Dáil Éireann Debate, Tuesday - 24 April 2012
219 Deputy Michael McGrath asked the Minister for Finance the position regarding the Revenue Commissioners being precluded from obtaining information that is subject to legal privilege; his views on whether this new rule allows people who want to hide from the Revenue Commissioners to use legal firms to provide tax services and then claim the information was privileged. [20106/12]
Amharc ar fhreagraI am assuming that the reference in the Deputy's question to a "new rule" in relation to legal privilege and the Revenue Commissioners relates to aspects of the mandatory disclosure regime introduced in Finance Act 2010 and contained in Chapter 3 of Part 33 of the Taxes Consolidated Act 1997. I am advised by the Revenue Commissioners that the mandatory disclosure regime, broadly speaking, requires promoters of tax based transactions which meet certain "hallmarks" to disclose details of them and the clients that have implemented them to the Revenue Commissioners within a short time frame of their being first marketed or used. The purpose of the regime is to act as an "early warning" system regarding schemes which may constitute aggressive tax avoidance so that they can be challenged and closed down before significant fiscal damage can be done.
While the mandatory disclosure regime requires promoters of tax related transactions that fall within the provisions of the legislation to provide certain information to Revenue about how the scheme works, the Commissioners have also advised that the legislation explicitly provides, in section 817J of the Taxes Consolidation Act 1997, that a promoter will not be required to disclose information about a scheme in respect of which legal privilege could be maintained in legal proceedings. However, in such circumstances, the legislation (section 817H of that Act) places the disclosure obligation on the client and also requires the promoter to advise the client of his or her obligations in that regard, and to inform Revenue that legal privilege is being claimed.
The Commissioners have further advised me that the recognition of legal professional privilege in the tax sphere is not new. Provisions similar to section 817J are contained elsewhere in the Taxes Consolidation Act 1997 (e.g. sections 900(4), 902(9) and 902A(6)) limiting Revenue powers in situations where legal professional privilege is established. Indeed, as far back as 2002 the Revenue Commissioners and the Law Society entered into a Memorandum of Understanding concerning the audit of tax returns of solicitors and solicitors' practices, which sets out an agreed position recognising the extent to which legal professional privilege applies in such situations.
Legal privilege is a very important common law principle that provides that certain communications between a client and his solicitor are privileged and immune from subsequent disclosure to a third party. The rationale behind this principle is that it assists and enhances the administration of justice by facilitating the representation of clients by legal advisers and inducing the client to make full and frank disclosure of the relevant circumstances to the solicitor.
Not including specific provisions in the mandatory disclosure legislation, firstly, to recognise and deal with legal professional privilege and, secondly, to shift the onus of disclosure from the promoter to the client in such circumstances could, I believe, given the common law principle, have resulted in the very situation described in the question arising i.e. the legal promoter could invoke the legal professional privilege defence with no statutory requirement on the client to disclose in his stead.
Therefore, while the existence of legal professional privilege cannot be ignored, imposing the disclosure obligation on the client in such circumstances, ensures that the mandatory disclosure legislation works as intended and does not allow individuals who avail of tax advice from legal firms in relation to transactions that are required to be disclosed under the mandatory disclosure scheme to hide from the Revenue Commissioners.
