It is well-known that the tax advisory fraternity has generally become a multidisciplinary practice, with the academic background of advisors ranging from qualifications in law, accounting, economics or business studies. Having a diverse professional discipline in a tax/exchange control department means that the client offering on fiscal statute can be more specialised and ensures that the legal, practical and commercial bases of a client's tax matters are all covered.
While clients can, as a result, be assured of a broadened service offering for their fiscal affairs, taxpayers should be aware of the fact that their engagement with advisors who are not admitted attorneys or advocates of a High Court (referred to interchangeably here as attorneys), is not protected by the enshrined principle of legal privilege. This legal privilege assures the requisite degree of protection over the communication between client and advisor, such that the information is never at risk of being volunteered by the advisor to a third-party, in the absence of client consent; or the advisor can never be placed under any form of obligation to disclose the advice either by virtue of their own professional obligations or if requested by our fiscal regulatory bodies, such as SARS or the South African Reserve Bank.
From a tax perspective, it should be noted that the Tax Administration Act, No. 28 of 2011 extends very wide powers to SARS to seek information in relation to a taxpayer under audit or investigation from third-parties, such as tax advisors. Under the TAA, SARS has three mechanisms to request information from a third-party (and therefore potentially the taxpayer's tax advisors):
- Section 46 of the TAA (under Part B of the TAA) permits SARS to make a "request for relevant information" to both the taxpayer as well as other persons, and in principle, gives SARS free rein to make any enquiries it deems relevant in determining a taxpayer's state of affairs, if such information ought "reasonably to [have] be[en] maintained…in relation to the taxpayer". This might mean that the tax advisor could be required to disclose either orally or in writing, under oath or solemn declaration, every form of information entrusted by the client to the advisor from inception of the matter, including all advisor-client communication, all documentation submitted by the client to the advisor and all opinions issued by the advisor to the client. In addition, where a tax dispute becomes litigious, the tax advisor could be subpoenaed to court and questioned about the taxpayer's affairs under oath and in an open court.
- Under Part B of the TAA, section 48 of the TAA permits SARS to request that a field audit or criminal investigation into information SARS believes it may require for purposes of its audit or investigation, be conducted at such person's premises (and therefore potentially the tax advisor's premises).
- Section 53 of the TAA (under Part C of the TAA) permits SARS to issue a notice to any person to appear before an enquiry for purposes of being examined under oath and produce any relevant information in the custody of the person.
- Part D of the TAA permits SARS to, with or without a warrant (subject to certain qualifying criteria being met), enter a premises where "relevant material" is kept and to search the premises and any person present on the premises and seize relevant material.
Should SARS invoke these provisions against tax advisors, and they fail to adhere to the request or to do so completely and honestly ("without just cause"), the tax advisors may be placed at risk of committing a criminal offence. Failure to make an honest disclosure in a court or by way of a written declaration or affidavit deposed to under oath, could also result in the tax advisor facing a criminal charge of perjury. Similarly, from an exchange control perspective, although there are no statutory provisions on this issue, the SARB, being governed predominantly by its self-established policy, may adopt similar measures to satisfy itself of the exchange control affairs of a person.
Fortunately, inherent to the legal profession, every form of information disclosed by clients to attorneys together with all attorney-client communication and advice, carry the protection of confidentiality - a duty imposed on attorneys in relation to their client’s information which remains in effect indefinitely; and privilege - a personal right extended to clients of an attorney in relation to both day-to-day legal advice (legal advice privilege) as well as matters of a litigious nature (litigation privilege), which also extends to communications between the client or the attorney and third-parties, if those communications were made for the purpose of pending or contemplated litigation. A client only loses the protection of privilege if he/she waives his right to privilege or if the tax advisor is requested to do so by a court.
In the context of the third-party enquiry procedures available to SARS, the TAA does not override privilege, but rather in section 42A and section 65 of the TAA, acknowledges that it may successfully be raised as a defence to Part B to Part D of the TAA, and sets out the requirements that must be met for the assertion of privilege and provides for the adjudication procedure to be followed for matters where SARS does not accept the assertion of legal professional privilege.
Should SARS ever dispute privilege and the issue is required to be referred to a High Court for adjudication, an attorney should easily be able to satisfy the essentialia to raise privilege which have been set out in the Constitutional Court, in Thint (Pty) Ltd v National Director of Public Prosecutions and Others; Zuma v National Director of Public Prosecutions and Others 2009 (1) SA 1 (CC), which provided that the onus of privilege can be met if it can be demonstrated that:
- The legal practitioner must have been acting in a professional capacity.
- The client must have consulted with the legal practitioner in confidence.
- The communication must have been for the purpose of obtaining legal advice.
- The advice must not have facilitated the commission of fraud or a crime.
Given the wide range of investigatory powers of our fiscal bodies into the affairs of persons both juristic and natural, all tax and exchange control advisory work should be referred exclusively to an attorney so as to ensure that legal privilege is applicable to all communications and documentation.
Privilege is generally seen as an afterthought and only becomes relevant when a taxpayer faces a dispute with a fiscal authority - at which time it is too late.
To err on the side of caution, clients are advised to:
- Only involve non-attorneys to the extent that there is no risk whatsoever in disclosing such information to the relevant fiscal authority.
- Where the expertise of non-attorneys are required, ensure that all communications are dealt solely with the attorney and that the non-attorneys involvement is limited to that of an expert mandated and controlled by the attorney.
Segregate the institution providing the client's audit/accounting requirements from all other fiscal advisory functions.
By Howmera Parak, Senior Associate, and Rui Lopes, Candidate Attorney, Tax Practice, Baker McKenzie Johannesburg