Understanding and Managing Privileges in Today's Interconnected World: A complicated web of communications in a global world presents real-world challenges.

Author:Austin, Jenny
 
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Gone are the days when business and fashion trends developed regionally. Remember when certain clothing styles were unique to particular regions in the United States or to different countries? Or when certain foods were generally available only in certain parts of the world? Globalization has brought the world much closer together economically, politically, socially, and culturally, to name a few arenas. Intense competition to stay at the forefront of their industries means that multinational enterprises (MNEs) face multiple pressures to increase efficiency, profits, and innovation.

Today's MNEs have executives, in-house attorneys, and tax professionals and other advisors located worldwide. This creates a complicated web of communications that must occur for the business to operate. MNEs must learn to navigate, identify, and protect privileged communications that span multiple jurisdictions.

Discovery Rule Smorgasbord

To understand the vast differences in the privilege rules across jurisdictions, it is helpful first to understand the differences in the discovery rules across the world. Protecting documents from being discovered by an adversary is at the heart of any privilege analysis in the United States, but the risk of compulsory disclosure outside the United States is usually less of a concern.

In civil law countries, such as France, Italy, Switzerland, and Germany, judges, not the parties, play the central role in determining what evidence is needed and thus what is disclosed to the court and the other party. In civil law countries, there are no pretrial depositions, discovery, or document production. Instead, judges request documents and other information narrowly tailored to what they believe they need to form their opinions. Litigation in civil law countries "proceeds through a series of short hearing sessions ... focused on development of evidence. The products of this are then consigned to the case file until an eventual final stage of analysis and decision." (1) In civil law countries, there is no trial equivalent.

In common law countries, such as the United Kingdom, Canada, and Australia, the parties develop the evidence and disclose to the other side what they wish to disclose. Parties generally are not allowed to file suit unless they can make a prima facie case at the time of filing. In the United Kingdom, for example, parties typically have only a matter of weeks to produce all documents and the names of witnesses relevant to the litigation. Discovery is then limited to seeking information about the documents that the other side has disclosed.

In contrast, in the United States, "mutual knowledge of all the relevant facts gathered by both parties is essential to proper litigation." (2) One of the primary purposes of discovery is to make trial "less a game of blind man's bluff and more a fair contest with the basic issues and facts disclosed to the fullest practicable extent." (3) Sometimes referred to as a "fishing expedition," discovery in U.S. litigation is extremely broad, and the party seeking the information must show simply that the information may be relevant to any party's claim or defense and is proportional to the needs of the case. (4) Even before discovery begins, in federal district courts, each party is required to disclose, among other things, the names of any individual likely to have discoverable information and a copy of all documents that may be used to support its claims. (5) While the U.S. Tax Court has not adopted the Federal Rules of Civil Procedure in their entirety, discovery in the U.S. Tax Court can be time-consuming and expensive, particularly for large matters. In recent transfer pricing cases, taxpayers have had to produce hundreds of thousands of pages of documents and to answer hundreds of interrogatories or questions in response to discovery questions.

Attorney-Client Privilege-Not the Same Everywhere

Given the limitations on compulsory disclosure outside the United States, it is unlikely in another country that an adversary would seek, or even be entitled to receive, communications providing legal advice between in-house counsel and advisors. In the United States, however, adversaries almost always seek these types of communications. If privilege is not carefully managed and maintained, they may be entitled to receive them.

For tax professionals, the risk of having to disclose these communications begins during a federal or state tax audit. Congress...

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