UK: UK Prudential Case: Accountants’ Tax Advice Not Privileged

Last Updated: 13 March 2013
Article by Thomas Brook, Kathleen S.M. Hanly and Alan M. Schwartz

The UK Supreme Court has held in the recent case of R (on the application of Prudential plc and another) v. Special Commissioner of Income Tax and another1 that legal advice provided by accountants is not protected by "legal advice privilege."2 The Court acknowledged that the advice would have been privileged if provided by a lawyer.

In this case, the taxpayer, Prudential plc, had implemented a "tax avoidance scheme" relying on advice from an accounting firm.3  The UK tax authority sought certain documents in connection with the relevant transactions from Prudential.  Prudential refused to disclose the documents on the grounds they were privileged and sought judicial review of the UK tax authority's demand for the documents. 

Both the UK High Court and Court of Appeal held that Prudential could not claim legal advice privilege because the legal advice had been provided by accountants.  Prudential appealed to the UK Supreme Court.

The Supreme Court, in a 5-2 decision, held that legal advice privilege did not extend to advice provided by accountants.  Lord Neuberger, writing the main decision for the majority, acknowledged that there was a strong case for extending privilege in the circumstances4 but concluded that the Court should not do so because:5

  • Extending privilege in this context would move away from a clear and commonly understood standard and create uncertainty.  For example, it was not clear under the broader privilege formulation advocated by Lord Sumption in his dissent (see below), who should be considered a professional (town planners, pension advisors?) for privilege purposes and when a professional should be considered to be ordinarily providing legal advice.
  • Extending privilege to legal advice given by non-lawyer professionals raised policy questions that were best left to Parliament.
  • Parliament had previously legislated to extend privilege (for example, to trademark agents and others) but had declined to extend it to accountants.  Thus it would be inappropriate for the Court to do so.

Lord Sumption wrote the main dissenting opinion.  In his view, there was no principled basis for distinguishing between a lawyer and accountant performing the same function.  Unlike the majority, he did not think this issue should be left to Parliament, given that privilege was a fundamental common law right.  He said that legal advice given by a professional, whose profession ordinarily includes the giving of legal advice, should be privileged. 

The UK Supreme Court in Prudential has effectively invited Parliament to reconsider the scope of privilege.  In fact, Lord Clarke in his concurring dissenting judgement said that he hoped Parliament would consider the issue "as soon as reasonably practicable."6

Nonetheless in the current environment, where tax authorities all over the globe are focussed on base erosion and profit shifting7 and are seeking more, not less, information and transparency from taxpayers, the UK Parliament may be reluctant to extend privilege to accountants' legal advice.

The Prudential decision is consistent with the Canadian case law on this issue.  In the leading case of Tower v. MNR,8 the Federal Court of Appeal declined to extend privilege to advice from accountants:9

Solicitor-client privilege is rooted in the proper administration of justice, made necessary by the need for confidential advice in prosecuting one's rights and preparing defences against improper claims (see R. v. McClure, [2001] 1 S.C.R. 445 (S.C.C.), at 457-459).  Lawyers are legally and ethically required to uphold and protect the public interest in the administration of justice (see Fortin c. Chrétien, [2001] 2 S.C.R. 500 (S.C.C.) at paragraph 49).  In contrast, accountants are not so bound.  Nor do they provide legal advice, as to do so would constitute a breach of provincial and territorial laws governing the legal professions.  In my analysis, no overriding policy consideration exists so as to elevate the advice given by tax accountants to the level of solicitor-client privilege.

What Does Prudential Tell Us?

The Prudential case reminds us that it is not possible to claim privilege with respect to advice from tax accountants and that the Canadian tax authorities can ask for and obtain planning memoranda and other documents prepared by tax accountants in the course of a tax audit or other proceeding.

See a copy of the Prudential decision (PDF).


 1.[2013] UKSC 1.

2.This is the UK term for solicitor-client privilege.

3.Supra footnote 1, at paragraph 10.

4 Ibid, at paragraph 46.

5. Ibid, at paragraph 52.  

6.Ibid, at paragraph 139.

7.See the recent 2013 OECD Report, entitled Addressing Base Erosion and Profit Shifting.

8. 2003 DTC 5540 (FCA).

9.Ibid, at paragraph 38.zzz

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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