BD Business Law & Tax (Sept 2022)

BUSINESS LAW&TAX

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Balancing Paia and Popia

• It is imperative to understand the link between the two acts

Era Gunning ENSafrica

With the Protection of Personal Information Act, 2013(Popia) having come intoeffect justover a yearago, itis imperativefor those who have their personalinformation inthe handsof athird partyand thosewho handlethepersonalinformation ofdata subjectsto understandtheir rights andresponsibilities andto knowthelink betweenPopia andthePromotion of Accessto Information Act, 2000 (Paia) Paia came into operation onMarch9 2001.It gives effectto theconstitutional rightof accessto anyinformationheldby apublicor privatebodyorpersonwhere itisrequired fortheexercise orprotectionofanyright.This right is subject to certain limitations,includinggroundsfor refusal set out in Paia.

A request for a record fromapublicbodyexcludesa requestfor accessto arecord containing personalinformation about the requester. But in thecase of arequest for access froma privatebody, it includesa recordcontaining

personal informationabout the requesteror theperson on whose behalfthe request is made.

“Personal information”, in terms of Paia,means informationrelating toanidentifiablenaturalperson suchasa home address, names and photographs. Thisdoes not include information about an individualwhohasbeendead for more than 20 years.

In contrast, “personal information” in terms of Popia meansinformation relating to an identifiable, living, natural person, and where, applicable, an identifiable, existing juristic person.

Paia (asamended by schedule1 toPopia)obliges public and private bodies to compile a manual to enable a person to obtain access to the information the body holds and stipulates the minimum requirementsthatthemanual has to comply with.

Popia giveseffect to

POPIA PROMOTES

everyone’s constitutional right to privacy.It promotes the protectionof personal information processed by public andprivate bodies, including certain conditions so asto establishminimum requirements forthe processing ofpersonal information. Theact balancesthe need for accessto information against the need to ensure theprotection ofpersonal informationby the establishmentoftheinformation regulator,which has oversight over the processing of personal information.

BODIES

Interms ofPopia,data

subjects aregiven certain rights,including therightto request a responsible party to confirm, freeof charge, whether ornot theresponsible partyholds personal information aboutthe data subject; and request from a responsible partythe record oradescription ofthepersonal informationabout the data subject heldby the responsible party,including information about the identity ofall thirdparties, orcategoriesof thirdparties,who have, or havehad, access to the information.

The responsible party

maynotrefusetoprovidethis information to the data subject unlessit hasthe grounds for refusal as set out in Paia.

PUBLIC DOMAIN

In the recent case of Smuts and Anotherv Botha,the Supreme Courtof Appeal ruledthat whereaperson exposes theirpersonal information inthe publicdomain by their own actions, the information ceasesto fall under the protectionof the rightto privacyand canbe published onlineby another party inthe exerciseof their right to freedom of expres-

sion.In thiscase, cyclists weregiven accesstoBotha’s farm foran adventurerace organised by a third party. During the rideacross the farm, one of the cyclists came acrosstwo cagescontaining deadanimals. Hephotographed the scene and sent the pictures toSmuts, an avid wildlife conservationist who then published his opinion on Facebook on what he regarded asunethical animaltrapping practices by Botha. Indoingso, hemadereferenceto Botha’s personal information, includingthe nameand Googlesearch location of his business, his homeaddress andhistelephonenumbers, aswellas the name of his business. Smutsalso includeda picture of Bothaholding his six-month-old daughterand a WhatsApp conversation between Smuts and Botha. Thepost generatedmany comments on Facebook, whichwere mostlycriticalof Bothaand theparticular practice of trapping animals. Bothasought anurgent interdict from the High Court of the Eastern Cape Division, on thebasis that hisright to privacyhad beeninfringed. The court ruled that the name ofthe farmand Botha’s identity constituted personal informationand, assuch, were protectedby hisconstitutionalright toprivacy.On

Delicate act of balancing Paia and Popia

CONTINUED FROM PAGE 1

appeal, however,the Supreme Courtof Appeal ruled in favour of Smuts’ right to freedom of expression.

Thecourt tookintoconsideration thatBotha placed his identityand information relating tohis farmin the public domain,and “weakened” his righttoprivacy when heallowed members of the publicaccess to his property withouthiding his practice of animal trapping.

The court also took into consideration thatinformation about Botha and the farm couldalso easilybe foundin thedeeds office,aswell ason Google. Thecourt heldthat this “is notinformation which Mr Bothacan legitimately exclude from the public. The factthat hedisclosed hispersonal informationstrips him of the right to claim privacy in respect of that information.”

THIS CASE DEMONSTRATES THAT THE RIGHT TO PRIVACY IS NOT ABSOLUTE, BUT MUST BE BALANCED AGAINST OTHER RIGHTS

This case demonstrates thattheright toprivacyisnot absolute, but mustbe balancedagainst otherrights, suchas theright tofreedom of expressionand ofcourse the rightto access arecord in terms of Paia.

Itmust beemphasised that thefacts ofthis case occurred before Popia became(mostly) effectiveon July 1 2021. Personal informationthat hasbeenmade deliberatelypublicbythedata subject orderived froma public record is protected in terms of Popia, but some lenience isgiven toresponsible parties to process such information incertain instances.

For example, interms of Popia, personal information mustbe collecteddirectly from the datasubject, unless theinformation iscontained in or derived from a public recordor hasdeliberately been made publicby the data subject. Theoutcome ofthe case(including thepublicationof thepicture ofBotha holding his six-month-old daughter)may wellhave been different if Popia was considered.

BUSINESS LAW & TAX

LATERAL THINKING

Global tax plan throws up heap of questions

• Business Law and Tax editor

Evan Pickworth takes a closer look at the global minimum tax — and still remains baffled

Graphene Economics and the Gordon Institute of Business Science heldan important breakfast eventlate inAugust toexplore thepotentialoutcomes andpractical implications of the global minimum tax andproposed newtaxing rights formultinationals, revenue authoritiesand economies in Africa.

Wehave writtenabout thisbefore andfelta moveto global certaintymay have a neutraltopositiveeffectonan emerging market like SA that is not exactly known for trying toattract business through low tax rates.

Itappears, though,that moves to create certainty are leaving morequestions than answers onthe ultimate impact forsmaller economies, whoare becoming moreconcerned thatit may even see them losing out on digital tax streams.

TheOrganisation forEconomic Co-operationand Development (OECD) estimatesthe minimumtaxwill generate $150bnin additional global taxrevenues annually, but thequestion remains how muchof thisshare is going to find its way into local coffers. The juryremains out and the proposed global minimum tax isnow expected to be implementedin 2024, rather than nextyear as had been anticipated. However,it isimperative companies andcountries act fasttodeterminethepotential impact and howto ensure they areproperly alignedto avoid unpleasant surprises.

Someof theansweris mired in thecomplexity of the rulesthemselves. Pillar One will apply to multinationals withglobal consolidated turnoverabove €20bn (the likes of anApple or Starbucks) andwith operating profit as apercentage of sales

above 10%(of which25% of the profitis re-allocatedto what is definedas market territories, essentially where peopleuseorconsumegoods orservices evenifthere isno office in thatcountry). Pillar Twowill applyto thosewith global turnover above €750m(only about75companies in SA willfall into this category).

Theglobal minimumcorporate tax rate on the Pillar Twoleg isproposedto beat least15%, withotherchanges aimed atsimplifying, updatingandmaking the global tax system more transparent and equal. If the effective rate is lower, thena top-uptax will needtobepaid but this tax is paidin theultimate parent

COMPANIES

NEEDING TO TOP UP UNDER THE 15% RULE WOULD NEED TO WORK OUT HOW THIS MAY CHANGE THEIR FUTURES

entity country (income inclusion rule), meaning these payments will be made to the ultimate parent entity country and most of these companiesnot indevelopingcountries. Sotop-up taxis likelyto paid to other countries.

