HMRC: Strong opposition to privilege waiver
Solicitors have condemned plans by HM Revenue & Customs (HMRC) to introduce a “deemed waiver” of legal professional privilege (LPP) where a promoter markets a tax avoidance scheme and highlights the fact it is supported by a legal opinion, usually from a KC.
The City of London Law Society (CLLS) said it would be opposed to deemed waiver “in any circumstances”, while the Law Society said regulation was the best way to deal with “the very small minority of legal professionals” involved in advising on such schemes.
In its consultation Closing in on Promoters of Marketed Tax Avoidance, launched in March this year, HMRC said that where there was a deemed waiver, LPP would be “automatically waived and the promoter would be required to disclose the legal advice to HMRC if compelled by an information power to do so”.
The CLLS described LPP as “a fundamental right which Parliament and the courts have on many occasions chosen to protect above competing policy considerations” – one that applied to tax matters as much as any other legal matters.
It said the consultation introduced a “new concept of a limited waiver of privilege in circumstances that are ill-defined, lack any definition of how such a waiver is supposed to work and fail to explain why other routes to achieving what HMRC seeks do not work”.
The CLLS was also opposed to HMRC’s plans to repeal regulation 6 of SI 2004/1865, under which legal professionals are deemed not to be promoters under the disclosure of tax avoidance schemes (DOTAS) regime, where LPP would prevent them from being able to comply in full with a promoter’s disclosure obligations.
The CLLS said regulation 6 was introduced in response to concerns that “compliance by lawyers with disclosure obligations under the DOTAS regime could not practically be balanced” with obligations to preserve LLP. These concerns “remain equally valid today”.
The statutory protection for LPP material in primary legislation under section 314 of the Finance Act 2004 would not provide “an adequate safeguard” if regulation 6 was repealed.
On ‘naming and shaming’ lawyers, HMRC has proposed to widen the scope of its publishing powers to include lawyers’ details where they were part of designing a tax avoidance scheme and their role was limited to “activity subject to LPP”.
The CLLS said lawyers “would generally not be able to defend themselves” in respect of this kind of publication, because the information that they would need to provide in support of a defence could be expected to be subject to LPP and confidentiality obligations which could only be waived by clients.
HMRC’s existing powers to publish details of tax avoidance schemes were “sufficient” and the risk of prejudice to reputable advisors outweighed the perceived benefits.
The CLLS said it did not believe that HMRC needed “further powers directed specifically at legal professionals in order to take appropriate action”, given that lawyers were already regulated. “Engagement with the relevant regulators” was the best approach.
The Law Society agreed that regulation 6 should not be repealed, since doing so would “create considerable uncertainty for legal professionals advising on tax and is likely to increase costs”.
Its response said there was no “significant merit in extending a ‘name and shame’ power to legal professionals whose activities as a promoter are wholly covered by LPP, and it will put those legal professionals in the invidious position of being unable to make representations as to why they should not be named”.
The society was “strongly opposed” too to the notion of a deemed waiver of LPP.
“LPP is a fundamental right and a key plank of our legal system based on the rule of law. It has consistently been recognised as sacrosanct by the courts.
“In any event, LPP does not extend to protect communications with a purpose of furthering or engineering wrongdoing, and we consider that HMRC should seek to rely on this ‘iniquity exemption’ before seeking to water down fundamental legal rights that protect all members of society.”
The society said regulators had the ability to investigate “and – uniquely – to override” LPP for the purposes of their investigations.
“Our view is that this is the appropriate way to deal with the very small minority of legal professionals who are involved in advising the promoters of tax avoidance schemes and who do so inappropriately.”
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