The ATO has released a draft Protocol containing the ATO’s recommended approach for identifying communications covered by Legal Professional Privilege (LPP) and making LPP claims to the ATO.
Specifically, it has been developed to assist taxpayers and their advisors when making LPP claims in response to requests for information the ATO makes under its formal information gathering powers. It does this by explaining the ATO’s recommended approach for claiming LPP and providing with information on what can be expected in different situations. It is voluntary to follow the recommended approach.
The draft details a 3-step process for making LPP claims.
Step 1: Assess the engagement and each communication
The first recommendation here is to identify the service or engagement giving rise to the communication. The draft sets out 4 broad categories:
- service or engagement involving only legal practitioners acting in their capacity as legal practitioner;
- in-house counsel;
- service or engagement that had involvement by non-legal persons or by legal practitioners not acting in the capacity of legal practitioners; and
- service or engagement where third party advice was obtained other than from a legal practitioner.
Once the service or engagement is identified, the draft recommends that each communication is assessed separately, guided by established legal principles. This means considering each communication on its merits, with a separate review undertaken for:
- each email within a chain of emails;
- the attachments to the emails;
- a forwarded copy of an email and its attachment.
When assessing copies of the same document, the ATO says to assess each copy separately. The draft contends that an original document is privileged, but copies made of that document are not. Equally, a copy of a document may be privileged even if the original document is not privileged. It is important to consider the purpose of each communication separately. The draft also recommends assessing whether LPP has been waived by actions that are inconsistent with the maintenance of an immunity founded on maintenance of confidences, eg by communication with other parties.
Step 2: explain the claim
The ATO recommends that claimants provide the following:
- document ID, file name or reference number;
- the name of privilege holder(s);
- the date the document was prepared/communication was made;
- the number of pages in the document;
- title or subject line of the communication;
- the form of the communication (email, letter, file note etc);
- the type of document (advice, contract, invoice);
- the identity and role of each person between whom the document/communication is made: (i) author(s) and, if different, sender (name, position, organisation); (ii) identify all people who have received the document (name, position, organisation). If the document is an email this will include those in the “cc” and “bcc” fields;
- whether the document is a copy;
- the dominant purpose for which the communication was made – but not to the extent this discloses the content of the advice;
- the legal issue being advised upon or for which the advice is being sought except to the extent that disclosure of the legal issue would also disclose the content of the advice;
- whether the communication was forwarded. If so, provide an explanation of: (i) the purpose of forwarding it; (ii) how confidentiality in the communication was maintained; (iii) how privilege was not lost;
- whether LPP is claimed in full or in part; and
- if there are attachments to the document whether LPP is being claimed over the attachment/s.
In terms of the last point, if “yes”, then identify the relevant Document ID/number of the attachment/s and provide the standard particulars for the attachment/s.
And there is indeed more, ie additional requirements which apply to in-house counsel and specific engagements.
Step 3: advise approach
In the last step the ATO asks LPP claimants to advise it of the process used for making claims, framed around the following key questions. The process varies slightly between taxpayers claiming their own LPP or practitioners making the claim on behalf of their client.
- Did you follow step 1 of this Protocol? If no, provide a description of the process used to identify the communications over which an LPP claim is made.
- Did you use any computer-assisted processes to assess if LPP applies? If yes, provide details of the platform used and an explanation of the process undertaken.
- Was the assessment of LPP based on any assumptions or pre-determined judgements around the context of the communications which guided the assessment of LPP? If yes, provide the assumptions or other parameters used.
ATO expectations and concerns
The ATO expects the following from a legal practitioner involved in assisting or advising a client in relation to their obligations to provide information and documents to the ATO (or “firm documents”).
- Where possible, the legal practitioner has received instructions from their client prior to making an LPP claim in response to a formal notice.
- The client understands the nature and extent of the claims they are making.
- The legal practitioner made reasonable enquiries to ensure the claiming of LPP has a proper basis.
- The legal practitioner have advised the client of the existence of the LPP Protocol and the approaches to making LPP claims that are available and the likely responses to those approaches. The ATO recommends advising the client of the extent to which the recommended approach of this Protocol has been followed, ie if there has been a departure.
- If the legal practitioner was involved in the communications over which LPP claims are to be made, the client is specifically aware of this and any conflicts of interest have been disclosed and are appropriately managed and/or mitigated, including in relation to “firm documents”.
- The legal practitioner’s instructions allow it to attend to the above matters.
The ATO has flagged the following as areas of concern.
- Contrived arrangements or relationships which purport to attract LPP where there is a purpose of concealing communications. The ATO will pay close attention to circumstances where LPP is actively promoted as a feature of tax advice. This is different to where an advisory firm is merely pointing out that privilege is an ordinary feature of communications that are for the sole or dominant purpose of giving or receiving legal advice or advice for litigation.
- Routing advice through a lawyer merely for the purpose of obtaining privilege. Again, communications having the purpose of obtaining privilege are not for the sole or dominant purpose of giving or receiving legal advice or for litigation.
- Legal engagements entered into after the substance of advice was provided by non-legal persons.
- Concepts and ideas proactively promoted or marketed, or presented by a person or firm, whether lawyer/law firm or otherwise, prior to a legal engagement and unsolicited by the taxpayer.
- Communications exclusively between non-legal persons in circumstances where the involvement of a lawyer is not apparent.
- Unclear (and potentially overlapping or inconsistent) capacities and relationships designated to different members of the firm. For example, non-legal persons purporting to be an agent of the client in dealing with legal staff, an agent of the lawyer in dealing with the client, as well as potentially being an independent expert on tax law matters.
Comments are due by 31 October 2021. The ATO advises that “separate workshops will be held with a number of key stakeholders”.
Thomson Reuters’ comment
The Law Council has issued a media release advising that concerns “remain” about the draft (dated 23 September 2021).
The Law Council states that “the draft protocol released yesterday in places overreaches in the extent of detail of communications that the ATO recommends taxpayers and their lawyers provide in order to maintain a claim of privilege, and seeks to impose expectations on lawyers over and above their professional duties and obligations”.
Now, this is not unexpected – a bit like Mandy Rice-Davies’ response under cross-examination when advised that a British politician denied having a dalliance with her (ie “well he would, wouldn’t he?”) – but this a neatly expressed concern. The level of detail that the ATO sets out for every communication would appear to make the task of cleaning the Augean stables look like child’s play.
This article was first published in Thomson Reuters’ Weekly Tax Bulletin.