TWO PILLARS

OnPillarOne, aspecialpurposenexus rulepermitsallocation of “Amount A” to a market jurisdiction when the in-scopeMNEderivesatleast €1m in revenuefrom that jurisdiction. For smaller jurisdictions with GDP lower than €40bn,thenexus willbeset at €250,000. Atfirst blush, it seemsthis couldbenefitan emerging market like SA. However, under Pillar One thereis alsoan “Amount

WHAT INTHE WORLD?

B” aimed atsimplifyingroutine distribution taking place in different regions,and a baseline will be determined through benchmarking. While thereare someguidelines, it remains unclear exactly how this will apply.

Since July 2021,137 countries (accounting for more than 90%of theglobal economy) havesigned adeal aimed at ensuring companies pay a global minimum tax rate of 15%. However, more concerningly, only 23 African countries have signed the deal to date.

The problem seemsto be that many developing countries (including SA and most African countries) are likely to have to give up any poten-

tialdigital servicestaxesfor limited potential benefit.

Theidea behindthenew system isthat itwill benefit countries where a company’s products and services are sold andnot onlythe countries wherethe productsor services are provided from.

But a closer look at the rules indicates this revenue

THE PROPOSED GLOBAL MINIMUM TAX IS NOW EXPECTED TO BE IMPLEMENTED IN 2024, RATHER THAN NEXT YEAR AS HAD BEEN ANTICIPATED

may be more limited than was previously achieved underthe capturingofdigital taxes via local laws. It will be important to watch this spaceclosely there have been some guidelineson theroutinedistributions and model rules on determining “Amount A” Companies andrisk teams would bewell advised tostart determininghowthis affects them.

Companies needingto top upunderthe 15%rulewould needto workout howthis may change their futures. Revenue authorities will also need to ensure they do not lose out on revenue. No quite as clear as mud then.

FOCUS ON OFFSHORE TAX

Sars’s stance on foreign pension funds

• Contributions to offshore pension funds in a bid to save on estate duty will not achieve that aim

Dr Albertus Marais AJM

The SARevenue Service (Sars)

issued a binding class ruling(BCR 080) onAugust 12 2022 whereinit setsout its position on contributions madeby SouthAfricansto offshore pension funds.

Thetax treatmentof amounts paidto offshore pension fundshas been controversial, with popular schemes to contribute to a Guernsey pension fund doing the roundsamong South Africanswho want to move funds out of their dutiable estates for estateduty purposes. In doingso, the pension fundmember ostensibly not onlyachieves foreign asset exposure,which is attractive tomany SA resi-

dents, but also reduces an estate that will otherwise be subject tosignificant estate duty exposure eventually.

Sars setsout itsposition onthese pensionfundsby statingthatthefundcontributions arenot deductiblefor

IN MANY SCHEMES, THE PENSION FUND MEMBER CAN ELECT, PRIOR TO DEATH, FOR OTHER PERSONS TO BECOME BENEFICIARIES

incometax purposes,as wouldhave beenthecase had thecontributions beento a SA fund. When amounts are paidouttothemember,itwill

moreover be taxed in SA.

Sars confirms, however, that it regardsthese pension fund contributions to be bona fidepension fundcontributions, meaning that it does not see them as donations for donations tax purposes.

Sars, however, makes it clearthat contributionsto thesepension fundswillnot have the effect of achieving an estate duty saving.

In Sars’s view, amounts held by thepension fund will ultimately, in some way or another, form part of the dutiableestate ofthe deceasedand taxedaccordingly.IfSars iscorrect,it meansthese pensionfund schemes donot achievean estate duty saving.

On top of this, increases in thevalue ofthe pensionfund asset will besubject to capital gainstaxat death,ifthefunds

held therein havenot yet been paid out by then.

In many of these schemes, thepension fundmember can elect, priorto death, for otherpersons tobecome beneficiariesof thescheme andfor thosepersons to receivethe pensionfund benefits in future. Such an arrangement is likelyto have additional tax consequences.

It is curious that this variation of thescheme did notformpart oftheruling application.

One can only speculate why clarity on this aspect was not soughtfrom Sars.

Considering theSars response on those facts on whichthe rulingapplication was based,it isunlikely Sars will view such an arrangement favourably.

What the scheme achieves then is the same as what wouldhave beenthe casefor contributionsmade toan “ordinary” foreign pension fund. There would not be adeduction oncontributions made,the amountsreceived ultimately will be subject to income tax,and thewealth built upin the fundwill be subject to estate duty. From a tax perspective, thepension fundscheme thereforeseems toachieve verylittle. Whatit doesdo, though,isto allowforSouth Africans to accumulate wealthoffshore, withaccess to foreign currency and capitalexposure, whichremains lucrative to many.

FROM A TAX PERSPECTIVE, THE PENSION FUND SCHEME THEREFORE SEEMS TO ACHIEVE LITTLE

Sars obligations with offshore trusts

Dr Albertus Marais

AJM

Many SouthAfricans use theirannualexchangecontrol allowances toinvest outside SA’s borders.

Individuals haveR1m they can applyas asingle discretionary allowance annually to spend offshorein whatever way theywish (including making investments). South Africans can also invest up to R10m annuallyin offshore assets, usingtheir foreign investment allowance. These investments may be made on the condition that anSA RevenueService(Sars) tax clearancecertificate can be shown tothe relevant bankthroughwhichpayment offunds toanoffshore account is made.

It hasbecome common practice forwealthier individuals to investfunds via an offshore trust.This structure involves anoffshore discretionary trust(of whichthe SA individuals arebeneficiaries) receiving funds fromthe SA

investors onloan account. The trust willthen on-invest into assetclasses abroad, typically share investments.

This structureis popular because the valuegrowth of these assetswill nowresort under the offshore trust and not in the handsof the South African him/herself.It also has the benefit of reducing estates for estateduty purposesandensuringassetsare built upoffshore, which hedges currencyand potentially perceived political risk.

Many SouthAfricans do not realise thatpayments to offshore trusts, including loans advanced,amount toa “reportable arrangement” in many instances.Where a beneficiary advancesa loan that, overthe years,in total amounts to atleast R10m, payments to the trust, even if on loanaccount, are “reportable arrangements”

“Reportable arrangements” must bereportedto Sars within 45days, failing which severepenalties may be levied.Penalties range

fromR50,000toR300,000a month, charged forup to 12 months as long as nonreporting remains. Surprisingly, many advisers and their clients are unaware ofthis requirement, especially consideringthe popularity ofthe offshore truststructure, anditis funded from SA with loans. In our experience, Sars does not levy penaltieswhere reporting occurs late,and Sars has yet to realisethat nonreporting ofa “reportable arrangement” has occurred.

Taxpayers wouldthereforebewell advisedtoattend to reportingthese “reportable arrangements” assoon as they become aware of them, even ifreporting isalready late.

IT HAS BECOME COMMON PRACTICE FOR WEALTHIER INDIVIDUALS TO INVEST FUNDS VIA AN OFFSHORE TRUST

BUSINESS LAW & TAX

ESG demands rescue beyond mere business

•

Environmental, social and governance concerns must be built in to any restructuring plans

Paul Crosland & Alizwa Madebe Webber Wentzel

Environmental, social andgovernance (ESG) has evolved beyond corporate social investment and sustainability agendas tocompanies taking holistic, strategic approaches to risks and opportunities in theE, SandG spheres,to ensure resilient operations that secure long-term, shared value for their stakeholders.

Inthe restructuringand insolvency (R&I)context, this shift triggersa movefrom considering whatthe business washistorically, towhat the businesscould sustainably be in the future.

Followingthe effectsof Covid-19 andwith many economies inrecession, the importance of R&I regimes is growing.

