Tax laws are particularly complicated because they have to cover every aspect of commercial life. Parliament is always changing them to meet new demands and to close loopholes. Many commercial transactions require a tax sign off and responsible taxpayers will seek advice before adopting a course that could have material tax outcomes. Sound tax advice can be insurance against some tax penalties.
There are probably four main reasons for seeking tax advice from specialist counsel. They are:
(a) Expertise in the field;
(b) The additional judgement that comes from arguing tax matters before the Courts;
(c) The independence of the advice; and
(d) The privilege that attaches to the advice.
As to the first of these, obtaining advice from an expert saves time and money, despite the initial cost. It assists management decision-making and avoids the potential for problems to escalate and become more costly both in monetary and non monetary terms.
As to the second, for most people the adviser they turn to for initial tax advice is their accountant. That is natural enough because in most cases the accountant must reflect the tax position in the financial accounts of the client and will also be responsible for preparing the client’s tax return. There are accounting tax specialists who also advise on more complicated matters. Very often however their advice cannot include the element of judgement that comes from arguing tax matters before the Courts. That allows an understanding of the likely response of a judge to a particular tax issue. Very often an accounting adviser will render a tax opinion which deals with technical tax matters only, without considering well enough the likely response of the Courts.
As to independence, accountants can get caught in a difficult conflict. Either they feel that their client relationship demands they give overly optimistic tax advice, or they feel that their relationship with the IRD demands they give negative client advice. An independent tax barrister does not face that potential conflict and you ought to be able to expect an unvarnished assessment of your legal position.
Lastly, seeking tax advice from a barrister also ensures that the facts on which you want advice remain entirely confidential from the IRD. Accounting advisers can offer their clients a statutory non disclosure right for the tax advice they give but they are compelled to disclose to the IRD so-called “tax contextual” material, ie the facts on which the advice is premised. In many cases it is disclosure of the facts to the IRD which would be damaging. Legal professional privilege protects from disclosure all communications (including the facts) passing between a barrister and client.
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