International Taxation Law - In what countries is the giving of tax advice protected from disclosure to the taxing authorities?
INTERNATIONAL TAXATION LAW
IN WHAT COUNTRIES IS THE GIVING OF TAX ADVICE PROTECTED FROM DISCLOSURE TO THE TAXING AUTHORITIES?
There a number of reasons why the confidentiality of tax advice given by lawyers to their business clients is becoming very important.
First, businesses are becoming international in their operation. They are having to obtain tax advice not merely from traditional, common law countries where solicitor-client privilege is relatively well entrenched but are also doing business in Asia and in Eastern and Western Europe. Is the solicitor-client privilege always going to be respected in these countries? Another reason why this issue of confidentiality is important is because of the efforts of governments to curb what they perceive to be aggressive and unlawful international tax planning. The Panama tax leaks are an unsettling reminder to businesses with international markets. Increasingly, those businesses are asking the basic question of whether or not the tax advice they have received are protected from disclosure from government authorities.
It is increasingly important for Australian and overseas businesses doing business in Australia to understand the nature and scope of the privileges and protections against disclosure of tax advice in various jurisdictions.
The international tax law division of LAC Lawyers has prepared this briefing note for its clients to answer that question.
We now look at the following countries.
In Canada, lawyer-client legal professional privilege generally protects the provision of legal advice from disclosure to taxing authorities. Provided the advice came into existence during a relationship of lawyer and client, and the information is provided in confidence, then all communications made either by the client or by the lawyer will be protected.
The rationale for the privilege is to encourage frank, accurate and truthful communications. The law assumes that clients will be less than forthcoming if they believed that the facts they were disclosing could be the subject of compulsory regurgitation to the taxing authorities from the lawyer.
Importantly, there is no privilege from discovery which extends to tax accountants. However, if those accountants are acting as the agents of the client, then the lawyer’s privilege may extend communications with such third parties.
Legal professional privilege in Canada is not absolute. A lawyer cannot invoke the privilege to suppress evidence of a future crime. Discussions about past crimes are protected insofar as they disclose evidence. Furthermore, lawyers have a duty to notify authorities if they believe that a client will take actions which constitute a serious and immediate threat of personal harm to others.
In the People’s Republic of China, there is no equivalent concept of legal professional privilege.
To the contrary, under the law of lawyers in the People’s Republic of China, lawyers do have an obligation to keep secret the confidential information of their clients. There are numerous exceptions. They include where the information involves criminal activity, constitutes a threat to national and public security, or harm or damage to another party’s personal or property interests. Furthermore, the PRC Law of Lawyers forces lawyers to reveal confidential information which has been provided pursuant to a lawyer-client relationship. The law states that if the lawyer conceals any fact from any court or government authority including taxing authorities, the lawyer commits a crime and his license to practice as a lawyer in China may be revoked.
Furthermore, there is no protection or privilege provided under the PRC Law of Lawyers with respect to any information or documentation related to taxation.
Again, French law recognizes legal professional privilege. The scope of the privilege relates to whether or not the lawyer is giving advice or whether preparing defence or prosecution of legal proceedings.
Whilst there is no specific privilege for taxation advice, the taxing authority cannot ask for details about the kind of service of content of services provided by the lawyer.
The medium used to provide the legal advice is irrelevant. It will apply to any material or intangible means such as paper, fax, electronic, digital etc. Interestingly, the privilege will also apply to correspondence between a lawyer and other lawyers except where that correspondence is marked “official”.
Both the French Supreme Civil Court and the European Court of Justice have ruled that a lawyer’s professional privilege was a fundamental principle under French and European law.
However, confidentiality protection is not extended to the opinions of in-house counsel established in France. This is because French law does not regard them as independent from their employer. Taxation advice provided by in-house counsel, in France, is therefore accountable to the regulatory authorities.
We also note that French taxation officials are attempting to wind back the extent of professional privilege protecting information exchanged between lawyers and their taxation clients. These measures are intended to fight tax and financial fraud efficiently. These efforts, however, have been temporarily halted by the Constitutional Council which ruled that tax authorities cannot rely on documents obtained by administrative or judicial authority in conditions subsequently declared illegal by a judge.
German law does not recognize privileges like legal professional privilege in common law countries. German law will nevertheless recognize doctrines that have a similar effect and constitute exclusionary rules. By these rules, tax advice is protected by the obligation of secrecy which, unlike some other jurisdictions, also extends to German-admitted tax professionals such as certified tax advisors and certified public accountants. The secrecy obligation prohibits tax professionals from disclosing any document or information obtained during their professional practice. Although these documents are not privileged, a tax professional including a lawyer cannot disclose the documentation or give evidence about their content or effect without the consent of the client.
