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Australian Tax Office to Focus on Professional Privilege Abuses

Posted on Mar. 15, 2019

The Australian Taxation Office will begin cracking down on abusive claims of attorney-client privilege, ATO Commissioner Chris Jordan said March 14. 

According to an advance copy of Jordan’s speech at the Tax Institute’s national convention in Hobart, Tasmania, the commissioner said the ATO is not opposed to legal professional privilege as a concept. “We want taxpayers to be able to get the right and proper legal advice,” he said. “But when lawyers are claiming privilege on thousands or tens of thousands of documents — and we have seen this — we start to wonder if it’s a genuine claim or an effort to conceal a contrived tax arrangement. It all comes back to fairness: Are you using legal professional privilege because you have a genuine need, or as a way to cheat the system? We’ll be taking a tougher stance in the future.” 

Jordan’s remarks were made against the backdrop of a dispute over attorney-client privilege playing out in the High Court of Australia. Switzerland-based Glencore, the world’s largest mining company, is claiming privilege in seeking an injunction to block the ATOfrom using confidential documents included in the Paradise Papers, which were leaked in November 2017. In October 2018 the company said it filed suit to force the ATOto return the documents, which were part of a cache of over 13 million confidential files obtained by a German newspaper and later shared with a group of investigative journalists.

Many of the files documenting the offshore tax planning of corporations and individuals came from Appleby, a law firm with offices in Bermuda, the Cayman Islands, and other jurisdictions. The Guardian reported last year that the Paradise Papers include documents revealing how one of Glencore’s Australian subsidiaries had been involved in huge cross-currency interest rate swaps that the newspaper said had previously been targeted for investigation by the ATO.

In announcing the lawsuit, Glencore said legal professional privilege is a fundamental right that protects advice provided by lawyers to their clients. According to the High Court’s docket, a full hearing on Glencore’s request for an injunction will be held April 17.

Jordan also discussed a March 13 report by the Inspector General of Taxation (IGT) about media reports in April 2018 that the ATOoften pursued small businesses for more tax than they owed and refused to compensate them for their losses. The commissioner said he was concerned about allegations of “cowboy cash grabs” on small businesses, claims that the ATO’s collection personnel were rewarded for amounts collected, and suggestions of systemic recklessness and disrespectful conduct on the part of staff. 

The IGT’s report focused on garnishment actions taken by ATO staff. While the IGT concluded that there had been “localized situations for a limited period,” it said ATO management had addressed the problems. “The allegations that there was an ATO direction for a ‘cash grab’ on small business or that debt staff personal performance [was] set on amounts collected are not sustained,” the IGT said. 

Jordan said he was delighted with the report. “It found that it is ‘very clear’ that staff issuing [garnishment] notices applied due process in a manner that had regard for the taxpayer and acted entirely within the objectives of the overall ATO administrative policy in issuing garnishee notices,” he said.

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