What to do, when the Tax Authority requests documents subject to legal professional privilege

Require that the request be made in writing; provide a reasoned refusal regarding protected information; document the fact that the request was made; and notify the bar self-governing bodies of this fact.

The Bar Council of Ukraine recommended that advocates, law firms, and bar associations follow this procedure during documentary tax audits when a regulatory authority demands information subject to attorney-client privilege.

These clarifications were provided by the BCU during a meeting on August 18 following consideration of a request from advocate Yelyzaveta Korobeinikova.

The rapporteur on this issue, a member of the BCU Hanna Lazarchuk, noted that paragraph 2 of Part 1 of Article 23 of the Law «On the advocacy and the practice of law» establishes a guarantee under which «it is prohibited to require an advocate, his or her assistant, trainee or any person in an employment relationship with an advocate, a law firm, or a bar association, as well as from a person whose right to practice law has been terminated or suspended, to disclose information that constitutes attorney-client privilege». Furthermore, pursuant to paragraph 4 of Part 1 of Article 23, «it is prohibited to inspect, disclose, demand or seize documents related to the practice of law».

These guarantees are formulated by the legislature as absolute in terms of the scope of entities covered: they apply to any state authorities, their officials, enterprises, institutions, organizations, and individuals. Therefore, no person including regulatory authorities as defined by the Tax Code has the right to require an advocate, a law firm, or a bar association to disclose attorney-client privilege. The only exception regarding the mandatory provision of documents concerns trusts. An advocate must provide information within 10 business days if he or she is a trustee or administrator of a trust and has received a substantiated written request in accordance with Article 44-2 of the Tax Code. However, this exception cannot be extended to a routine audit of an advocate’s activities.

The Bar Council of Ukraine has explained that during a documentary tax audit, an advocate, a law firm, or a legal entity may provide the tax authority with documents relating to their own tax records and business activities that do not disclose the information specified in Part 1 of Article 22 of the Law «On the advocacy and the practice of law». The criterion for the admissibility of a document is that it must be impossible to identify the client, the fact of the client’s engagement, or the content of the legal assistance based on it.

Contracts for the provision of legal assistance, acceptance and transfer certificates for services rendered, invoices, correspondence with clients, attorney files, bank statements, etc., may be provided to the tax authority exclusively in an anonymized form that makes it impossible to identify the client, the fact of their request, or the content of the mandate, or upon the client’s written consent.

Refusal to provide the regulatory authority with documents containing attorney-client privilege constitutes compliance with a direct provision of the law and therefore cannot be classified as a taxpayer’s refusal to undergo an audit or as a failure to provide documents for the purposes of applying measures provided for by tax legislation.

In light of this, the BCU has recommended that advocates, law firms, and bar associations, in the event that officials of the tax authority demand the provision of documents or information subject to attorney-client privilege:

1) to request that the demand be made in writing, specifying the list of documents and the legal grounds for their request;

2) provide a written, reasoned refusal regarding documents subject to attorney-client privilege, citing paragraph 2 of Part 2 of Article 21, Articles 22 and 23 of the Law «On the advocacy and the practice of law» and this decision, while simultaneously providing documents that do not contain attorney-client privilege, or anonymized documents, or documents for which a written statement from the client has been received;

3) to record the fact that an unlawful request has been made (in writing, if possible using technical means) and to reflect the relevant objections in the objections to the inspection report;

4) immediately notify the regional bar association and the Ukrainian National Bar Association so they may respond in accordance with the procedures for protecting the guarantees of the practice of law;

5) where grounds exist, challenge the actions of officials of the supervisory authority through administrative or judicial proceedings and raise the issue of liability under Article 397 (interference in the activities of a defense attorney or a person’s representative) of the Criminal Code.

Separately, the BCU advises advocates, law firms, and bar associations to organize their document management in advance in a manner that distinguishes between tax accounting documents and documents containing attorney-client privilege.

This may involve separate storage, labeling of attorney files, or provisions in legal services agreements regarding the procedure for the client to submit a written request in accordance with Part 2 of Article 22 of the Law «On the advocacy and the practice of law».

A copy of the BCU’s decision will be sent to the State Tax Service for consideration during audits of advocates, law firms and associations.