Print Page
News & Press: TaxTalk

Regulation of legal professional privilege: An industry divided

Tuesday, 05 April 2016   (0 Comments)
Posted by: Author: Charmaine Louw
Share |

Author: Charmaine Louw (Deloitte)

The regulation of legal privilege has both its supporters and detractors, we lay out their arguments and let you decide 

Together with some important and much needed amendments, a few controversial amendments were passed by the Legislature with the promulgation of the Tax Administration Laws Amendment Act No. 23 of 2015 ("TALAA”). One amendment that brought about mixed feelings within tax circles relates to legal professional privilege (referred to hereafter as "privilege”). More particularly, the process to be followed by SARS and taxpayers when privilege is asserted during an inquiry or a search and seizure operation.  

There are some supporters of the regulation of privilege especially given the number of cases where privilege has been waived, yet the holder of a document/ material still insists on asserting privilege.  There are also those who oppose this and are of the view that SARS is being too heavy-handed in their approach to privilege and may actually be infringing on taxpayer’s rights.  

What is privilege? 

"Legal professional privilege attaches to information obtained by or for a professional legal adviser for the purpose of advising his client as to the prosecution or defence of an action, or advising him as to whether a claim should be made or defended. The foundation of the rule is that a litigant should be able to obtain legal advice freely by laying all the facts before his legal adviser without fear that these facts will be disclosed to his opponent.”1

Privilege is an ever-evolving concept in our law, moving from being a procedural right to a substantive right; being in a place where privilege now belongs to the client, whereas this initially belonged to the attorney, and privilege being extended from communications in light of litigation or expected litigation to all communications made for the purpose of obtaining legal advice.  

Despite its evolving nature, clear guidelines exist for when privilege can only be exerted, namely when: 

  • the legal advisor acts in his professional capacity; 
  • the legal advisor is consulted in confidence;
  • the communication is obtained for the purpose of obtaining legal advice and 
  • the advice does not facilitate the commission of a crime or fraud.2

Privilege applies to both external and in-house legal practitioners.  The waiver of privilege can only be effected by the client claiming the privilege and this waiver can be either express, implied or imputed.  

Regulating the determination of privilege – TALAA   

The insertion of provisions relating to privilege started with the Draft Tax Administration Laws Amendment Bill 2015 ("Draft TALAB”) where National Treasury proposed the insertion of section 42A into the Tax Administration Act 28 of 2011 ("the TAA”).  

The Memorandum on the Objects of the Draft TALAB indicates that the purpose of insertion section 42A of the TAA is to clarify what requirements need to be met in order to claim privilege in the context of information requests, interviews and field audits by SARS.  

The section also lays out a procedure for those instances where SARS does not accept the assertion of privilege.  The section is meant to resolve a matter between SARS and the taxpayer when it comes to privilege as opposed to first approaching the courts to determine the nature of documents.  The 

Memorandum on the Draft TALAB concludes on section 42A of the TAA as follows:

"If SARS and the taxpayer agree that the material is privileged, alternative methods such as redaction of the privileged part and providing SARS with the remainder can be pursued.  This will substantially reduce the number of cases that require adjudication by an independent legal practitioner or the High Court.”  

This position is the same as in the courts, where the courts have an inherent common law power to examine any document in respect of which of privilege is asserted.  This ensures that the assertion of privilege is not abused or falsely asserted.  

The insertion of section 42A of the TAA can be seen as formal regulation in the determination of the existence of privilege.  

The provisions of section 42A of the TAA as set out in the Draft TALAB were amended slightly by the time they came out in the TALAA.  The position, as it currently stands in the TALAA, is for that the following must be provided to SARS in writing, within a specified time, specified format and at a specified place:

  • Description and purpose of the document on which privilege is being asserted;
  • Author of the document and capacity of the author;
  • Who the author represented;
  • Confirmation from the person who instructed the author to draft the document that he/ she/ it is still asserting legal privilege on the document, 
  • If the document in respect of which the privilege is being asserted is not in the hands of the client asserting the privilege, an indication must be provided as to from whom the person asserting the privilege obtained the document,  and 
  • If the document in respect of which the privilege is being asserted is not in the hands of the client asserting the privilege, SARS must be provided with reasons why the client no longer has the document and the document is with a third party.  

View in support of the regulation   

The court system in South Africa is clogged up, with courts facing continuous backlogs of cases.  Having to refer a matter for decision to the courts will result in a delay of almost two years on the resolution of that specific matter.  This appears to have been one of National Treasury’s considerations in drafting section 42A of the TAA that provides for a mechanism for the determination of whether a document is indeed privileged outside the courts.  

Section 42A of the TAA is drafted in such a way that even if SARS or a taxpayer disagrees with the determination of a document as privileged, an objective third party can be involved on the matter.  The High Court may be approached for a determination or an independent practitioner from a panel may review the document to conclude on the existence of privilege.  

Further, the provisions of section 42A of the TAA do not make an allowance for SARS to view the actual document in relation to which privilege is being asserted.  This upholds the integrity of the document and should it be found to be privileged, it will retain its status even after the SARS audit/ inquiry or request for material.  

When it comes to search and seizure, the common law affords protection to privileged documents in that legal privilege has been held to be a rule of substantive law and not of evidence.  This results in privileged documents not being subject to seizure under a search warrant.3  Section 42A of the TAA does not change this position, and merely sets out a mechanism to determine the privileged nature or otherwise of documents.  Once the nature of the documents has been determined as "privileged”, they cannot be seized by SARS. 

View against regulation 

On the opposite side of those who welcome the regulation on privilege, are those who feel that section 42A is nothing but a mechanism by SARS to refute privilege at will.  This group also share the concern that in the determination of whether privilege does in fact apply to a document or not, the contents of the document may eventually end up with SARS or may be viewed by another party, thus revoking the privilege status of the document.  

On a reconciliatory note  

If we give SARS the benefit of the doubt and trust that the letter of the law will be applied as it stands, then the regulation around determination of privilege is a good thing, as all relevant parties are aware of the process relating to the assertion of privilege.  With all the power in SARS’ hands, one can only hope that SARS upholds taxpayer’s rights and does not tilt the scale further in its own favour.       


1  Euroshipping Corporation of Monrovia v Minister of Agricultural Economics and Marketing and Others [1979] 3 All SA 505 (C) Page 509

2  DT Zeffert and AP Paizes The South African Law of Evidence 2 ed (2009) LexisNexis Durban

3  Sasol III (Edms) Bpk v Minister van Wet & Orde 1991 (3) SA 766

Please click here to do quiz.

This article first appeared on the March/April 2016 edition on Tax Talk.



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.

  • Tax Practitioner Registration Requirements & FAQ's
  • Rate Our Service

    Membership Management Software Powered by YourMembership  ::  Legal