Is Tax Advice Protected By Legal Professional Privilege?

Graeme Palmer, a Senior Associate in the Commercial Department of Garlicke & Bousfield Inc

The Tax Administration Act 28 of 2011 (the Act) has expanded the information gathering powers of the South African Revenue Services (SARS). The Act allows SARS, for the purpose of administration of a tax Act, to require a taxpayer or other persons, withi

The ‘relevant material’ which must be provided to SARS is widely defined by the Act and may include any information, document or thing that is foreseeably relevant for tax risk assessment, assessing tax, collecting tax, showing non-compliance with an obligation under a tax Act or showing that a tax offence was committed. Tax advisors, whether they are lawyers, accountants or other professionals regularly give advice to taxpayers. This raises the question whether communications between a tax advisor and his client can be excluded from ‘relevant material’ requested by SARS on the grounds of legal professional privilege.

In the recent case of R (Prudential plc and another) v Commissioner of Income Tax, the Supreme Court in the United Kingdom had to decide whether a company could refuse to provide documents to the Revenue relating to legal advice given by its accountants on a tax avoidance scheme. The Court held that legal professional privilege should not be extended to communications in connection with advice given by professionals other than lawyers. It was further held that if policy reasons existed for extending legal professional privilege to other professions, Parliament was in a better position than the courts to assess the merits of this change.

Legal professional privilege is necessary for the proper functioning of our legal system and forms part of the common law. It allows a person to seek advice with the confidence that that he is not acting to his disadvantage when disclosing information to his lawyer. The Act recognises this common law right insofar as SARS officials executing a search warrant are unable to seize relevant material that is subject to legal professional privilege. But the common law and the Act currently restricts the application of legal professional privilege to lawyers.

Tax practitioners have called for the Act to be amended to extend legal professional privilege to other professionals, but until the law is changed, only tax advice given by lawyers can be protected by legal professional privilege.