InSA, whenconsidering business rescueproceedings, business rescue practitioners (BRPs)also needtoadopt ESG commitmentsin their

business rescueplans (ifthey are not already doing so).

Traditional businessrescueplans followabasic structuresetout intheCompanies Act, with many plans incorporating various standard provisionsthat are largely based onearly templates produced at the start of the business rescue regime. However, beyondthe basic requirementsprovided for in theact, the legislature

● An assessment of ESG effectiveness, throughan analysisconductedbyascoring agency.

● Consulting technical experts on ESGissues to identify possible opportunities andthreats inrelation to the restructure.

● Reinventing adistressed assettomarketitasanattractive ESG investment.

TO THE LETTER

Appeal found that, due topipelineleaks,Shell’sNigerian subsidiary had caused damageto thelivelihoodof Nigerian farmers and Shell’s parent company had contravened its duty of care to the Nigerian farmers.

Following this,emerging ESG-related litigation (with far-reaching consequences) provides a lensof added responsibilityfor BRPstonot only focus on the operations of thecompanies they have been tasked with rescuing, butalso theirvalue chains,to curb future litigation risks.

Similarly, liquidators of companies mayalso needto consider the effectof a move towards ESG integration in discharging their obligation in terms ofthe InsolvencyAct and fulfilment of duties to creditors.

My Sunday morning walk through the neighbourhood tells a lot about the state of the nation for us consumers.

Johannesburgers are fond of boasting, justifiably, that Johannesburg is one of the most wooded cities in the world. Any glance over this people-made forest reveals that most of the trees are alien and evergreen. That is good and bad.

On a cold winter’s walk, I dance from sunny patch to sunny patch extended to me by the deciduous trees looking for vitamin D, which, Google tells me, saves me from everything from rickets to a pandemic.

There are many good reasons why African deciduous tree shed their leaves to get the warmth to their roots and their dependants. On the other hand, these trees are mostly

THE TIME IS RIPE FOR LIQUIDATORS, BRPS AND OTHER RESTRUCTURING PROFESSIONALS TO DEDICATE MORE ATTENTION

● Increasing the pool of investorsor buyersandpossibly focusing on attracting interest fromso-called “green funds”

● Incorporating ESG-related clauses inagreements underpinning therestructuring process.

TO ESG

has notbeen prescriptive about thecontents ofbusiness rescue plans.

Butbusiness rescueplans could includeprovisions that take advantage ofthe benefits of ESG, to include:

Byevolving thecontentof business rescue plansin this way,aBRP canprovidea unique and attractive proposition to affected persons and benefit from expanding the pool of lenders/investors to include those looking to investmore widelyinESGaligned assets.

Beyond thebenefits of incorporating ESG in R&I practice, there isalso a

broader compliance consideration. SA has submitted several climate change commitments and targetsto the UN asa signatoryto theParis Agreement. To achieve these targets and meetthese commitments, business will need to play its part.

Proposed changesto the Companies Act could also result in directors of SA companies being requiredto consider the risks associated with their business because ofclimatechange. Asamatter ofinternational bestpractice, directors’ duties incommonlaw havealreadybeen reframed to include a mandatory understanding and assessment of climate change impactson thebusiness.

All these considerations will affect the ability of a distressed company to change itsfortunes andwillimpose new dutieson BRPs(who

CONSUMER BILLS

assume the same responsibilities, dutiesand liabilitiesof adirectorin termsofsection 140(3)(b) of the Companies Act, andwho aretherefore tasked withthe dutyto actin thebest interestsof thecompany andwith therequired care, skill and diligence).

International jurisprudence relating to ESG has alreadyset theprecedentfor parent company liability to extend to harms and duties of carerelatingto ESGandsustainability.

In Okpabiand Othersv Royal Dutch ShellPlc and Another, the UK Supreme Courtheld thattheparent company owed a duty of care to the claimantNigerian citizens for alleged environmental damageand humanrights abuses by Shell’s Nigerian subsidiary.

In FourNigerian Farmers and Stichting Milieudefensie vShell, theDutch Courtof

For example,the responsibilities of liquidators of companies withunfulfilled mine rehabilitation duties are coming under scrutiny, and the long-acceptedinsolvency regimemay bealteredto caterfor amoresustainable approach toenvironmental obligations of companies in liquidation.To theextentthat thishappens,it willmeana majorshiftinthewaythatliquidators have approached suchmatters andgivethem moreto considerinthe winding-up process. Thetime isripe forliquidators, BRPs and other restructuring professionalsto dedicate more attention to ESG and consult experts to establish whatopportunities couldbecreatedfromamove towards long-termsustainability and resilience. They should also be aware of the possible extended obligations thatcould beimposedon themina shiftingpolicyand regulatory landscapes.

Sunday walk a reminder of need to balance rights

made out of air. You will not find a big hole under any tree from mass sucked out of the earth to create the tree. If I pass anybody having a braai, I can see the burnt wood turning back into the carbon it derived from the air. This miracle of transpiration does a lot for much-needed air conditioning in times of global warming. One of the consequences of evergreen trees is colder houses. One of the consequences of colder houses is more heating systems and therefore more

electricity usage. Walking along on a Sunday morning doing my own load-shedding soon reveals when Eskom is doing the same.

On those mornings, the bird songs and fresh air are soon disturbed by the thump-thump and diesel fumes from the generators of those who need constant electricity. This is partly the result of everyone suddenly learning that working from home can be an attractive possibility as long as you have a constant supply of everything you need. That brings me to my next point: unemployment. If you go on a walk (or even a drive) don’t make the foolish mistake of relying on a traffic light or stop street in your favour. I wonder if those supermarkets and restaurants that promise quick delivery realise the risks they have created.

There are poorly driven motorcycles dashing around in every direction by riders who clearly believe they have an exemption from the requirements of the Road Traffic Act, anxious to beat their deadlines and targets. It is clear that unemployment has made them take what jobs they get.

If you watch any moto grand prix, you will see the motorcyclists are kitted out in outfits that protect them against any weather and most accidents.

I cannot say the same for the poor motorcyclists trying to run me down on my Sunday walk.

Then there is the land issue. In a leafy suburb like mine, the householders do their best to keep the verge looking attractive. That is a bonus to all of us because there is clearly no longer enough municipal money to

do so. The best of the householders remember that there are still people called pedestrians.

Attractive garden beds and a pavement make everyone’s life happier. But there are others who believe in expropriation without compensation, taking over the verge and covering it in sharp rocks or fenced off areas, driving the pedestrians into the street at the risk of a car avoiding a pothole.

At least there are signs that private enterprise has stepped in to solve the pothole issue to supplement public resources. There are good civic reasons to take everyone and all the circumstances into account. These are not complaints. They are observations. A walk through a leafy suburb, winter or summer, has advantages that not many people enjoy.

THERE ARE GOOD CIVIC REASONS TO TAKE EVERYONE AND ALL THE CIRCUMSTANCES INTO ACCOUNT

All the challenges I have mentioned can be dealt with by balancing the rights of all of us. Slowing down to walking pace and thinking about the world is a good start.

The poet Robert Graves summed it up by saying that “to walk on hills is to employ legs as porters of the head and heart jointly adventuring towards perhaps true equanimity”

director

BUSINESS LAW & TAX

CRYPTO & FINTECH FOCUS

SA leads race in Africa to adopt fintech

• Regulators have focused on payments regulation environment, which is due a significant overhaul

Ashlin Perumall Baker McKenzie

SA isan Africanfintech frontrunner, with severalrecent regulatory developments taking centre stage as the country preparesto adoptfintechand its various subsegments fully. SAmust alsoaddress complianceandduediligence issues before and during fintech transactions. SA hastaken aco-ordinated approachto fintech across itsregulators, first creating theIntergovernmental FintechWorking Group, orIFWG, aconsortium of the key financial regulators. This consortium includes theReserve Bank, which also doublesas the prudential authorityand monetary systems regulator, the FinancialSector Conduct Authority (FSCA),the Financial IntelligenceCentre and

the country’scredit regulator. This group hasengaged in public-private participatory discussions andthe productionof positionpapers tosettle on thepolicies to advise the drafting of regulations. Muchofthe focusofthe IFWG has been the regulation of cryptoassets, withantimoney launderingand South African exchange control being theprimary focus areas. In short, SAis likely to adopt the approach of including cryptoasset service providers within the remit of regulated financialservice providers and accountable

IP PRESENTS A SPECIFIC DEAL STRUCTURING AND DILIGENCE ISSUE WHICH MUST BE LOOKED AT CAREFULLY

institutions in respect of Know yourCustomer, , and also become more stringent on thecross-border flowsof value enabled by crypto assets.

