Exactly Who Should Be Able to Claim Privilege?

When the Australian Minister for Financial Services refers to accountants and tax professionals as "the consiglieri of suburban prosperity", you know a good argument is brewing.

The argument is over who should be able to claim privilege over communications with clients and third parties. At the moment we recognize legal professional privilege. But for a long time accountants have bristled resentfully at their being outside this charmed circle.

During the negotiations over the Legal Services Act 2007 accountants lobbied for the extension of privilege to cover them. Resistance by the legal profession was far too strong and the accountants were forced into retreat. Yet help may be at hand.

The Australian government has issued a discussion paper which considers whether some form of privilege ought to be extended to cover tax practice--tax advice privilege. The Australian Law Reform Commission (ALRC) has suggested privilege should be so extended.

The paper notes that a very limited form of tax advice privilege exists in the US in relation to non-criminal matters. New Zealand has codified some form of privilege also. The UK appears to be in an anomalous situation. At the moment Prudential is appealing to the Supreme Court claiming that tax advice it received from PwC was privileged. The Court of Appeal rejected Prudential's claim after hearing arguments for and against by the Institute of Chartered Accountants for England & Wales and the Law Society.

Arguments for and against seem to take place on multiple levels. There is the security of the tax system which is essential to the mature functioning of the developed state. Tax authorities will have to go beyond the taxpayer's willingness to cooperate. But ideally compliance should be voluntary.

Professions are discriminated against if tax lawyers appear to have an unfair advantage over tax accountants. It can be seen to stifle competition and give monopoly powers unfairly. If you want to see something that bears comparison, have a look at Barak Richman's paper on Rabbinical cartels over the appointments of Rabbis--absolutely fascinating. The arguments adduced by Rabbis are the same as most professions use to claim why there should be no change to their monopolies. It comes down, in large part, to the Rabbis having the expertise which the congregations don't have.

A strong argument put to counter extension is the position of the lawyer as officer of the court who has undergone ethical training. The ALRC believes this can be dealt with by accountants having heightened sensibilities to ethics. They should be ethically trained and continually trained.

There are many other arguments which are covered in the paper. This is a paper worth reading for those concerned with ethics, professions, and globalization.

We know from experience that much Australian thinking has been exported elsewhere, especially in the forthcoming ethical regime in the UK with outcomes focussed regulation. Moreover, the Legal Services Act introduction of alternative business structures will bring this issue to the foreground as multidisciplinary practices grow.

So, maybe now is the time to pull out those DVD sets of The Godfather so nascent consiglieri can learn how to do that intimate and obsequious murmuring into the ear....