Asserting Legal Professional Privilege in Tax Disputes

By Esther van Schalkwyk, Senior Tax Consultant, BDO

The recently promulgated Tax Administration Laws Amendment Act 2015 added to SARS’s information gathering powers, particularly as far as legal professional privilege is concerned. The law now specifies a procedure for the assertion of legal professional privilege by taxpayers in respect of relevant material requested by SARS during an inquiry or search and seizure. This change will apply in conjunction with the provision for the appointment of an impartial attorney to determine whether legal professional privilege applies to relevant material forming the subject of a search and seizure.

The Appellate Division in S v Safatsa confirmed the common law principle of legal professional privilege on the basis that there should be freedom of communication between a lawyer and his client for the purpose of giving and receiving legal advice, as well as for the purpose of litigation, and that this entailed immunity from the disclosure of such communications between them. The court held that any relaxation of the privilege must be approached with the greatest circumspection.

According to the Explanatory Memorandum, the first objective of the change is to resolve the matter between SARS and the taxpayer, as opposed to starting with an adjudicative and generally more protracted process.

The amendment compels a taxpayer who asserts legal professional privilege during an inquiry or search and seizure by SARS to provide SARS with a specified set of information to enable it to determine whether a document is subject to legal professional privilege. The information that must be provided to SARS includes a description and purpose of each item of the material in respect of which the privilege is asserted, the author of the material and the capacity in which the author was acting, among other things. SARS may dispute the assertion of legal professional privilege on receipt of the information, in which case a specified procedure to resolve the dispute will apply. The taxpayer must seal and hand over the material to a practitioner appointed in terms of the Tax Administration Act. The practitioner must, within 21 business days, determine whether privilege applies, and may consider representations by the parties in reaching a decision. If a determination is not made, or either party is dissatisfied with the outcome, an application to the High Court may be instituted within 30 calendar days of the expiry of the period of 21 business days, failing which the material must be handed to the party in whose favour the determination, if any, was made.

The well-recognised common law right to legal professional privilege despite SARS’s expanded information-gathering powers in terms of the Tax Administration Act will still apply. Asserting legal professional privilege in tax disputes has become more onerous on the taxpayer and should preferably be done on the advice of a tax practitioner.