AC 6 imposes a disclosure obligation on ‘intermediaries’ who advise on, or are involved in, implementing ‘cross-border arrangements’. A lawyer involved in such a transaction will nearly always be an intermediary. However, a disclosure could be in breach of the legal professional privilege (LPP). Therefore, the regulations provide for an exception to the reporting obligations. But what is covered by LPP? The UK Law Society published its view, a summary of which is below.
What is legal professional privilege?
LPP protects confidential communications, and material evidencing such communications, between clients and/or their lawyers from being disclosed. In some circumstances it also protects communications between clients/lawyers and third parties.
LPP is a fundamental right that makes the right to legal advice effective in practice and underpins the rule of law. There are two types of LPP:
1. Legal advice privilege:
Legal advice privilege applies to confidential communications between solicitors and clients for the dominant purpose of giving and obtaining legal advice and assistance. It has been construed broadly and includes advice on what should prudently and sensibly be done in the relevant legal context.
2. Litigation privilege:
Litigation privilege applies to confidential communications between lawyers or their clients and any third party made for the sole or dominant purpose of conducting existing or reasonably contemplated litigation which is adversarial rather than investigative. The communications must also have been created for the purpose of obtaining legal advice or information relating to the litigation.
Litigation privilege is less likely to be relevant in the context of DAC6.
What does LPP mean for reporting under DAC6?
The LPP exception in DAC6 means that lawyers need to consider whether any information they would otherwise be required to disclose to HMRC under the DAC6 regime is protected by LPP.
In most cases, the Law Society expects that LPP will prevent a lawyer who has advised a client about a reportable cross-border arrangement from making a report under DAC6.
Making a report under DAC6 would imply that the lawyer has given advice in relation to an arrangement that they consider meets the legal definition of being a ‘cross-border reportable arrangement’. It would therefore tend to reveal the nature of advice given and the substance of privileged communications between lawyer and client.
The Law Society further clarifies some specific situations:
- Advice on DAC6: disclosure would likely reveal the conclusion and where the information is privileged, the lawyer cannot disclose it under DAC6, unless the client waives privilege;
- Non-privileged information received through privileged communication: this becomes privileged information in the hands of the lawyer and is therefore protected by LPP;
- Partial disclosure (client's and other intermediaries' names): much of the reportable information under DAC 6 is likely to be privileged in any context. Hence, partial disclosure will in most cases not be allowed;
- Marketable arrangements: if a lawyer were to develop and market arrangements to potential clients that constitute reportable cross-border arrangements, information about their structure is not obtained or created in the course of providing legal advice to those clients.
Can other intermediaries be notified that an arrangement is reportable?
Regulations require lawyers who are prevented from making a disclosure of arrangements on the ground of LPP to notify other intermediaries or, if there is none, the relevant taxpayer. In most cases, however, the Law Society's view is that a lawyer is prevented by LPP from making a notification to another intermediary or a relevant taxpayer who is not the lawyer's client, because notifying that an arrangement is disclosable will most probably disclose a key piece of confidential legal advice in the DAC6 context because it reveals the lawyer’s judgement that DAC6 applies.
Could LPP prevent lawyers from providing evidence to satisfy the ‘lack of knowledge’ defence?
‘Service provider’ intermediaries do not have to report under DAC 6 if they provide evidence to demonstrate that they did not know (and could not reasonably be expected to know) that they were involved in a cross-border reportable arrangement. To the extent such evidence is privileged, a lawyer will not be able to provide it without client consent.
Could disclosure of an arrangement reference number received from HMRC to another intermediary breach LPP?
If a lawyer makes a report to HMRC under DAC6, HMRC should send them an arrangement reference number. They would then be required to pass that number to any person who they know (or should reasonably be expected to know) is an intermediary or relevant taxpayer in relation to that reportable cross-border arrangement.
The lawyer would only receive the reference number from HMRC if they make a report to HMRC under DAC6, which they should only do if not prevented by LPP.
In that context, it might not breach LPP to notify other intermediaries or the relevant taxpayer of the number. Nonetheless, lawyers should consider this on a case-by-case basis to ensure that sharing the number would not inadvertently breach LPP.