In the wider fintech arena, SA regulators have focused on the payments regulation environment, given the size of this subsegment and because ithas beendue fora significant overhaul for some timeaspart ofthecentral bank’s Vision 2025 programme. Vision 2025, commissioned in2000, setsout the goals andstrategies for the national payments industry, aimed atbuilding a world-class national payment system that serves the economy and people of SA.

Most recently,the Bank announced it was working ona newRapidPayments Programme (RPP). This programme is aimed at modernising real-time payments such as immediate credit

push,pay byproxyand request to pay functionality in the national payment system.

When fully implemented, theBank hasstated theRPP will offer a cost effective instant payment service across banks, a proxy service to embed user banking details,arequest topayservice,aswell assupportfor several known retail payment use cases.

The Bank noted that it is working with several bank participants tobuild thetechnologysolutionthatformsthe backbone of the RPP solution. It is currently in the testing phase with its implementationplanned forthesecond half of 2022.

The mostprominent issue we stillencounter duringfintech deals in SA is the housingof theintellectualproperty(IP)inSouthAfricancorporate startups.SA issubject to an exchange control regime, whereby any transfer of intellectual property offshore

from residents requires Bank approval.As aresult,many fintechs have either structured around this with IP sitting in offshore vehicles, or have not,which thenseparately raises concerns with many VC investorson global expansion.

Either way, IP presents a specific deal structuring and diligence issue which must be looked at carefully in the South African context.

A more obviousdeal issue isthat mostfintechsare founder-ownedandrunstartupswith leancapitaloutlay, particularly for legal compliance. Nonetheless, the dramatic difference in round sizesfrom averageseedcapital tohuge SeriesA orB rounds means that these companies suddenlyare considered to be mid-sized business in the country.

The financialindustry in SA is heavily regulated with robust and active regulators, and regulatorycompliance

formidto largeinstitutionsis essential. Noting that these sudden injections of capital shouldcome withlegaland regulatory investment is a must. Further, assessing the extent ofthis atdue diligence stageis keyto ensuringthe post-investment deployment of capitalis gearedtowards closing these compliance gaps quickly.

Founder engagement is also important. We’ve seen founder reliance is quite heavy in African fintechs generally, withcentralisation of both controland business valuesittingwith afewindividuals and not institutionalised across fintech targets. This means relationship building ahead of investments withfounders andkey team individualsis crucial,as well as appropriate commitments and alignmentof postacquisition goals.

Oftenfounderswillexpect investors to goalong for the journey, so tospeak, which may includefuture goalsthat are attractive to investors togetherwith thosethatare not.Often,thesegoalsinclude outside of Africa expansion, which may not necessarily align with investor goals. Reading dataroom slide decks on business growth and objectives should be treatedas asource forissue spotting, alongside current arrangements andagreements.

Whatever thechallenges, fintech is guaranteed to be part and parcel of SA’s financialsystemsin future,asthe country gearsup tobe ableto implement financial technology ina waythat benefitsthe economy and its citizens.

Will crypto derivatives be regulated in SA?

Kelle Gagné Allen & Overy

In line with other G20 countries and its G20 commitments, SAbegan regulating over-the-counter (OTC) derivatives in 2018.

Recently, Reserve Bank deputy governorKuben Naidoo spokepublicly about the planto regulatecryptocurrencies asfinancial productsin abidto protectconsumers. Whatwill happen wherethetwoproductsmeet willcrypto derivatives becomeavailablebutregulated in SA?

The derivativeregulations, which fall under the Financial Markets Act2012, definea derivative asa financial instrument orcontract that creates rights and obligations, and derivesits valuefrom an underlying asset,index or rate.

An OTC derivativeis an unlisted derivative instru-

ment thatis executedby means of acontract between twoparties. Itsvalue orperformancereliesonthefluctuating valueof underlying assets suchas commodities, bonds, stocks,interest rates, currencies, credit, equity, foreign exchangeor stockmarket indices.The parties involved use the derivative to either hedgerisk ortake on risk as aform of speculative investing.

In particular,one typeof derivative a contract for difference,orCFD is commonly tradedon internet platforms aroundthe world. CFDtradingishugelypopular with individualsbecause of the lowmargins requiredto invest versusthe exceptional potential returns.

In SA, derivatives can only be sold by an OTC derivatives provider(ODP) (afirmor bank) that islicensed by the Financial ServicesConduct Authority (FSCA).The ODP’s

licence stateswhich specific asset classes theODP may offer to clients.

Last year,the Intergovernmental Fintech Working Group (IFWG), in its position paper onthe regulationof crypto assets in SA (publishedonJune 112021)stated thatit wasnotin favourof permitting cryptoderivatives in SA.Among itsreasons for the decision were the lack of regulation overcryptocurrency in SA,the difficulty in valuing cryptocurrency and theriskof cryptovolatility.In fact, in late 2021, the FSCA ordered internationalcrypto exchange Binanceto cease offering cryptoderivatives to SA customers.

If, however,in thefuture the Banksees cryptoas a financial product regulated bytheFSCAundertheFinancial Adviceand Intermediary Services Act 2002(FAIS), it may open the door to crypto derivatives trading.An online

crypto exchangeavailable to South Africans would need to be licensed as anODP that is permitted toissue, sell,originate and make a market in cryptoderivatives, aswellas being licensed (presumably as afinancial services provider) in crypto assets.

WHY CRYPTO DERIVATIVES CAN BE RISKY

FortheIFWGthereisajustifiable fear that, due to the volatility of cryptos, there is an increasedpossibility that inexperienced or vulnerable people will risk not only losing their “margin”,but will actuallybe flungintoserious unexpecteddebt ifaderivative trade oncrypto goes pear-shaped.

The reason forthe heightened risk comes down to how CFDs work. Ina CFD, a person could,for instance, payR25of marginto “gain exposure”toR100ofapartic-

ular cryptocurrency.A CFD is usually in place for one day, though itcan berolled over continuously ifmargin is maintained. If,for example, the crypto value goes up to R125,the persongets thefull increase aR25profit; ifthe crypto valuegoes downto R25, theperson similarly incursthefull lossofR75 (R100 - R25).

However, ifthe person only putin R25,and they incur a R75 loss,it means the person now has not only lost their investment ofR25, but owes anadditional R50, meaning they’vegone into the red. The seriousconcern is that ifa naiveor inexperienced person uses a chunk of their money, be itfrom a student loan,divorce settlement or pension, to buyCFDs on a volatile cryptocurrencythat crashes, thatperson might standto losefar morethan they’ve put in. The normal risks associatedwith CFD gearing over stable currencyor anequityCFD are significantly magnifiedby the volatility of cryptoassets. A licensed ODPselling crypto derivatives would be required bylaw toassess whether thecrypto derivatives are appropriate for each potential client. Until cryptoderivatives are regulated and brokers are licensed, customersneed to exercise extremecaution, as they are not yet fully protected by the law.

