areas rather than wait for the ATO to arrive unannounced at your reception desk. Armed with prudential audit outcomes a taxpayer could then chart a course, which might include voluntary disclosure with low or no negotiated penalties.
However, the ATO also spied an opportunity. Allow the accounting firm to undertake the audit then slap them with a s 264 notice (of the Income Tax Assessment Act 1936 as it then was –now s 353-10 of schedule 1 to the Taxation Administration Act 1953) relieving the ATO of the hard work in identifying tax underpayments.
Naturally this was controversial and, while it ultimately led to the Commissioner’s accountants’ advices concession, accounting firms examined various avenues to ensure the protection of their advices from disclosure. The need for a solution intensified when it became apparent that some tax lawyers were seeking to wrestle market share back from the accounting firms by “marketing” that their advices were protected by legal professional privilege unlike those of their accounting competitors.
One strategy adopted by the accounting firms was utilising “friendly” law firms as conduits for the transmission of advices to clients. With the emergence of the multidisciplinary consulting nee accounting firm, inhouse legal practitioners might even provide these services. The non-legal practitioners might be considered under the supervision of the legal practitioners and viewed as agents of the clients in their engagement with the legal practitioners.
Recognising that increasingly tax advisers in the larger accounting firms had dual qualifications in law and accounting (some even legal practice certificates), and that their career paths took them between law and accounting practices, the argument was countenanced that their advices should be privileged, irrespective of their erstwhile employer. In a sense the privilege should follow the legally trained or qualified adviser regardless of their exact title if the advice was truly in contemplation of legal proceedings. This set the scene for the much anticipated showdown in FC of Tv Pricewaterhouse Coopers 2022 ATC ¶20-821; [2022] FCA 278.
Facts
From the outset it needs to be appreciated that a significant amount of the reasons for the decision have been redacted to preserve confidentiality (in fact only 39 paragraphs out of 934 are available) while the Court seeks submissions over the extent to which further reasons can be published. Nevertheless, sufficient details have been made available to identify answers to the primary issues.
The case concerned the Commissioner’s challenge against PricewaterhouseCoopers’ (PwC) claims on CCH iKnow>Income tax>News>CCH Australian Tax Week>2022 Tax Week>ISSUE 14, 8 April 2022>PRACTITIONER ARTICLE>What is the difference between a tax accountant and a tax lawyer?© CCH2behalf of its client that certain documents (around 44,000 in total) were subject to legal professional privilege (LPP), and therefore did not need to be produced pursuant to a notice issued under s 353-10.
While the Commissioner disputed the LPP claim over approximately 15,500 documents, for the purposes of the trial a sample of 100 documents (50 selected by the Commissioner and 50 selected by PwC) were considered. (Note that this actually amounted to 116 individual documents because attachments to emails were treated as additional.) As an interesting aside, given that the Commissioner was prohibited from sighting the documents it selected, the Court appointed 3 barristers as amici curiae to assist the Court in relation to the LPP claim in respect of these documents.
The Commissioner challenged PwC’s LPP claims (on behalf of its clients) on 3 alternative grounds:
- The form of the engagements between PwC and the clients did not establish a relationship of lawyer and client sufficient to ground a claim for LPP
- As a matter of substance the services provided by PwC pursuant to the engagements were not provided pursuant to a relationship of lawyer and client sufficient to ground a claim for LPP
- The documents did not record communications made for the dominant purpose of giving or obtaining of legal advice from one or more lawyers of PwC
The fact that PwC was a multidisciplinary partnership comprised of accountants, tax agents, other non-legal practitioners and legal practitioners, with a variety of services provided, was said to preclude any scope to claim LPP.
Decision
Grounds (1) and (2) of the Commissioner’s challenge were rejected on the basis that a relationship of lawyer and client had come into existence. Significantly, one PwC partner was a legal practitioner acknowledged to be providing legal services to the clients.
That being the case, it became necessary to consider whether each of the sample documents was subject to LPP by virtue of having been created for the dominant purpose of giving or obtaining legal advice. From the portion of the judgment available it would seem that the role of the PwC person (e.g., lawyer, auditor, accountant) behind each communication was critical in making this assessment.
Of the 116 individual sample documents, it was decided that:
- 61 were not subject to LPP
- 49 were subject to LPP in full, and
- 6 were subject to LPP in part.
It should be noted that PwC had withdrawn its claim of LPP over some of the documents initially selected by the Commissioner, requiring re-selections. It also conceded the LPP claim in relation to some of the final 116 documents.
The reasons in relation to each document remain to be disclosed. However, in determining the dominant purpose of the documents, the Court noted that the question is to be determined by reference to the content of the document, its context, and the evidence relating to the document. Critical parts of the context were that the services were provided by a team comprising both lawyers and non-lawyers and that the matter involved overseas offices of PwC that were not able to provide legal advice.
Comment
The decision makes it clear that the involvement of non-legal practitioners in an engagement on behalf of a client does not necessarily negate the availability of a claim for LPP. In assessing whether the engagement is for legal services, a substance approach is called for and any descriptor of the services in the engagement document as “legal” is not decisive. Rather the focus is on whether the communication is in the context of a lawyer-client relationship, however described.
Although PwC was successful on the preliminary questions, the case does illustrate the difficulty with blanket claims of LPP over a large number of documents. The ATO has clearly indicated a preparedness to challenge such claims. In the current matter they had significant success in this respect notwithstanding the CCH iKnow>Income tax>News>CCH Australian Tax Week>2022 Tax Week>ISSUE 14, 8 April 2022>Practitioner article>What is the difference between a tax accountant and a tax lawyer?© CCH3Court’s acknowledgement that LPP was theoretically available.
In September 2021, the ATO issued for consultation a draft Legal Professional Privilege Protocol. The draft protocol identifies the information taxpayers and their advisors should provide to the ATO in respect of LPP claims and the process by which that claim is made, to assist the Commissioner to assess the claim. It specifically identifies with concern arrangements that route communications through lawyers merely for the purpose of obtaining privilege. Notably, the Law Council of Australia has stated that the amount of information that the ATO requires is an overreach. Both the terms of the protocol when finalised and the full judgment of the decision in the PwC case are highly anticipated.
And as for the difference between a tax accountant and a tax lawyer? Well, nothing, almost!
