A Perilous “Advice of Counsel” Defense Results in Disclosure, Not Only of Attorney/Client Communications, but of Attorney Work Product Material as Well

Frequently, parties in both civil and criminal cases where fraud or corporate misconduct is being alleged attempt to defend themselves by arguing that they lacked unlawful intent because they relied upon the advice of counsel. Such an assertion instantly raises two fundamental questions:  1) what advice did the party’s attorney actually give?;  and 2) what facts and circumstances did the party disclose, or fail to disclose, in order to obtain that opinion?  It is well understood that raising an advice of counsel defense consequently waives attorney/client privilege. 

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Exactly what it seems

One of the most frequent areas of dispute between the tax authority and taxpayers relates to the conditions under which a taxable entity participating in a chain transaction can deduct the VAT passed on to it. The tax authority (NAV) was recently struck another blow in the tussle when the Supreme Court, in a precedent-setting ruling, took issue with the tax authority’s practice of regularly reclassifying the participants in chain transactions as agents. What’s more, the Curia’s ruling goes significantly further, and questions in general the tax authority’s right to reclassify the transactions of taxable entities on a whim.

NAV has very broad powers to classify a transaction for the purposes of taxation, based on its actual economic content. This reclassification does not affect the business or civil-law aspects of the relationship between the parties, but it can entail a serious additional tax and penalty payment obligation.

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South Carolina: Gas tax increase measure still in play despite disagreements

We recently addressed the increasing possibility that South Carolina would pass a gas tax increase this year, by way of House Bill 3516, formally known as the Infrastructure and Economic Development Reform Act (Act). House members approved it 97 to 18, and it moved to the Senate, where that chamber received it favorably. In mid-March, the measure proceeded to the Finance Committee, but a late March vote of 23 to 18 revealed less widespread support. In early April, the Senate’s debate on the bill was put on hold.
Despite support in the House, there have been suggestions that the Palmetto State may not see a gas tax increase any time soon. The Post and Courier blamed this on “[a] faction of rebellious Senate Republicans [who] killed an effort by members of their own party that would have made the highway gas tax bill a priority.” The dissenting senators took issue with the fact that the increase, which ultimately would have amounted to 12 cents, or 2 cents per year for each year between July 1, 2017, and July 1, 2022, was not offset by either tax cuts elsewhere, or reform of the highway department. The paper characterized the move as a “revolt.”
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Illinois: Chicago’s checkout bag tax explained

The Windy City has recently posted updated guidance on its website to explain the various requirements and procedures put in place since the $0.07 checkout bag tax took effect, on February 1, 2017. Though retailers are not required to, most are likely to pass the tax on to consumers.
Normally, the wholesaler who sells checkout bags to a store is to collect the tax, but if a store receives bags from a wholesaler who has not collected the tax, the obligation is on the store.
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New York: Budget approved with new millionaire’s tax, but without new online sales tax

In a press release touting the passage of New York state’s $153.1 billion budget for fiscal year 2018, Gov. Andrew Cuomo claimed that “we’ve embraced the politics of unity,” in spite of the divisiveness of these “trying times.” The press release highlights the following items:
  • $25.8 billion in education, “the most in history.” This includes free tuition at public colleges and universities for middle-class students;
  • $100 billion for infrastructure investment in projects at LaGuardia Airport, Penn Station, the Bruckner-Sheridan Interchange, and the Kosciusko Bridge, among others;
  • $10 million to the Liberty Defense Project to provide free legal assistance to immigrants, and to enforce anti-discrimination and hate-crimes laws through the newly established $1 million Hate Crimes Task Force; and
  • $2 billion over five years for the Clean Water Infrastructure Act.

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States’ online tax laws continue to prompt lawsuits

There is no end in sight for legal challenges to state government efforts to tax remote sales. The latest involves a lawsuit that Bloomberg made available online, filed by NetChoice and the American Catalog Mailers Association. They say that a new Tennessee administrative rule violates the precedent established in the now familiar 1992 U.S. Supreme Court case, Quill Corp. v North Dakota, which made it unconstitutional for states to impose a use tax collection duty on out of state sellers with no physical presence in that jurisdiction.

The new administrative rule that the suit is premised on contains a nexus provision calling for “[o]ut-of-state dealers who engage in the regular or systematic solicitation of consumers in this state through any means,” with sales to in-state consumers of more than $500,000, to register with the Department, and collect the applicable sales and use taxes on those sales.

