A cryptocurrency wallet: Is it “relevant material” for tax administration purposes?

Abstract

This article shows that wallets storing cryptocurrency are intangible property so that they ought to qualify as a ‘thing’ within the meaning of this term in section 1 of the Tax Administration Act 28 of 2011, read with the definition of ‘relevant material’ therein. This article shows further that cryptocurrency ownership is transferred electronically by way of the relevant encrypted ledger information being sent from one crypto user to another. It is argued that this ledger comprises data messages within the meaning of this term in section 1 of the Electronic Communications and Transactions Act 25 of 2002. Accordingly, it is also argued that the digital log of communication pertaining to the creation, storage and transfer of cryptocurrency ought to qualify as information as defined in section 1 of the Tax Administration Act read with the definition of ‘relevant material’. If this contention is correct in law, then SARS’s extensive investigative powers entitle it to access the contents of a taxpayer’s e-wallet. If a taxpayer fails to comply with a lawful demand by a SARS official for access to data of a blockchain in a virtual wallet, then SARS may exercise its powers of search and seizure. If so, then it is argued that taxpayers’ privacy rights entrenched in section 14 of the Constitution of the Republic of South Africa, 1996 ought to apply to all devices and databases on which digital information is stored related to cryptocurrency transactions. Consequently, a taxpayer ought to be entitled to challenge the validity of the investigative power utilised by SARS by seeking to have the relevant legislative provision declared unconstitutional on the basis that it does not pass muster under section 36 of the Constitution