As a part of the ATO’s extensive information-gathering powers, it can compel taxpayers to furnish or produce certain documents. However, information and documents where the underlying communication is privileged do not have to be provided. Legal professional privilege (LPP) operates as an immunity from any obligation to disclose documents created by these powers.
Recently, the ATO released a protocol which contains its recommended approach for identifying communications covered by LPP and making LPP claims. While it is voluntary for taxpayers to follow the steps outlined in the protocol, it’s more likely that the ATO will accept LPP claims without further enquiries if the protocol is followed.
While the purpose of the protocol document is ostensibly to assist the ATO in deciding whether to accept, review or challenge an LPP claim in an interaction with the taxpayer, it also provides taxpayers with clarity about making LPP claims when responding to formal information-gathering notices from the ATO. The protocol applies to both legal practitioners and non-legal practitioners and all LPP claims, regardless of the firm or business structure within which the service or engagement is provided.
Where an LPP claim is made, the most challenging part of the ATO’s role is to make an informed decision about the communication and the basis on which LPP is claimed. Although the approach contained in the protocol is only voluntary and not intended to replace legal advice, the ATO notes that where the protocol is followed, it will usually have a sufficient level of information to be able to decide next steps. In many cases, it’s likely that the ATO will accept the claim for LPP without further enquiries.
The protocol itself contains three steps for taxpayers who receive an information-gathering notice and wish to make an LPP claim: assessing the situation and the communications involved; explaining the basis of the LPP claim; and advising the ATO how the LPP claim was approached.
This step requires the taxpayer to identify each service or engagement that gave rise to the communication. For example, this might include separately assessing service engagements involving the following: legal practitioners; more junior non-legal persons acting under close supervision and direction of legal practitioners (eg paralegals, clerks, law graduates, executive assistants etc); in-house counsel; those involving non-legal persons or by legal practitioners not acting in capacity of legal practitioners; third-party advice other than from a legal practitioner.
For each of these engagements, taxpayers will need to review each specific communication separately (eg each email within an email chain, its attachments, forwarded copy of email and its attachments), evaluate the overarching relationship, and determine the capacity in which the communication was made.
Taxpayers are also encouraged to check for communications which are usually not privileged but may potentially be eligible for a claim of LPP. This might include internal reports and memoranda, file notes and minutes of meeting with third parties, and original documents which constitute or evidence transactions.
It’s the ATO’s view that taxpayers should explain LPP claims on or before the due date specified within the formal notice that the ATO sends seeking information/documents, although a staged approach to accepting information may be adopted in some instances. For documents and files, details are required such as the names of privilege holders, the identity and role of each person between whom the document passed or communication was made, and the dominant purpose for which the communication was made.
For in-house counsels, details expected from the ATO include their name, whether they have been admitted to practice (and jurisdiction of admission), the functions/positions/roles/responsibilities at the time of communication, and the capacity in which the legal advisor was acting in making the communication.
For specific engagements, taxpayers need to provide an evaluation of the service, engagement or relationship; purpose of the communications; role of non-legal practitioners; and for each person involved in the preparation of communications, their name, position, capacity and whether they hold a current practising certificate.
Finally, it is recommended that taxpayers advise the ATO of the process they have used for making their LPP claim, framed around the following key elements: whether the first step was followed, whether any computer-assisted processes were used, and whether any assumptions or pre-determined judgements around the context of the communications guided the LPP assessment.
Source: www.ato.gov.au/Media-centre/Media-releases/ATO-provides-certainty-on-Legal-Professional-Privilege-claims/
www.ato.gov.au/Business/Business-bulletins-newsroom/Law,-rulings-and-policy/Final-legal-professional-privilege-protocol-and-compendium-released/