On wearing speedos in wetsuit conditions

An Appeal Court decision this month provides a timely reminder of how unprotected against discovery by the Inland Revenue or other interested parties is the advice provided by an accountant.  Unless and until the law changes, prudence is advised.  A useful metaphor to guide behaviour is to avoid entering the tax waters wearing speedos in wet suit conditions.

This Brief Counsel examines the Court’s ruling in detail.

The case

The issue arose in the context of an ongoing claim by Inland Revenue that cross-border financing transactions entered into by a number of banks constitute tax avoidance arrangements.  The case is one in a series of preliminary cases addressing procedural aspects in advance of the substantive hearings.

The taxpayer’s obligations to disclose the advice had already been considered by the High Court, which had found in favour of Inland Revenue.  The taxpayer had appealed to the Court of Appeal. 

The law

Unlike tax advice given by tax lawyers, which is privileged and therefore not required in whole or in part to be disclosed in Court proceedings, accountants’ advice relies on statutory provisions under section 17 in the Tax Administration Act (TAA) granting a right of "non-disclosure". 

This non-disclosure right is limited.  The Court of Appeal found that, although it could be evoked at the investigation stage in response to a requirement from the Commissioner of Inland Revenue for information, it has no relevance once challenge proceedings have been commenced and the parties are involved in what is essentially commercial litigation.....  

The Court further stated that: Tax advice provided by a lawyer may attract legal professional privilege but such advice provided by a non-lawyer, as is the case here, does not.

The arguments

The arguments before the Court of Appeal focused on whether the tax advice document was sufficiently relevant to the issue of tax avoidance to require the taxpayer to disclose it.  But the Court said that relevance was not the determinant and was in fact a more stringent test for discovery than had been applied in previous case law. 

Instead the Court applied the established precedent from the Peruvian Guano case for determining discoverability, and said that the question to be answered was not whether the document was relevant, but whether the document may lead a party (in this case Inland Revenue) to a train of inquiry which might enable that party to advance its own case or damage its adversary’s case. 

The decision

The Court was satisfied that the tax advice documents met this threshold and ordered the taxpayer to disclose a copy of the documents to Inland Revenue.  The Court did not need to conclude whether the documents would then be admissible as evidence in the Court proceedings. 


These findings highlight the low threshold that applies for requiring non-privileged material to be produced in tax proceedings.  Clients need to be aware of this and to organise their affairs accordingly, taking care to protect themselves against the risk of having sensitive information discovered and used against them in the courts. 

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