ONE TYPE OF DERIVATIVE A CONTRACT FOR DIFFERENCE IS COMMONLY TRADED ON INTERNET PLATFORMS

BUSINESS LAW & TAX

Beware third-party bribery

• Without proper due diligence, your organisation can be held liable for third-party corruption

Suad Jacobs ENSafrica

Whether your organisation does business onlyinSA oracrossmultiple jurisdictions, today’s business environment requires significant relianceon external partners. This,however, can expose you to corrupt activity by these thirdparties, for which yourorganisation could be heldliable without a proper duediligence process in place.

ThePrevention andCombating ofCorrupt Activities Act, 2004 (Precca) is the central lawgoverning anticorruption inSA. Italso has extraterritorial reach, meaning thatindividuals and organisationsdomiciledinSA can be prosecuted for the corruption ofpublic officials in othercountries. Preccais generally in line with international standards to which SA is a signatory, including the Organisation forEconomic Co-operation andDevelopment (OECD)Convention on Combating Bribery of Foreign Public Officialsin International BusinessTransactions (OECD convention).

Ifyour organisationhas operations ordoes business in foreignjurisdictions, itis most likelysubject tothe domestic anticorruption legislation ofthose jurisdictions. Many ofthose jurisdictions, however, alsohave extraterritorial anticorruptionlegislation, whichis increasingly enforced againstorganisations andindividuals globally. Notable examples arethe US throughthe ForeignCorrupt Practices Act(FCPA) and the UK through the UK Bribery Act(UKBA). Other jurisdictions are also increasing globalanticorruption enforcement of their extraterritorial anticorruption legislation, includingFrance, Canada and the Netherlands. UnderSA legislation,your organisation issubject to corporate criminalliability, which means it could be prosecuted forbribery and corruption offences. Furthermore, thereare regulatory and legalobligations that require organisationsto combat corruption.

Regulationsto theSA CompaniesAct,2008require listed companies, stateowned entitiesand certain other companiesto establish social andethics committees to ensurethat theorganisation compliesinter aliawith

the OECD convention.

Ifyour organisationis subject to the UKBA, it is important toknow thatthe UKBA criminalisesthe failure of organisationsto prevent bribery andimposes strict penalties.

Ifyour organisationis subject to theFCPA, the department ofjustice andthe Securities Exchange Commission, whichenforces the FCPA, willevaluate whether the organisationhas an appropriate antibribery and corruption compliance programme inplace when deciding whetherto bring charges

THERE ARE REGULATORY AND LEGAL OBLIGATIONS THAT REQUIRE ORGANISATIONS TO COMBAT CORRUPTION

Reported law enforcementactions overthepast decade under the FCPA and UKBA reveal that the majority of corrupt corporate activities involve third parties that the organisation does business with.

These third partiescan be found throughout the businesscycle ofanorganisation, including:

● The supply chain (vendors and suppliers);

● The sales process (agents, distributors, and foreign and local customers);

● Advisers and consultants;

● Outsourcing (payroll, accounting, tax and custom clearing agents); and

● The expansion of the organisation’s footprint (consortia, joint venture partners).

‘IGNORANCE’ Domestic legislation expressly prohibits bribes made onbehalf ofthe organisation through third parties. Some foreignextraterritorial legislation, however,extends liabilityto theorganisationin circumstances where the organisation may not have direct knowledgeof themisconduct of the third party:

● The FCPA provides that knowledge of the third party’s misconduct includes “conscious disregard” and “deliberate ignorance” on the part of the organisation.

● The UKBA provides for strict liability ofthe organisation where thebribe is made by thethird party,unless the

BUSINESS BACKHANDERS

organisation can demonstrate that it had adequate procedures inplace toprevent corruption involving its third parties.

In SA the King4 Report on Corporate Governancefor SA, 2016 (King 4), a set of voluntary corporate governance principles and recommended practices to achieve governance outcomes, places a strong focus on combating corruption through compliance. Organisations with primary listings onthe JSE are required to adopt, implement and disclose compliance with King 4. Certainof the recommendedpractices ofKing4 regarding compliance are also entrenchedin theSA Companies Act.

Previous globalenforcement actions suggestthat an effective antibriberyand corruption(Abac)compliance programme can influence a decisionby aregulator or by law enforcementto initiate prosecutions against an organisation and can influence the value of the fines.

Best practicerequires that an effective Abac compliance

ORGANISATIONS WITH PRIMARY LISTINGS ON THE JSE ARE REQUIRED TO ADOPT, IMPLEMENT AND DISCLOSE COMPLIANCE WITH KING 4

programmeconsists notonly ofappropriate codesofconduct,Abac policiesandprocedures, riskassessments, trainingand ongoingmonitoringprocedures, butalso theperformance ofappropriatedue diligenceprocedures over thirdparties thatthe organisation doesbusiness with:

● The resource guidesto the FCPA, issued by the US Department of Justice and the Securities ExchangeCommission, repeatedly emphasisethe needto performdue diligence over thirdparties to minimisethe likelihoodof violations of the FCPA; and ● Guidanceon theUKBA, issued by theUK Serious FraudOffice, specificallyreferences thirdparty duediligenceasoneofthesixprinciples that organisations should consider when implementing aneffective Abaccompliance programme

DUE DILIGENCE

Organisations require a robustand appropriatethirdpartydue diligenceprocess as part ofits overall Abac compliance programme,not onlyto avoidthe pitfallof engaging with athird party of questionableethics, butalso todemonstrate totheregulatorthatit asanorganisation hastaken appropriatemeasures to mitigate the risk of corruption posed by its third parties.

A third-party due diligenceprocess (TPDDprocess) aims to:

● Gather sufficientinformation for theorganisation to be abletoassess theAbacrisk posed by the third party;

● Determinewhether, asa result of the initial informationprovided andassessed, enhanced due diligence proceduresare required.If so,to performtheenhanced procedures;

● Assessthe risklevelposed (ie)traditionally low,medium or high risk;

● Makean informedinitial decisionas towhetherthe organisationwishes toenter intoor continuethebusiness arrangementwith thethird party;

● Whereit isinitiallydecided toenterinto orcontinuewith a thirdparty assessedwith higher risk,determine whethertherisk canbemitigated toa levelthe organisation iscomfortable with for example, throughadditional monitoring procedures or the introduction of anticorruption clauses, warranties orrepresentationsin thecontractsto be concluded; and

● Document the processes An appropriateAbac compliance programme mustinitially considerwhere the organisation is exposed to therisksof corruption,anda risk assessment should thereforebe performedby theorganisation toidentify such risks. The TPPD process should be designedto focus onpreventing andmitigating those keyrisks thatmay involve its third parties.

A TPDDprocess needsto

beflexiblesoastoaccommodate future risks that may be identified throughregular ongoingAbac riskassessment by the organisation.

A TPDD process should bedesigned tocomplement and make use of existing processesof theorganisation, including standardsupplier vetting processes (including financial stability),BBBEE verification procedures,customer vettingprocedures

A TPDD PROCESS SHOULD BE CONTINUOUS THROUGHOUT THE LIFE CYCLE OF THE BUSINESS RELATIONSHIP WITH THE THIRD PARTY

(includingcredit scoring)and otherprocesses thatmay alreadybein placeinthe organisation,such ascommunity investment, sustainability,and measuresagainst fraud and money laundering, aswell assanctions-related measures

A TPDD process should be continuous throughout the life cycle of the business relationship with the third party. Dependingon thechanging riskenvironmentandtherisk scoreultimately attributedto the third party,regular reassessmentsof thethird party should take place at suitable junctures.

BUSINESS LAW & TAX

Refusing to sit on the fence in IP battle

• Recent judgment distinguishes between a composite trademark and ‘ordinary English words’

Jeremy de Beer

ENSafrica

The Supreme Court of Appeal (SCA) recently handed down itsjudgment in the trademark caseof CochraneSteelProducts v Jumalu Fencing.

