Is the ‘Tax Man’ legally entitled to pressure lawyers over their clients’ privilege?

In recent research, Mr Eu-Jin Teo, a legal academic and senior lecturer in accounting at the Faculty of Business and Economics, has shown that the ATO’s attempts to ‘crack down’ on lawyers defending their clients’ privilege in tax cases may be illegal.

The privilege between clients and their legal representatives is a vital aspect of the law. It furthers the public interest by protecting the confidentiality of certain information communicated between client and lawyer, in order to facilitate the receiving of proper advice and representation.

Mr Teo said not enough attention has been given to whether the ATO is operating within the law in what has been its approach to client–lawyer privilege.

“In recent years, the ATO has seemingly become more aggressive in its stance with legal practitioners who point out the existence of client privilege. In some cases, they reportedly have told legal practitioners they are opening themselves up to sanctions if they don’t comply with ATO requests,” said Mr Teo.

A lawyer’s professional duties in New South Wales, Western Australia and Victoria are protected in law through the Legal Profession Uniform Law. Within this is a definition of professional obligations which includes duties to clients.

“One might argue the ATO pressuring a lawyer to not observe client privilege is asking a lawyer to neglect their professional duties under the law,” said Mr Teo.

Section 39 of the Legal Profession Uniform Law states: “A person must not cause or induce or attempt to cause or induce a law practice or a legal practitioner associate of a law practice to contravene this Law, the Uniform Rules or other professional obligations”. All states and territories have a law broadly along these lines.

Mr Teo said an inducement under this law could include an ATO officer informing a lawyer that their client would get a better outcome in their matter with the ATO if they dropped the claim of client privilege.

“This law means that overzealous ATO officers, while trying to ensure the correct amount of tax is paid, may be exposing themselves to criminal culpability if they seek to pressure practitioners in relation to claims of legal professional privilege,” said Mr Teo.

An in-depth examination of the legality of the approach that the ATO has taken to client privilege can be found in the Australian Tax Forum journal (Volume 37(2), p273), Australia’s leading tax journal, which is published by the Tax Institute.