A taxpayer’s right of privacy and the Legal Professional Privilege (LLP) in Cyprus

In Cyprus, according to the Advocates’ Law (Cap. 2) and the Advocates Code of Conduct Regulations of 2002 (the Regulations), the legal professional privilege is recognised as a fundamental and primary right and duty.

There are a number of requirements for the legal professional privilege to apply, such as:

a) There must be a client-advocate relationship;
b) The advocate should be admitted to the Cyprus bar;
c) The purpose of the communication must be to obtain legal advice or assistance in legal proceedings;
d) The advocate must act in that capacity at the time of communication;
e) The client must not waive the privilege.

LPP keeps communication between lawyers and their clients confidential. The scope of the duty of an advocate to a client includes not only a duty of confidentiality, but also a duty to act in his client’s best interests. The effect of this duty is that that an advocate may be in breach even if he discloses about his client matters which are of public record, if such disclosure would be against the interests of his client.

In every case where privilege is claimed, two competing principles must be balanced:

a) The need to disclose relevant evidence in the interests of justice, and
b) The need to sustain a climate of unimpeded communication between the advocate and his client.

Therefore if a client receives from a Cyprus advocate tax advice or tax planning advice, this will be considered as a legal communication and thus protected by the privilege.

This privilege surely does not extend to tax planning advice taken by accountants/auditors. In the recent English case of Prudential Plc v Special Commissioner of Income Tax, reported early in 2013, the court refused to extend the scope of LPP to tax advice given by accountants.

Also, the privilege is questionable whether it applies to in-house lawyers, in the absence of any specific Cyprus case on the matter. According to the EU legal privilege, communication between a company and its in-house counsel is not protected as confirmed by the Court of Justice in Akzo Nobel v European Commission (C-550/07).

It is important for clients to know the above when requesting a tax advice, in order to plan ahead and be aware of their rights, in the event a tax audit takes place.