Tax laws tend to be the largest body of statute in respective jurisdictions and they are novel in that they contain formulae (usually quite simple in their operation). Most tax lawyers leave the computations to accountants. Tax returns are regarded as the preserve of tax accountants whilst tax advice, structuring and litigation is (or at least should be) the responsibility of tax lawyer. This article lists some tax issues that arise in M&A, banking and finance and property development transactions.
It’s worthwhile for tax lawyers to have an accounting degree although this is not essential. Some tax lawyers were formerly accountants who obtained law degrees. I’m not aware of many lawyers who then studied accounting. The ‘Big 4’ accounting firms and law firms tend to take graduates who are proficient in both areas.
Tax is also one of the only areas of law where a Masters of Laws in Tax (or equivalent) is considered essential. Of course, daily study is crucial for tax lawyers in an area of law that changes more than any other. Due to the large amount of subject matter involved and rapid rate of change, research and writing skills are important.
It is impossible for a tax lawyer to know everything and as a result, in the ‘Big 4’, tax lawyers specialise in many areas, such as private client, corporate tax or transfer pricing. In large law firms, there is not as much specialisation, with a delineation between direct tax, GST and stamp duty. It is worthwhile remembering though that tax lawyers in law firms only practice tax law, whilst most of the ‘Big 4’ handle more tax accounting or compliance than law.
Whilst a tax lawyer can get away without having an accounting degree, the converse is not true. Tax law more than any other area, requires practitioners to utilise the skills learnt at law school ie preparing an advice that sets out the issues, law, application of the law to the facts and providing a conclusion. A photographic memory is not much use in tax (except for, perhaps, in tax advocacy).
There are tax ramifications to almost every transaction and for this reason, the services of a tax lawyer can be beneficial for many different parties. This includes: other lawyers, accountants, financial planners, investment advisers, private bankers, companies, high net worth individuals and entrepreneurs. Below are a list of some of the frequent transactions that tax lawyers advise on.
Mergers & Acquisitions (SMEs)
Note that the ATO regards entities with revenue between $2m & $250m as medium enterprises.
- Tax incentives for early stage investors (the new Government initiatives)
- Tax losses – same business and continuity of ownership tests
- Foreign Investment Review Board requirements
- Dealing with ATO scrutiny
- Small business capital gains tax (CGT) exemptions
- Foreign resident CGT withholding tax
- Stamp duty
- Small business restructure roll-over relief
Financial Services (Banking & Finance)
- Thin capitalisation (especially the debt levels of shareholders)
- CGT participation exemptions
- Consolidation uplifts
- Managed investment trust interactions
- Stapled debt and equity
- Research and Development tax incentive claims
- Branch capital allocations (debt allocation to foreign branches)
- GST issues
- Intra-entity charges
- Offshore capital raisings
- Internal derivatives
- Offshore Banking Units
- Trading stock
- Profit making schemes
- Main residence projects
- Mixed investment & sale projects
- Private property syndicate projects
- Partition & exchange & in-specie distribution investment projects
- GST issues
Of course, many different types of transactions are impacted by tax. In many situations, lawyers have a duty to advise their client on tax matters or to refer client matters to a tax lawyer (Hurlingham Estates v Wilde & Partners). Often, the difference between obtaining tax advice versus no tax advice can amount to a significant amount of money. For this reason, tax law advice should be obtained for all transactions.
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This publication is © Nexus Law Group and is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.