Thiscase isrelated toearlier litigationinvolving Cochrane’s registration for thetrademark CLEARVUin classes 6and 37for fencing products and services.

Cochrane’s CLEAR VU trademark registrationis subject totwo disclaimers, which were orderedby the SCA in the earlier litigation.

Thefirst reads: “Registrationof thismarkshall giveno right tothe exclusiveuse of thewords ‘clear’ and ‘view’ separately and apart from the mark.”

The otherreads that “registration of this mark shall not debarothers fromthebona fide descriptiveuse inthe courseof tradeof thewords ‘clear view’ and ‘view’”

Theevidence showedthat Cochrane, amanufacturer of fences, usesthe trademark

CLEAR VUin conjunction with additionalwording such asThe InvisibleWall,Critical Infrastructure andShutter Mesh. It furthershowed that Jumalu, a direct competitor of Cochrane’s, usedthe term “clear view” in relation to its

JUMALU’S COMPANY WEBSITE … TALKS OF ITS PRODUCTS BEING KNOWN FOR THEIR ‘CLEAR VIEW AESTHETIC’

fencingproducts. Theissues the courthad todetermine were:

● Did Jumalu’s useof the term “clear view” in relation to fencinginfringe Cochrane’s trademark registration for CLEAR VU?

● Did Jumalu’s useof the term “clear view” constitute passing off?

THE DEFENCE

Jumalu’sdefence tothe trademark infringement

claimwasthat itwasmaking bonafide descriptiveuseof the term “clear view”, which is adefence in termsof section 34(2)(b) ofthe Trade Marks Act,1993 (act).In supportof this,Jumalupointed out thatit had usedthe term “clear viewfencing” in conjunction with its brand name CLAMBERPRUFE. Jumalu’s companywebsite refersto “Clamberprufe clear view fencing products”, andalso talks ofits productsbeing knownfor their “clear view aesthetic”

Jumalu also claimed that theterm “clear view” is used by othersin theindustry. It pointedout thatCochrane’s registrationfor CLEARVUis subject to a limitation (admission) with regards to the term “clear view”, relyingon the second disclaimer in Cochrane’s trademark registration.

The first court’s judgment

Thefirst courtheld thatthere wasno trademarkinfringementbecause Jumaluhad simplymade bonafide descriptive useof theterm “clear view”.The courtalso rejected the passing off claim.

WHICH SIDE ARE YOU ON?

Itheldthat therewasnoevidence that the term “clear view” wasa sourceindicator, nor thatthere wasany likelihood of confusion.

The SCA’s judgment

The court dealt with the claims of trademark infringement and passingoff separately.

Trademark infringement

The courtlooked tothe words writtenby judgeLouis Harms inan earliercase involving chocolatetrademarks: “A disclaimer is, theoretically, nevernecessary since registration ofa trade markcannot giverise toany rightsexcept thosearising from themark as awhole. It nonethelesshas afunction. Primarilyitis topreventthe registrationof acomposite mark from operating so as to inhibit the useof the dis-

claimed element by others.”

Thecourtwent ontosay that “neither Cochranenor any othertrader isentitled to appropriate exclusivelythe ordinary English words ‘clear’ and ‘view’, which,in effect, constitute the compositemark. Furthermore,those wordsare commonlyused descriptivelyin relationto fencingproducts. Theregistration of the mark should not operate to inhibitthe use by othersof thedisclaimedelements.”

The court found that Jumalu’s use ofthe term “clearviewfencing”wassubsidiaryto itstrademark CLAMBERPRUFE, much smaller and “clearly usedin a descriptive sense”. It was also clear that Jumalu is the companyname. Regardingreferences on Jumalu’swebsite to

“clear view aesthetics”,it also found thisuse tobe descriptive.

While Cochraneattempted toargue thateven if Jumalu’s use of “clear view” wasdescriptive, itwasnot bonafide(as requiredforthe defenceto succeed)as itwas intendedto rideon Cochrane’s coattails,this argument ultimately failed due to a lack of evidence.

The result?

Jumalu’s use of “clear view” was protected by section 34(2)(b) of the act and fellwithin thescope of thesecond disclaimer,there was nolikelihood ofdeception,and thereforenotrade mark infringement. Passing off(misrepresentation)

Cochrane’spassing offclaim alsofailed. Afterdiscussinga numberof earlierauthorities, the court said Cochrane had “failed to establishthe acquisitionof reputationelement andthe misrepresentationof its passing offclaim the name, get-upor markused by Jumalu is not such or is not usedto likelycause the publicto beconfusedor deceived as to origin or association”

The court concluded with thisquote froma recentSA judgment: “Having determined that themarks are not confusinglysimilar forthe purposes of trademark infringement,how, itmust be asked, can they be confusingly similar forthe purposes of the alternativeclaim based on unlawful competition?” Both claims failed trademarkinfringement andpassing off. In our view,the judgment issoundanditprovidessome clarityonthe issueofdisclaimers and admissions.

● Reviewed by Gaelyn Scott, head of ENSafrica’s IP department.

Bosses can let go of retirees at any time

Jacques van Wyk & Andre van Heerden

Werksmans

The dismissalof employees who havereached and worked beyondthe normal retirement agehas been found to be fair.

Employers donot waive theirrights toenforcethe normal retirementage by serving salaryadjustment letters aftertheir employees reachthe normalageof retirement.

This was the issue consideredbythe labourcourtin the case ofSolidarity obo GerhardusViljoenStrydom& 5 others / State Information Technology Agency Soc Ltd. Inthismatter,theemployment contract of the employees provided that their retirement ageswould beregulated by their relevant pension fund rules.These provided

that,subjecttotheemployer’s consent, anemployee who reached thenormal retirementageof 60, “may remain in service and retireat a date notlater thanthelast dayof the month in which the member attains theage of 67”. In short, members of the pension fundwere permitted to remainin servicebeyond the normalretirement age but no later thanthe age of 67 years. After theemployer had allowed theemployees to work beyondthe normal retirement age,the employer enforced thenormal retirement ageand servedthe employees with retirement notices. Thenotices informed the employees thatthey had reached theirretirement age and, as a result, their employment contractswould terminate. Theemployees lodged grievances challenging the

company’s decision to enforce the retirement age.

The employeesargued that theemployer hadconsented tothe employees remaining inservice beyond the normalretirement age.In support of this contention, the employees relied on the letters theemployer servedon the employeesand which communicated thedecision to approveannual salary increases. Theemployees argued that the letters constituted tacit consentto allow the employeesto remainin service beyondthe normal retirement age.These letters were issuedafter the employees reachedthe normal retirement age.

The employer contended that theemployees’ employment automaticallycame to an end whenthey reached the retirement age of 60 years, as stipulated in their

contracts of employment. Furthermore, theemployer contended thatthere had been nowritten amendment to provide atermination date beyond thenormal retirement age of 60.

The labourcourt found that theemployer’s contention thatthe contractsof employment automaticallyterminated whenthey reached the normalretirement age had nomerit asthe employees had continuedto render services. The court found that the employees’ contention thatthesalaryadjustmentletters constitutedconsent to extend theretirement ageto 67 (theagreed retirement age) had been “abit of a stretch”. The courtfound that the scope ofthe letter had beenlimited totheamendment ofthe employees’ salaries andnothing more. The court affirmed that the

normal retirement age remained as stated.

Therefore, an agreed retirement age couldnot be relied on as the agreed retirement age and the normal retirement agewere mutually exclusive. The courtfurther relied on,among others,Bankv Finkelstein t/aFinkelstein and Associates(JS219/15) [2016] ZALCJHB428 (Finkelstein),in whichthecourt found thatan employeewho works beyondan agreedor normal retirementage has,in effect, been working on “borrowed time”.Similarly, the court relied onKumta and OthersvLimpopoLegislature (JS886/09) [2014] ZALCJHB 357(Kumta) andMaraisv Aveng Grinaker Lta (JS602/14) [2019] ZALCJHB 259 (Marais).

