A cryptocurrency wallet : is it ‘relevant material’ for tax administration purposes?

• Jurisdiction: South Africa
• Author: Fareed Moosa
• DOI: 10.10520/ejc-btclq-v11-n3-a4
• Published date: 01 September 2020
• Date: 01 September 2020
• Pages: 21-28
• Published By: Siber Ink

21

© Siber ink

A Cryptocurrency Wallet:

IS IT ‘RELEVANT MATERIAL’ FOR TAX

ADMINISTRATION PURPOSES?

FAREED MOOSA*

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 crypto currency

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.

1. Introduction

In the global electronic ecosystem, conventional methods of payment

(such as, bank transfers) are being replaced by alternative payment instru-

ments. One such instrument is virtual currency (VC).1 A VC is a pseudo-

currency that is paperless and existing in digital form only within a

computer network. The South African Reserve Bank (SARB) defines a VC as

‘a digital representation of value that can be digitally traded and functions

1

* BProc LLB (UWC), LLM (Tax) (UCT), LLD (UWC).

Professor and Head of Department of Mercantile & Labour Law, University of the

Western Cape.

Nieman A ‘A few South African cents’ worth on Bitcoin’ (2015) 18 PELJ 1979 at

1981.