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Texas: Comptroller reminds shoppers of upcoming sales tax holidays

In 2016, 17 states, primarily located in the southeastern U.S., offered sales tax holidays, down from a peak of 19 states in 2010, according the Tax Foundation. In the think tank’s 2016 special report characterizing such events at “politically expedient but poor tax policy,” the authors contend that tax holidays distract policymakers and taxpayers from real, permanent, and economically beneficial tax reform. Sales tax holidays introduce unjustifiable government distortions into the economy without providing any significant boost to the economy. They represent a real cost for businesses without providing substantial benefits. They are also an inefficient means of helping low-income consumers and an ineffective means of providing savings to consumers.

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California: Department of Finance takes Board of Equalization to task

In a March 2017 evaluation, the California Department of Finance, Office of State Audits and Evaluations revealed that the California State Board of Equalization’s (BOE) work is problematic because of its operational culture. This has “impact[ed] its ability to report accurate and reliable information to decision makers.” Moreover, “certain board member practices have intervened in administrative activities and created inconsistencies in operations, breakdowns in centralized processes, and in certain instances result in activities contrary to state law and budgetary and legislative directives.”

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Supporting Pieta House Darkness Into Light

HOMS Solicitors are continuing our support of Pieta House with the upcoming Darkness Into Light 5km event on Saturday, 6th May 2017.

Seán Fitzgerald and Rachael O’Shaughnessy, Senior Solicitors in our litigation department, attended the launch of this unique event at the Clayton Hotel on 5th April 2017 and are pictured with the Mayor of Limerick City and County, Kieran O’Hanlon, and representatives of the Limerick City Darkness Into Light Committee.

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‘No looking back’ – one ATED tax trap to avoid

 

April is ATED filing month – 2017/2018 ATED tax returns must be filed and any ATED tax paid by 30 April at the latest.  Even if no ATED is due, because a relief from ATED applies, that relief still needs to be claimed on an ATED tax return, which must be submitted by the end April deadline just the same.ATED applies to companies owning UK let residential property too.  However, a 100% relief from ATED is available if the company is running a property rental business and the relief is claimed each year.

One crucial trap to guard against is occupation of the company’s property by a ‘non-qualifying individual’.  These include people who are ‘connected to’ the company, in the very wide sense conferred on that phrase by s.1122 Corporation Taxes Act 2010.  For example, the settlor of a trust which owns an interest in the corporate entity which owns the property will count as a ‘non-qualifying individual, as will the settlor’s relatives – meaning siblings, and either ancestral or lineal descendants – and even their respective spouses and their families! 
The non-qualifying individual has to be ‘permitted to occupy’, according to the ATED legislation, which may give an escape route if the directors of the company were not aware of the occupation and therefore could not have given permission, implied or express.  Unfortunately there is no definition of what ‘permitted to occupy’ means, either in the legislation or in HMRC’s ATED Technical Guidance.  However, in the content of other taxes, HMRC regards use of a property as occupation if the person who does stay at the property or uses it has a right of access to it and does keep belongings there.  No guidance is also given on how long a period of occupation is needed in order to trigger these provisions.  In an example given in the Technical Guidance, a month of occupation was long enough but there is no discussion of whether a week or even a few days would have been problematic.  Therefore, it’s best to try to avoid these murky waters if possible.  
It is relatively easy for companies to find themselves in trouble over non-qualifying occupation.  The family member who stayed a few nights in the company’s London flat, in the void period between lettings, is a classic situation but unfortunately this can lead to an unhappy outcome.  The consequences of non-qualifying occupation can be severe:
  • ATED relief is denied for the whole of the ATED tax year in which the non-qualifying occupation takes place, unless there was a qualifying tenant renting the property as part of a property rental business prior to the non-qualifying occupation (in which case relief will be allowed for the period of ‘qualifying’ occupation).
  • Relief is also denied for up to the next three ATED tax years, until such time as there is ‘qualifying occupation’.
  • ATED relief is withdrawn for the previous ATED tax year if, in fact, there was no qualifying occupation during that tax year.  (This could be the case if the company was taking steps to rent out the property, such as alterations or redecoration, for which ATED relief is available if the steps are taken without undue delay).

The look forward and look back provisions can result in companies owing ATED for tax years in which it was thought that an ATED relief was due.  The position needs to be corrected by submission of an amended ATED tax return for all years affected, as quickly as possible as time deadlines apply to the tax return filing. 

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