[ 2013-08-12 ]

Accountancy firms eye legal licence that could bolster secrecy
UK accountancy firms are eyeing a new legal
licence that could give their services an
additional layer of secrecy, fuelling controversy
over tax avoidance schemes.

The Institute of Chartered Accountants in England
and Wales said 20 to 25 of its member firms had
expressed an interest in applying for an
“alternative business structure” licence .

Those examining the issue include some of the
“Big Four” audit and consulting companies that
dominate the profession.

ABS licences are part of a drive to open up the
UK’s £23bn legal market to new competition
under the Legal Services Act. The change permits
third-party investment in law firms and allows
companies that are not law firms to offer legal
services.

As well as allowing accountancy firms to compete
more directly with solicitors, an ABS licence
would allow them to refuse to show documents to
tax inspectors in certain situations. This is
because tax work done by an ABS would qualify for
“legal advice privilege” if a lawyer is
involved in at least a supervisory role.

Any such extension of legal advice privilege to
accountants could inflame an already heated debate
over the role of the profession in helping
companies to minimise their tax bills.

The accountancy firms that are weighing up whether
to apply for the new designation include the UK
arm of KPMG, the country’s third-biggest auditor
and consultant by fees. PwC, the market leader,
said it was also examining the issue. It already
has an affiliated law firm in the UK. EY, the
number four accountant, said it was keeping the
matter under review.

The Big Four have been criticised by MPs examining
corporate tax avoidance this year.

KPMG acknowledged that it would benefit from the
extra confidentiality “in specific limited
circumstances” if it secured an ABS licence.

However, it said that its interest was not
motivated by a desire to hide from the taxman, but
by the potential for offering clients additional
legal services.

“We have been providing clients with tax advice
without privilege for many years. That’s not a
driver,” the firm said.

Accountants feel that lawyers who provide tax
advice have an unfair advantage. A Supreme Court
ruling in January upheld the principle that
accountants could not benefit from the legal
advice privilege enjoyed by solicitors doing the
same work.

The ruling related to a case in which Prudential,
the insurer, did not want to disclose to HM
Revenue & Customs documents related to tax
avoidance advice supplied by PwC.

“It would be good to have a situation where
there is a level playing field,” said Simon
Michaels, managing partner of the UK arm of BDO,
another accountancy firm.

BDO is weighing up its options for potentially
securing legal advice privilege, Mr Michaels said.
Deloitte, the second-biggest auditor and
consultant, said it had no plans to apply for an
ABS licence, however.

International accounting networks experimented
with running affiliated law firms in the late
1990s and early 2000s, but the diversification
largely fizzled out in the tighter regulatory
climate that followed the collapse of Enron.

Source - FT

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