The Kumtaand Marais matters confirmedthe posi-

tionthat oncereached,the normal retirementage cannotbe reversedunlessthe normal retirementage is replaced bya newagreement. TheFinkelstein case furthernoted thatunlessan employer specifically waived itsrightsto applytheretirement age,the employeris entitled to “at anypointafter the employeeattained the normal oragreed retirement age place theemployee on retirement”

The court foundthe normal retirementage remained “uninterrupted andbinding” The dismissal of the employees had therefore been fair. Thecase reaffirmsthatif there isno agreementon the retirement dateonce the employee reachesthe normal retirementage, thenthe employer is entitled to enforce thenormal retirement age at any time thereafter.

BUSINESS LAW & TAX

Third parties to help Sars in trust payouts

• Tex revenue service aims to prepopulate forms with information gleaned from approved institutions

Joon Chong Webber Wentzel

In line withits Vision 2024to streamlinetax collection,the SA RevenueService (Sars)will implement newsystems for reportingtrust distributions anddonations to approved institutions.

Sars’ Vision2024 isto become amodern revenue authority informedby datadriven insights,self-learning computers, artificialintelligence andinterconnectivity between people and devices. Vision2024 anticipatesa data analytics environment in which third-partydata will be provided to Sars on a realtime monthlybasis. Though there is still workto be done, Vision 2024will improve efficiency intax compliance, since assessmentscan be pre-populated withas much third-party informationas possible. Incometax deductions through PAYE will also be moreaccurate through effective taxrates generated by Sars foreach taxpayer, based onthis third-party information.

Currently, banks,financial institutions (suchas longterm insurers, retirement funds andcollective invest-

ment schemes),medical schemes, attorneys, estate agents and issuers of bonds, debentures and financial products are requiredto file third-party returns to Sars.

These third-partyreturns are filedwith Sarsonce a year after the endof the year of assessmentand contain information on,for example, interest, dividends,or capital gainsondisposals intheyear of assessment that accrued to

PHASE

2 IS IN LINE WITH THE VISION 2024 DATA ANALYTICS ENVIRONMENT WITH REAL-TIME DATA PROCESSING

a taxpayer in that year. Sars is in the process of engaging with stakeholders byrequesting commentson draft BusinessRequirement Specifications (BRS) for: ● Residenttrusts todeclare distributions andvesting amounts tobeneficiaries using the new IT3(t) returns. ● Approved 18A institutions to declare details of donations throughthe newIT3(d) returns.

● Representative taxpayers oftrusts todeclareamounts vested or distributed to beneficiaries.

Currently, trust distributionsarenotreportedbythird parties toSars. Thereis usuallya delay(sometimes years)between thetime when taxpayers filetheir ITR 12/14toSars andthereceipt by Sars of trust data filed through thestandard ITR12T process.This meansSars does not usuallyhave independent data forverifying the beneficiariesof trustincome, capital or assets.

Under these circumstances,it isalsoimpossible topre-populate thosetaxpayers ’ ITR 12sforauto assessmentswiththeirdistributionsor amountsvested from trusts.

In arecent meetingwith taxpractitioners andstakeholders,Sars outlinedhow it intends overtime to pre-populatetheentirebeneficiarysectionof theITR12T with datafrom thirdparties. This cannot be done immediately because ofthe need to makelegal andsystems changes.

Over time, this information will becollected by third parties, who will provide data

MODERN APPROACH

to Sars onamounts distributed or vested to trust beneficiariesmonthly, usingthe standard IT 3data flow. Sars proposes to use the ITR 12T andIT3(t) processessimultaneously, andeventually mergethem intoasingle linked beneficiary system.

The representative taxpayers of resident trusts, who wouldbe responsiblefor providing this information, would be thereporting persons (in many cases, it is a tax practitioner). Nonresident trusts, collectiveinvestment schemes, employeeshare incentiveschemes andreal estateinvestment trustsare excluded,for variousreasons.

The proposals anticipate monthlyreporting ofany amountsvested ordistributed, when there is activity, withafinal reportdueatthe endof February.Itappears null reporting isalso possible ifthereis nomonthlyor annual activity.

Approved 18A institutions to report donations Ina recentstakeholder engagement meeting,Sars emphasised theneed tohave approvedsection 18Ainstitu-

VIEWPOINT AFRICA

tionsfile thenewIT3(d) returnswith informationon donors anddonation amounts.This isbecause therehave beenvarious abuses ofthe system,includingmisuse ofPBOregistrationnumbers andsituations wheresection 18Areceipts wereused fordonationsthat had notbeen made,or the PBOsdidnotexistortheentities were notapproved as PBOs.

The new reporting system ensures greater transparency and integrity in the section 18A donor deduction process. Donorscan claimtaxdeductibledonations toan approvedsection 18Ainstitutionup to,generally, 10%of their taxable income.

Approved section 18A institutions include governmententities, publicinstitutions(for example,public schools and universities), PBOsengaged inwelfare, health care oreducation (Part II of 9th Schedule public benefit activities), specialised agenciessuchasUNagencies and funding/conduitentities of the above institutions.

These institutions will be required tosubmit thenew IT3(d) returns to Sars using

different submission channels,depending ontheirsize and governancecomplexities. As withthe new trust return, Sars will prescribe the additional information requested in the new IT3(d) by public notice.

Proposed submission channels by trusts and 18A institutions

Theproposals anticipatethat Phase 1 will enable submission of XMLdata through SarseFiling(up to20records per submission),uploaded via HTTPS (21to 50,000 more records), or via IBM ConnectDirect (50,001and above).

Phase 2 will see data reportingto Sarsintegrated withthethirdparty’sfinancial IT systems in real time. Phase 2 is in line with the Vision2024 dataanalytics environment with real-time data processing. Sars’effortstoobtaininput fromstakeholders onthese new third-party submissions is most welcome.We anticipate the publicnotice requiring third-party reporting from trusts and approved 18A institutions tobe publishedin 2023.

Double jeopardy of scams in local gold trading

David A Asiedu ENSafrica

About 10 years ago, a potential client from abroad requested legal assistance in a gold transaction with local traders in Ghana. From the story the potential client told and the fake-looking documents they had received from the local traders, it was obvious that we had been contacted in the middle of a scam. We told them about our concerns and how gold was neither easily available nor easily traded in Ghana. In reply, their main concern was our reluctance, even if the country was the “Gold Coast”

(Ghana’s preindependence name). Clearly disappointed, they vanished into thin air.

Many lawyers are unwilling to “touch” gold transactions in the smallscale mining sector in Ghana because of the level of fraud involved. In truth, too many foreign traders do not involve lawyers at all in their transactions. They deal directly with local gold traders. But how would they know about the licences and permits that small-scale gold dealers need in order to trade in gold?

Because some foreign traders hardly use the services of lawyers, they are unaware of all the legal requirements needed for the

trade. So they get scammed by unlicensed small-scale gold miners and traders.

The scammers have a simple mode of operation. The foreign trader pays in advance for gold. The local trader exports (smuggles, really) gold to the foreign trader’s designated destination in a foreign country. There are no major issues for the first five or more trades. Trust is built.

The confident foreign trader transfers a large sum of money to the local trader. Then the issues come up. No gold is exported. The local trader may just disappear. Or they may make excuses (“I’m unwell”, “the police extorted the gold from me”, “I lost my

spouse”, etc).

If your local gold trading partner is not licensed, you face “double jeopardy”. Apart from losing your money, you may not be able to sue successfully for the gold because an illegal contract is not enforceable. It does not matter that you did not know that you were dealing with an illegal trader.

Often, people know they are dealing with smugglersturned-scammers (and just like the below-market prices they are getting). The police? Criminal complaints against these scammers usually go nowhere.