It is important to note that the privilege only applies from the perspective of the lawyer. The documents may well not be protected from the perspective of the client or third party. This has tended to create a culture of oral as opposed to written taxation advice by Germany taxation official s.
Again, there are doubts as to whether or not any secrecy privilege relating to the giving of tax advice will extend to in-house counsel.
There are also no categories of information that are explicitly not subject to protection. The protection only applies to information or documents in the possession of the lawyer. Documents in the possession of the client or third parties are not privileged and may be seized by the taxation authority.
Legal professional privilege for lawyer-client communication is set out in the Evidence Act 1872 (India). Pursuant to this statute, neither a lawyer nor a client can be compelled to disclose any communication between them during the course of a professional engagement. Communications between lawyers and clients also cannot be used as evidence against those clients. The privilege clearly extends to tax advice. It does not, however, apply to other professionals and does not apply to public accountants. If in-house counsel are practicing lawyers, communications with their employers may well be protected. If they are not, however, then confidentiality of communication – whether taxation or otherwise – will not be extended to them.
The scope of the privilege is wide. Any communication from a lawyer is protected by law. The privilege exists from the perspective of its documentary source rather than from its documentary type.
As with common law countries, taxation advice provided by Luxemburg lawyers to their clients is the subject of legal professional privilege. This is set out in article 35 of the Legal Profession Law dated 27 August 1991.
The privilege applies to civil cases. It also has a criminal application in the sense that if the lawyer is assisting a client in relation to an existing criminal charge or investigation, and that charge or investigation could possibly expose the client to criminal prosecution, the professional secrecy rules will apply.
As with other European countries, however, taxation advice is not secret if provided to a client from certified accountants, tax return preparers or tax advisors. Advice from in-house counsel is also not legally privileged.
There are no explicit exemptions relating to tax advice which is not subject to protection.
Legal professional privilege in Switzerland is complex. Communications between clients and their lawyers in the context of providing or receiving legal advice or representation are protected. The privilege extends to work documents created by the lawyer including drafts and notes. The privilege does not extend to written documents issued by third parties which are subsequently given to the lawyer. This is because the lawyer has not “created” those documents.
The privilege does cover legal advice which is given by a registered lawyer. The advice, however, must fall within the scope of the lawyer’s specific activities as described in the client’s service agreement.
This means, in effect, that lawyers may refuse to collaborate with an investigation or testify against their clients or to transfer to the authorities any created documents.
One weakness of legal professional privilege for taxation advice and records in Switzerland is that it may not be possible for the taxpayer client to invoke bank secrecy or data protection where information is being required by the Taxation Administration. Taxpayers are under a duty to collaborate in the taxing procedures in Switzerland. Failure to cooperate may allow the Taxation Administration to impose taxation by estimation or to impose penalties and even criminal sanctions.
There are no categories of tax-related information explicitly excluded from the protections. However, the categories must fall within the definition of a lawyer’s typical activity.
More recently, Swiss law has now imposed a duty on lawyers to report suspicious transactions under domestic anti-money laundering legislation where lawyers act as financial intermediaries. This is largely as a result of pressure imposed by European countries and the United States.
As a common law country, the provision of tax advice is generally privileged and protected from disclosure to the Inland Revenue Service and to State taxation authorities when that advice is provided by a lawyer or a federally authorized tax practitioner including certified public accountants.
The privilege may also extend to advice given in contemplation of anticipated litigation from a Federal or State taxation authority which will protect confidential communications between the taxpayer and the lawyer. Accordingly, many US taxpayers may be able to demonstrate the anticipation of litigation even before filing a tax return having regard to the adversarial nature of the US tax examination system.
Communications by or from in-house counsel are not privileged merely because that counsel is a lawyer. The privilege will only apply to communications with an in-house counsel that are made for the specific purpose of securing legal advice for the corporation client and where such communications are intended to be and were in fact kept confidential.
In relation to categories of information explicitly not subject to protection, communications that are made in furtherance of criminal or fraudulent schemes by taxpayers or by the lawyer loses the privilege. Furthermore, the privilege is lost in the hands of the lawyer even if he or she is unaware of the taxpayer’s criminal or fraudulent intent.
This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.
For any further information concerning this article, please contact Michael Pickering, Principal, Judicate Lawyers – Barristers and Solicitors of Unit 11 / 233 Cardigan Street, Carlton, Victoria, 3053. His contact details are as follows: