Corporate & Commercial Law Newsletter, Legal Professional Privilege and SARS
LEGAL PROFESSIONAL PRIVILEGE AND SARS
An ever-present but increasing source of uncertainty amongst taxpayers in South Africa is the extent of SARS' powers and the manner in which the South African Revenue Service ("SARS”) exercises these powers, which includes the collecting of confidential information of a taxpayer.
The promulgation of the new Tax Administration Act ("the Admin Act") has extended SARS' powers, such as for example: the power of SARS' to request extensive information, the ability of SARS to raise a new type of assessment, referred to as a jeopardy assessment, the extension of SARS' powers to recover a 'tax liability' from third parties, as well as the extension of personal liability provisions. Some of these powers will be discussed in a later article.
Taxpayers and their advisors are understandably concerned at the extent to which SARS is able to flex its muscles. It is therefore not surprising that calls have been made by tax professionals for legal privilege to be extended to all classes of tax advisors. At present such privilege only exists between lawyers and their clients and it is not entirely clear whether this extends to non-practising lawyers such as lawyers who are employed by accounting firms. The doctrine of legal professional privilege is a substantive rule of law and is well established in our law. It enables taxpayers, as a general rule, to freely engage with their lawyers for the purpose of obtaining legal advice. They may do so without the risk that disclosures of such correspondence (whether written or verbal) can be compelled and intercepted by SARS.
This privilege is an important and necessary safeguard to the rights of taxpayers especially in the light of the Admin Act. As it stands, it is only the clients of lawyers who enjoy this privilege. It is therefore understandable that representations were made to Parliament for this doctrine to be specifically provided for in the Admin Act and to be extended to other tax advisors registered with controlling bodies. Treasury has however advised that no amendments will be made in this regard, but has indicated that this issue will be revisited in the future. This provides cold comfort to tax advisors who are not practising lawyers, as information relating to a taxpayer is currently not protected by the doctrine of legal privilege. Until this issue is resolved, taxpayers need to be careful about releasing confidential information to tax advisors who are not practising lawyers.