Australia’s high court decides legal professional privilege does not apply to use of documents in assessing tax

This article is more than 1 year old

This article is more than 1 year old

The global mining giant Glencore has failed in an attempt to force the Australia Taxation Office to surrender Paradise Papers documents which it claimed would breach the secrecy of communications with its lawyers.

On Wednesday the high court unanimously ruled that legal professional privilege does not grant Glencore a right to stop use of the documents, which the tax office told the court it needed to assess the mining giant’s tax obligations.

Victory for Glencore would have represented a major break with the rest of the common law world and created alarm among regulators, who are already angry at the use of legal professional privilege to stop documents being unearthed during investigations.

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The case concerned legal advice on the Project Everest corporate restructure provided by the premier offshore law firm Appleby, obtained as part of the Paradise Papers investigation in November 2017, including plans to move billions of dollars of assets into offshore structures.

The Paradise Papers also revealed that Glencore’s Australian arm had been involved in cross-currency swaps of up to $25bn of a type under investigation by the ATO.

The swaps, although lawful, are being investigated as a means for companies to shift profits from high-tax to low-tax jurisdictions by use of unrealistic, non-commercial exchange rates.

ATO second commissioner Jeremy Hirschhorn said it would have been “perverse” for the court to find the ATO could not use information already in the public domain.

“Today’s decision is not just a win for the ATO; it’s a win for the Australian community who rightly expect the ATO to use all information available to ensure large corporations and those who seek to hide money overseas are paying the right amount of tax,” he said.

“Once we have information we can’t just ignore it – we are obliged to use all relevant information we have.”

Glencore has previously told the Australian Financial Review that Project Everest was a simplification process “to streamline Glencore’s industrial assets ownership”, which “did not improve Glencore’s tax position”.

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It had argued that the doctrine of legal professional privilege – which generally operates defensively as a means for resisting compulsory production – should extend to preventing the tax office from using legal advice which had been released either unintentionally or through hacking.

The tax office responded that legal professional privilege “does not, and has never” granted a right to stop it using the papers, and that the Income Tax Assessment Act required it to use the documents even if it knew them to be privileged.

Under the act, the commissioner of taxation must use tax returns and “any other information” in his or her possession to work out how much tax is owed.

In a unanimous judgment the court held that legal professional privilege “is only an immunity from the exercise of powers which would otherwise compel the disclosure of privileged communications”, rejecting the claim it is “a legal right which is capable of being enforced”.

Hirschhorn said the ATO was never interested in the legal advice Glencore received.

“In reality, we are interested in facts, not someone else’s analysis of tax law,” he said.

“The critical importance of the case was confirming that the ATO can use leaked copies of documents like contracts, board minutes and banking details.”