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New requirements for taxpayers who claim legal professional privilege

Tuesday, 11 August 2015   (0 Comments)
Posted by: Authors: Nina Keyser and others
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Authors: Nina Keyser, Yashika Govind and Stuart Scott (Webber Wentzel)

Where the South African Revenue Service (SARS) requests information from a taxpayer in connection with an audit, the only general grounds on which the taxpayer can refuse to provide the information concerned are that the:

·                    information is not foreseeably relevant for the purposes of administration of a Tax Act in the context of the specific audit, in that the information request falls outside the scope of the audit or investigation (sections 1, 42, 46 and 48 of the Tax Administration Act, 28 of 2011 (TAA), or

·                    the information is legally privileged.

As it stands, it is arguably more difficult for SARS to challenge a taxpayer's argument that documents are legally privileged, than to challenge the argument that they are not foreseeably relevant, since the definition of relevant material has been widened to mean "any information, document or thing that in the opinion of SARS is foreseeably relevant for the administration of a Tax Act".

The draft Tax Administration Laws Amendment Bill, 2015 (TALAB) presented section 42A for comment, which poses serious red tape to any taxpayer or person who alleges that a document is subject to legal professional privilege. This new provision introduces a list of requirements to be fulfilled if legal professional privilege is claimed by a taxpayer. The proposed section 42A now requires the person alleging legal professional privilege, in terms of information requested in an audit or interview, to provide the following information:

·                     a description of each document in respect of which the privilege is asserted;

·                     if other than a legal practitioner, the author of the document;

·                     the name of the legal practitioner;

·                     the capacity in which the legal practitioner was acting;

·                     the specific purpose of the legal advice or in connection to what it was given ;

·                     the name of the client to whom the legal advice was given by the legal practitioner;

·                     confirmation in writing that the client is claiming privilege in respect of the document;

·                     if the document is not in possession of the client, from whom did the person asserting privilege  obtain it; and

·                     if the  person obtained the document from the client or another person, the instructions of the  client or the other person regarding the document.

Whilst some of the proposed insertions are seemingly harmless, responses submitted to SARS for purposes of subsections (a), (c), (e), (h) and (i) should be carefully considered.

Where opinions on tax issues or any other legal issues are sought from external advisors, it is preferable for the advisors concerned to be professionally qualified lawyers acting in a professional capacity.

In the context of subsections (b) and (c), legal professional privilege attaches to legal advice given by a qualified legal practitioner whether that legal practitioner is employed by an accounting for or a law firm. Legal privilege also extends to communications drafted by and to internal legal practitioners (so-called in house lawyers) provided that the in-house practitioner is acting in a professional capacity.

In the context of subsections (h) and (i), taxpayers are cautioned to limit the disclosure of tax and legal advice protected by privilege, to third parties including connected parties, to avoid an argument by SARS that privilege has been waived. In this regard we suggest that companies develop a firm-wide policy regarding the instructions around the disclosure of privileged material.

Moreover, section 42A(3) caters for disputes regarding the assertion of privilege by a taxpayer. If SARS disputed the assertion of privilege, the taxpayer will be required to submit the relevant document to an independent practitioner from the panel appointed for purposes of the Tax Board. The practitioner will then make a determination as to whether the document qualifies as legally privileged or not. This determination is subject to review by an application to the High Court and must be instituted within 30 days of having received the determination by the practitioner.

This article first appeared on

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Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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