Section 46(1) of the Tax Administration Act (28/2011) gives the South African Revenue Service (SARS) the power, for purposes of the administration of a tax act in relation to a taxpayer, to request a taxpayer or other party, within a reasonable period, to submit relevant material (whether orally or in writing) to SARS. This section applies to taxpayers whether identified by name or objectively identifiable. Section 46(2) authorises a senior SARS official to request relevant material in respect of taxpayers in an objectively identifiable class of taxpayer.
Section 46 often creates difficulties for the other parties referred to in this section, such as banks, which may be the recipients of requests for relevant material from SARS in respect of their own clients (the taxpayers). Banks owe a duty to clients not to disclose information concerning their affairs, although this duty is qualified. The English case of Tournier v National Provincial and Union Bank of England (1924 1 KB 461) laid down the principle that a banker may disclose information regarding a client's affairs where, among other things, the disclosure is under compulsion of the law. Section 234 of the Tax Administration Act provides that a person is guilty of an offence and, on conviction, is subject to a fine or imprisonment for a period not exceeding two years if he or she wilfully and without just cause:
- refuses or neglects to furnish, produce or make available any information, document or thing;
- fails to comply with a directive or instruction issued by SARS to the person under a tax act;
- fails or neglects to disclose to SARS any material facts which should have been disclosed under the Tax Administration Act or to notify SARS of anything which the person is required to notify SARS under a tax act; or
- obstructs or hinders a SARS official in the discharge of the official's duties.
Section 46(3) of the Tax Administration Act limits any request for relevant material from a person other than the taxpayer to relevant information related to the records maintained or that should reasonably be maintained by the person in relation to the taxpayer. In this regard, SARS cannot request banks to provide it with material which the banks are not required or cannot reasonably be required to maintain. Section 46(6) further requires these requests to refer to the relevant material with reasonable specificity.
However, whereas banks could previously refuse to provide SARS with material requested in terms of Section 46 of the Tax Administration Act on the basis that the bank did not consider the material to be relevant, the Tax Administration Laws Amendment Act (44/2014) amended the definition of 'relevant material' in the Tax Administration Act to mean "any information, document or thing that in the opinion of SARS is foreseeably relevant for the administration of a tax act". It is therefore no longer within a bank's discretion to decide whether material is relevant.
The explanatory memorandum to the Tax Administration Laws Amendment Act states that the amendment is intended to:
"prevent protracted disputes around entitlement of information and the consequent waste of resources… the term foreseeable relevance does not imply that taxpayers may unilaterally decide relevance and refuse to provide access thereto, which is what is happening in practice."
The explanatory memorandum states that the test for what is foreseeably relevant should have a low threshold and that the following considerations apply:
- It must be decided whether, at the time of the request, there is a reasonable possibility that the material is relevant to the purpose for which it is sought.
- Whether the material, once provided, actually proves to be relevant is immaterial.
- A request may not be declined in cases where a definite determination of the relevance of the material requested for an ongoing audit or investigation can be made only following receipt of the material.
- There need be no clear and certain connection between the material requested and the purpose for which it is requested, but only a rational possibility that the material will be relevant to the purpose.
- The approach is first to produce the material and to allow a definite determination to occur later.
Businesses, and banks in particular, are therefore urged to take note of these new amendments to the Tax Administration Act, particularly in light of the criminal offences created by Section 234 of the act.
For further information on this topic please contact Mareli Treurnicht at DLA Cliffe Dekker Hofmeyr by telephone (+27 11 562 1000), fax (+27 11 562 1111) or email (firstname.lastname@example.org). The DLA Cliffe Dekker Hofmeyr website can be accessed at www.cliffedekkerhofmeyr.com.
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