UK Treasury Reassures Accountants Over Tax Scheme Disclosure Rules

by Robin Pilgrim, LawAndTax-News.com, London

30 August 2004

The Tax Faculty of the UK's ICAEW (Institute of Chartered Accountants of England and Wales) has exchanged letters with the Government on the application of legal professional privilege to the disclosure of tax avoidance schemes.

The ICAEW Tax Faculty had expressed a number of concerns about the legislation, most recently in June 2004 in response to the draft regulations published earlier this year. The key concern of the Tax Faculty has been whether legal advisers are protected from disclosing tax schemes as a result of legal professional privilege (LPP). Although the rules are designed so that LPP does not apply to prevent disclosure, the Tax Faculty is concerned that there are legal opinions that disagree with this analysis and that the legal profession may be protected from disclosure by LPP.

A reply dated 16 August 2004 from the Paymaster General has assured the ICAEW that the new tax avoidance disclosure rules will not put the accountancy profession at a competitive disadvantage as compared to members of the legal profession. The Paymaster-General, Dawn Primarolo, wrote as follows:

"… Your letter was prompted by your understanding that the Law Society believe, on the basis of advice from Counsel, that lawyers and solicitors will not be able to comply with the disclosure rules by virtue of legal professional privilege [LPP]. You are concerned that the effect of this would be to put accountants and other advisors not covered by LPP at a serious competitive disadvantage in the tax advice market when compared with the legal profession.

"I cannot support this interpretation of the way in which LPP interacts with the disclosure rules. As I said in the Standing Committee debate on 22 June, the disclosure rules are intended to apply fairly and equally to everyone who is in the business of marketing or advising on disclosable schemes. And the way in which the legislation is designed fully achieves this intention.

"In developing the new disclosure rules, the Inland Revenue have, on a number of occasions, consulted leading Counsel and taken advice on the matter of LPP. The Revenue’s position is that there is nothing in the disclosure regime which prevents lawyers from complying with the rules in the same way as accountants and other advisors. The rules require the disclosure of information on tax schemes and arrangements, whilst the effect of LPP is to protect legal advice which a lawyer provides to a client.

"Since there is no requirement for a lawyer to disclose any advice, only the fact that a disclosable scheme has been designed and promoted, there is no conflict between the disclosure rules and LPP. Counsel has confirmed this view. What this means is that the legal profession are wholly within the scope of the disclosure rules, and therefore the risk of unfair competitive advantage does not arise. The Revenue are continuing discussions with the Law Society with the aim of reaching a shared understanding.

"I should also add that, if lawyers were ultimately found to be in the special position which you describe, the Government would need to consider options for amending the legislation to re-establish its original intentions.

"Your final point is that, in light of the uncertainty around the impact of LPP, the implementation date for the disclosure rules should be deferred. As you will be aware, on 22 June I announced changes to the secondary legislation which were specifically designed to provide promoters sufficient time to make the transition to the new regime. These have been generally well received by the profession and I can see no case for postponing implementation of the rules on the grounds of LPP.

"I hope this addresses the concerns of you and your members."

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