Part II

Regarding auditors, who certify financial statements, the requirements is that one belongs to the Institute of that country (for Rwanda it is the Institute of certified Public Accountants of Rwanda), the category is regulated by the Institute rules and regulations. 

Lawyers also provide such services. They do not need to meet other regulations; they are required to be members of the bar-association.

1) Regarding control of tax professionals. According to Victor Thuronyi, three approaches are identified:
a) Full regulation model;
b) Partial regulation model;
c) The model of no regulation.

a) Full regulation by the tax administration. This is often termed as the German model.  In this one, the Government sets conditions, as we saw above, which regulate professionals in this practice. The law regulating tax consultants in Germany strictly prohibits practice as tax consultancy, any other persons, who are not authorized to do so.

Under the Germany law, the following persons are recognized as tax consultants: lawyers, accountants and auditors.  There is no question that our model takes after the Germany one.

Before regulations governing tax professionals were introduced in Rwanda, many innocent persons suffered at the hands of self-styled tax consultants, who picked money from taxpayers pretending that they were facilitating them, but that money found its own way into the pockets of these unscrupulous guys.
 
b) The other one is "partial regulation” often known as the US model. US has regulations over tax professionals just like Germany but activities like preparation of a tax return can be done by other persons who are not tax professionals. Return preparers are closely monitored in the performance of their duties; by insuring that their identifications are well captured so that it is possible to know whether the errors which occur are from same persons. Australia falls between the strict German model and the US type. Australian type is tricky, in the sense that a taxpayer is allowed to deduct fees paid to a registered tax agent or a lawyer/solicitor, but he is denied deduction of fees paid to a non-registered agent. Clearly, the non-registered agent is also permitted to operate, but how many persons do seek their services when money spent on services of unregistered advisors cannot be deducted as expense?

c) The model of "No regulation”
In some countries, representation before tax authorities by non-lawyers is permissible, as quite often, such representation does not require strict rules as in court that may require the rules of evidence or rules governing procedure, talk of tax tribunals. Regulation sets in when it goes to the level of courts.

2) Regarding liability of tax professionals 
Under Rwandan system, professional liability is more emphasized when we talk about auditors charged with certifying financial statements and tax returns, than it is with other tax consultants. There are no sanctions provided in income tax, but of course recourse for such liability has to be sought through civil and commercial law, which is often found in contracts entered into by the parties concerned.
There are three schools of thought in regard to professional liability:

i) The first one is that if there are penalties or fines which are incurred as a result of the consultant’s errors which may appear in returns or audited financial statements, then the taxpayer should be the one to pay and then, the taxpayer gets remedied following civil and commercial law, under which case the consultant reimburses the money paid as a fine/penalty. This is sorted out between the two parties.  

ii) the other one is that the taxpayer pays the fine, but he remains protected by the specific law (not the general law as in the case I mentioned above), where the consultant indemnifies the taxpayer. In other words, there is a need for rules set aside for this kind situation.

ii) Lastly, the tax practitioner gets fined for errors he/she commits. As we saw above, the auditor who commits errors pays related fines. The argument behind this kind of design is that there is no need to penalize a taxpayer who employs a specialized person in order to be right in regard to tax. This is what our system has followed.

However, critics and people like Victor Thuronyi and Frans Vanistendeal say that this is hard to administer as the tax administration has to get involved in evidentiary disputes in order to establish who between the taxpayer and the tax professional is responsible for the error.

3) The other design consideration is the protection of attorney-client information.

By privileged communication, we mean the level of protection of the advice provided by a tax-practitioner/lawyer to a client. Where such "privileged communication” exists, it only applies to lawyer-client relationship. Privileged communication is a common law right which operates to avoid disclosure to a third party of certain information between lawyers and their clients.

Ends