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09 Jul 2024
BY Arnaaz Camay AND Nqobile Sithole

To redact or not to redact, that is the question.

Section 46 of the Tax Administration Act, No. 28 of 2011 (“TAA”) allows the South African Revenue Service (“SARS”) to request a taxpayer to submit relevant material to SARS for purposes of administering an “ Act”. In the judgment of Commissioner for the South African Revenue Service v J Company), SARS’ authority under section 46 came under the scrutiny of the Western Cape Division of the High Court.

In terms of section 46, SARS is authorised to request “relevant material” relating to a taxpayer, “whether identified by name or otherwise objectively identifiable”, from the taxpayer or another person within a reasonable period, to administer a tax Act. The term “relevant material” is defined under section 1 of the TAA as “any information, document, or thing that SARS considers to be foreseeably relevant for the administration of a tax Act […]”.

SARS, as the applicant, applied to compel the taxpayer to respond in full and as enjoined by, to section 46 pursuant to the notices issued. The taxpayer responded to the notices with the requested information and supporting documents however, most of these documents were heavily redacted. The crisp issue addressed in this matter was whether SARS had the authority to compel the taxpayer to produce these documents free of redaction.

SARS argued that by requesting the unredacted documents it was lawfully exercising its powers under section 46. In addition, SARS argued that by responding to the notices, the taxpayer acknowledged that the documents it produced fell within the scope of the section which, in the opinion of SARS, established a reasonable basis for requesting the unredacted documents. SARS also argued that it has a right to the unredacted documents because the redacted information falls within the ambit of section 46 as it relates to how the taxpayer interacts with clients and service providers, and, as a result, their identities are related to the administration of a tax Act in relation to a taxpayer. Lastly, SARS argued that with respect to the notices, it was inaccurate to hold that an expansion of the target of the notices to the taxpayer, its clients, and service providers constituted a so-called ‘fishing expedition.’

Whilst the taxpayer claimed to have provided SARS with the requested information, on legal advice from its attorneys, redacted portions of the documents that – in its view – fell outside the “legitimate ambit of section 46”. The taxpayer also argued that SARS failed to provide the basis on which it formed the opinion that the requested information was relevant to the administration of a tax Act. According to the taxpayer, a mere assertion by SARS of its opinion without any reasonable grounds is insufficient. The taxpayer believed that SARS did not issue a section 46 notice to obtain relevant information about its tax affairs, but rather to conduct an ‘open-ended fishing expedition’ related to its clients. The taxpayer cited that a valid section 46 notice may pertain to tax information not only of the taxpayer but also of “taxpayers in an objectively identifiable class of taxpayers” as specified in section 46(2)(a) of the TAA. The taxpayer contended that SARS, in making unspecific reference to the taxpayer's clients and service providers, failed to meet this requirement. Finally, the taxpayer submitted that SARS had not remained consistent in its notices, citing that it is only in the second section 46 notice that SARS considered the requested material “to be foreseeably relevant for the administration of a tax Act in relation to it [the taxpayer] and/or clients and service providers”.

Judge Kusevitsky held that in most cases SARS does not have knowledge of the information or documents available for it to fully exercise its function of assessing a taxpayer’s tax liability and that it is for this reason that SARS needs a mechanism to enable it to fulfil its functions. This mechanism (section 46), according to Kusevitsky, imposes a reciprocal duty on the taxpayer to supply SARS with the necessary information to enable it to perform its functions.

The taxpayer claims that SARS did not provide an objective basis on which it formed its opinion regarding the requested information's relevance for administering a tax Act and that the words ‘in the opinion of SARS’ contained in the Act create this issue as they insulate SARS from having to do anything more than state that it has formed an opinion. However, the judge held that since the information required to make this decision lies solely within the taxpayer's knowledge, SARS has limited information at its disposal to make such a determination. Kusevitsky further held that if the taxpayer then withholds such information, it cannot then assert that SARS could not have applied its mind simply because it has not disclosed the basis on which the decision was made.

The judge concluded that it is not unreasonable for SARS to request the unredacted documents and information and that it is not for the taxpayer to say that SARS has failed to provide the basis to prove that the documents may be “foreseeably relevant” when the taxpayer is the one obstructing the very production of the material for the determination of relevance to be made. Furthermore, Kusevitsky remarked that although the taxpayer did not claim privilege as a basis for its refusal to provide unredacted documents, the nature of the redacted information would have rendered that argument unsuccessful.

This remark by Kusevitsky emanates from the distinguishable case of A Company and Others v Commissioner for the South African Revenue Services, in which the applicants applied for a declaratory order that certain content of invoices rendered by their attorneys was subject to legal privilege. In delivering this judgment, Judge Binns-Ward indicated that the vast majority of the redactions in respect of which the taxpayer purported to assert privilege were not awarded however, three of the redacted passages qualified for the assertion of legal advice privilege and declared that the identified portions of the applicants’ attorneys’ tax invoice are protected from being disclosed to SARS by reason of legal advice privilege.

The key takeaway for taxpayers is that they ought to carefully consider the basis upon which redacted information is provided to SARS and to seek advice from experienced tax lawyers before doing so.


Arnaaz Camay

Executive | Tax


Nqobile Sithole

Candidate Legal Practitioner | Tax