Majority of UK Supreme Court finds that tax advice by accountants is not privileged

In Prudential plc v Special Commissioner of Income Tax [2013] UKSC 1 the UK Supreme Court has determined (by a majority of 5:2) that the taxpayer was required to produce documents to the Revenue and that those documents were not covered by Legal Advice Privilege (LAP) where the advice was given by accountants in relation to a tax avoidance scheme.  The essential question in the case was whether LAP extends, or should be extended, so as to apply to legal advice given by someone other than a member of the legal profession (in this case to tax advice given by PwC), and, if so, how far the privilege thereby extends, or should be extended.

While the case does not deal with GST or VAT, it is an important decision because it had the potential to impact on the ability of the Revenue to obtain documents from taxpayers. It is established that the Revenue cannot obtain privileged documents (save for some exceptions, including where the privilege has been waived) – the extension of privilege to tax advice by accountants (which would include advice on GST) would greatly extend the scope to which taxpayers could refuse to disclose documents to the Revenue.

While the majority of the Lords found that LAP did not extend to the advice provided by PwC, the minority (Lords Sumption and Clarke) gave powerful dissenting judgments.  The majority essentially took the view that the issue was best left to Parliament. Nevertheless, the majority appeared to agree with the minority that, in principle, there was no difference between tax advice from accountants and lawyers.  As noted by Lord Hope (at [79]):

A search for a principled answer might well lead one to the conclusion that there was no good reason at all for holding that the tax advice of chartered accountants should be treated differently from similar advice given by a barrister or a solicitor, as Lord Sumption’s powerfully reasoned judgment so ably demonstrates. He starts from the position that the English law has always taken a functional approach to legal advice privilege, and that all one needs to do is recognise as a matter of fact that much legal advice falling within the principles governing legal advice privilege is given today by people who are not lawyers.

In Australia, Accountants have been pushing for legal privilege to be extended to tax advice. On 15 April 2011 the Assistant Treasurer released a discussion paper which explores this issue and sought submissions from interested parties.  I believe the submissions are still being considered.

My analysis of the decision can be found here.

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