Navigating Tax Consulting: When Does a Consultant's Responsibility Kick In?

Tax consultants play a crucial role in managing financial affairs, often acting as trusted advisors for individuals and businesses alike. However, like any professional service, there are clear conditions under which a tax consultant can be held responsible for errors or omissions. Understanding these conditions is vital for both clients seeking services and consultants providing them.

The Foundation: The Mandate Contract

In many jurisdictions, the relationship between a client and a tax consultant is governed by a mandate contract. Under this agreement, the consultant (mandataire) undertakes to manage the client's (mandant) affairs or provide promised services, such as preparing tax declarations. Consequently, the legal provisions of the Code of Obligations (CO) concerning mandate contracts are applicable.

A key aspect of this contractual relationship is the consultant's responsibility. Generally, the consultant's liability is subject to the same rules as that of an employee in an employment relationship (Art. 398 para. 1 CO, referring to Art. 321e para. 1 CO). This means that the consultant is liable for any damage caused to the client intentionally or through negligence.

The Four Pillars of Responsibility: Conditions for Liability

For a tax consultant's liability to be engaged, four conditions, in line with the general regime of Art. 97 CO, must be met:

1. A breach of contractual obligations.

2. Damage.

3. A causal link (both natural and adequate) between the breach and the damage.

4. Fault, which is presumed if the first three conditions are met.

The client bears the burden of alleging and proving the first three conditions, while the consultant must prove that no fault is attributable to them.

1. Breach of Professional Duties: Diligence and Fidelity

The core of a tax consultant's obligations lies in the due and faithful execution of the mandate (Art. 398 para. 2 CO). This encompasses both a duty of diligence and a duty of fidelity.

• The Duty of Diligence: This duty requires the consultant to perform their services with care and conscientiousness. The extent of the required diligence is determined by objective criteria, assessing how a conscientious consultant, placed in the same situation, would have acted. This means that a professional consultant, rendering services as a profession and for remuneration, is held to higher standards of diligence. For example, a conscientious tax consultant should notice anomalies like an arbitrary increase in a client's taxable expense and should investigate its basis. If the consultant fails to challenge an erroneous tax decision or negligently carries over an incorrectly increased taxable expense into subsequent declarations, this constitutes a breach of their duty of diligence. Factors such as the client's lack of French language skills or legal/accounting background can further elevate the diligence expected from the consultant.

• The Duty to Inform and Advise: This is a specific manifestation of the duty of fidelity. Consultants must actively inform and advise their clients on all important aspects related to the mandate. This includes informing the client about risks (including financial ones) and advantages of planned actions, and about the overall execution of the mandate. Importantly, the information must be complete, accurate, and provided in a timely manner. When a consultant is a specialist, their obligation to advise and warn is even more stringent. For instance, a tax consultant operating in a border region and dealing with a client earning income in two countries would be expected to know and apply the rules of double taxation conventions, which are part of domestic law. Failure to inform a client about the necessity of distinguishing the origin of their income (domestic vs. foreign) in tax declarations, or erroneously stating that all income is taxable only in the country of residence, represents a breach of this duty.

• Client Instructions: Not a Blanket Excuse: While a consultant is generally bound by precise client instructions (Art. 397 para. 1 CO), this is not absolute. A consultant cannot accept instructions that are illicit, contrary to good morals, or unreasonable. If instructions are inappropriate or go against the client's best interests, the consultant's duty of fidelity requires them to advise the client against those instructions (Abmahnungspflicht). If the client persists despite the warning, the consultant may still be bound but can potentially be exonerated from fault. However, if the consultant fails to advise against inappropriate instructions, they are liable for the resulting damage, even if their actions conformed to the received instructions. A consultant cannot simply claim they were instructed to ignore legal distinctions if they themselves lacked knowledge of the relevant legal framework.

2. Demonstrating Damage

Damage is defined as an involuntary decrease in net wealth, corresponding to the difference between the client's current assets and what they would have been if the damaging event had not occurred. This can manifest as a decrease in assets, an increase in liabilities, or a non-increase in assets. Examples of damage include:

• Overpaid taxes due to incorrect declarations.

• Late payment interest levied by tax authorities.

• Fees paid to another tax consultant or lawyer to rectify the initial consultant's errors. For example, if a client had to hire another professional to contest tax decisions, these fees constitute damage, minus what the client would have paid the original consultant for correctly performing the task.

3. Establishing Causality

There must be a natural and adequate causal link between the consultant's breach of obligation and the damage suffered by the client. Natural causality exists if, without the consultant's action or omission, the damage would not have occurred. In cases of omission (e.g., failing to act), a hypothetical causal link must be established: would the damage have been prevented if the omitted action had been performed? If an affirmative answer is overwhelmingly probable based on general life experience, causality is admitted. For example, if a consultant's failure to contest an erroneous tax decision led directly to the client overpaying taxes and incurring further legal fees, the causal link is established. Had the consultant acted diligently, the overpayment and subsequent fees would have been avoided.

4. Proving Fault

Fault refers to negligence or intent. If the first three conditions (breach, damage, causality) are met, fault is presumed. It is then up to the tax consultant to prove that they are not at fault. In practice, given the objective assessment of diligence and fault, these concepts often overlap. A consultant cannot defend themselves by invoking a lack of knowledge or experience, or other purely subjective circumstances, especially as a professional.

Conclusion

In summary, a tax consultant's responsibility is engaged when they breach their contractual duties of diligence and fidelity, causing quantifiable damage to the client, and a clear causal link exists between that breach and the damage. The law places significant demands on tax professionals, particularly those with specialised knowledge, to act with the utmost care, provide comprehensive information and advice, and challenge incorrect assessments, all in the best interest of their clients. Failure to uphold these standards can lead to substantial financial consequences for the consultant.