What about fraud? What if the scammers had fake licences from the Minerals

Commission? Maybe one can bring a case in fraud. But would such fraud have been possible if one had acted through lawyers? More importantly, the Minerals Commission’s website has a list of the gold traders it has licensed. It would be difficult to get the court’s sympathy after getting scammed by a trader whose name is not on this public list.

MANY LAWYERS ARE UNWILLING TO ‘TOUCH’ GOLD TRANSACTIONS IN THE MINING SECTOR IN GHANA

Apart from the licences from the Minerals Commission, gold traders need other authorisations and registrations from the Bank of Ghana to trade in foreign currency and the Ghana Revenue Authority to pay their taxes and comply with all tax laws. It is not difficult for a foreign trader to buy gold from Ghana, if they do so from authorised sellers. However, because it is easier and cheaper to buy gold under the radar, buyers are incentivised to go this route. More often than not, this route ends in the buyer being defrauded, resulting in very little recourse available for the recovery of their money.

BUSINESS LAW & TAX

Staffer who failed to snitch was fairly fired

Jacques

van

Wyk & Andre van Heerden

Werksmans

The dismissal of an employee who failedto reportthe suspicious conduct ofher colleague, inrelation tomissing monies, was found to be substantively fair ina recent case.

The failure of the employee to inform an employer of theirbusiness interests being improperly undermined, constitutesderivative misconduct forwhich dismissal may be afforded.

Theemployer inthismatter conductedbusiness inthe retail sector.A representative of theemployer discovered that moneyhad gonemissing dueto ashortfallamount being deposited ata bank at one of its retail locations. The missing moneywas ultimately found in abank bag in a drop safe andit was determinedthat ithad notbeen recorded elsewhere.

The colleagueof the employee inthis matter admitted she hadplaced the unregistered moneybag in the drop safeand had informed theemployee that she had doneso. The employee failed toreport her

The aboveissue wasconsidered bythe Commission for Conciliation,Mediation and Arbitration (CCMA) in the case ofNcukana/AF Brands (Pty)Ltd (2022)BALR737 (CCMA).

colleague’s suspiciousconduct to management and, as a result, theemployee was charged withderivative misconduct,whichledtoherdismissal.

The employee, however, denied havingany knowledge of the conductto a representative of the employer.

The employeecontended that herdismissal wassubstantively unfair.

During theproceedings at the CCMA,the employee concededto knowingofthe suspicious conductof her colleague. Thequestion before the CCMAwas thereforewhether therehadbeen anobligationon thepartof theemployee todisclosethis knowledge. Thecommis-

sioner found that the employeewas underanobligationtoinformtheemployerof the suspiciousconduct of which she was aware.

TheCCMA reliedonthe findingof thelabour courtin Dunlop Mixingand Technical Services and others v Numsa obo Nganenziand others [2016] 10 BLLR1024 (LC) (Dunlop). TheCCMA relied on the test used in that matter namely:

● The informationor knowledge that the employee fails to disclosemust be “actual knowledge”;

● Nondisclosure mustbe deliberate;

● The seriousness of the primary misconductand the rank ofthe employeewho

LEGAL SCOOP

fails to disclose,at most affects the gravityof the nondisclosure;

● A request to disclose informationneednot bemadefor the duty to disclose to be triggered, but if a request is made and is refused, culpability is aggravated; and

● The employeeneed not have acommon purpose with the perpetrator.

DUTY

OF GOOD FAITH

The court inDunlop held that an employeeis implicitly bound by a dutyof good faith towards anemployer and that remainingsilent about business interests being improperly underminedhad beena breachof thisduty. The failureto disclosethe

misconduct informsthat the dismissal ofthe employee hadbeenderivativelyjustified inrelation totheprimary misconduct.

In this case, the employee also refused to disclose her knowledge ofthe matter, which amounted to an aggravating factor infavour of her dismissal. TheCCMA affirmed thatholding acommonpurpose withthecolleaguedid nothave tobe established.

The dismissalof the employee was therefore found to be substantively fair.

Employees hold a responsibility to acthonestly even if it meanssuch honesty exposes themisconduct of another employee.

Emigration, wealth tax and remote working

Deneska Potgieter Fluxmans

Working from home and want to claim home office expenditure? Thinking of spending considerable time abroad and confused about worldwide taxation? Or fearful of SA’s potential wealth tax or basic income grants tax?

Here we shed some light on these tax considerations, and more

Though the topic of tax and the payment thereof is often a contentious topic among South Africans, it is a reality that taxes are an essential part of a properly functioning society.

The SA tax landscape in particular is ever changing and there are certain updates that every taxpayer should be aware of.

Formal financial emigration to avoid paying double tax

There has been increasing confusion over whether people are liable to pay tax in SA if they are paying tax elsewhere in the world. SA tax residents are taxed on their worldwide income by the SA Revenue Service (Sars).

Simply put: a person is a tax resident of a country if they are “ordinarily resident” or comply with the “physical presence test”, which requires that they are present in the country for the minimum number of consecutive days over a fiveyear period. SA has numerous treaties with other jurisdictions for the avoidance of double taxation to avoid tax being paid twice on the same income.

If a taxpayer decides to emigrate from SA with the intention of living outside of

LEGAL SCOOP

the country for the foreseeable future, it is advisable to follow the formal financial immigration process provided by Sars to qualify as a nontax resident in SA and therefore be exempt from taxation on their worldwide income.

When emigrating, it is advisable to bear in mind that a person will be deemed by Sars to have disposed of all their moveable assets resulting in a possible capital gains tax liability.

Once this process is finalised, a letter will be issued by Sars confirming the individual’s status as a nontax resident according to Sars’ records.

Until such time as this letter has been issued, there is still a risk of being taxed in SA on worldwide income. Apprehensions regarding basic income grants (BIGs)

A recent report published by Intellidex, in partnership with Business Leadership SA and Business Unity SA, submitted that there is an inevitable tax hike around the corner to fund BIGs in SA.

The purpose of the implementation of BIGs would be to alleviate poverty; however, the tax hike needed to fund BIGs would undoubtedly place a strain on SA’s economy and make it near impossible for economic growth.

Intellidex expressed that BIGs would destabilise SA’s public finances and worsen macroeconomic

performance, which would, in turn, result in rising inflation.

Though the purpose of BIGs is to ease the strain on the poorer members of the SA population, the effect of the inflation-induced shock by this policy could evidently do more harm than good.

Implementation of a wealth tax

The ANC has continued to express its support for the implementation of a form of wealth tax to potentially fund BIGs in SA.

However, the Bureau of Economic Research has submitted that any form of wealth tax would only be detrimental to SA in that it would encourage mass emigration.

The idea for the implementation of a wealth tax was first raised in 2017, and with it continuing to rally support, only time will tell whether formal policy will follow.

Appointment of responsible third parties

Section 179 of the Tax Administration Act contains the third-party process whereby Sars can, via appointed responsible thirdparties, collect any monies owed to them, be it taxpayers’ monthly salaries or even in respect of retirement payments.

Accordingly, Sars can deliver AA88 Third-Party Appointment Notices to authorise and mandate relevant administrators, which includes banks and fund managers, to remove funds from taxpayers’ bank accounts and pay the funds over to Sars.

If employers fail to make these deductions, they can be held liable by Sars for the amount not paid over. The employer will only be

released from this obligation if revoked by Sars or if the liability has been paid in full.

Another way that Sars can use the third-party appointment provision to recover outstanding taxes is in respect of PAYE (pay as you earn), which is withheld from a lump-sum payment of a pension fund upon an employee’s resignation from employment.

Sars can mandate retirement fund administrators who oversee pension or provident fund payouts to deduct the outstanding tax amount and pay it over to Sars before paying out the balance of the proceeds.

The same will also apply in respect of any monthly payments received by a taxpayer from an annuity or pension payment.

Tax benefits for employees who work from home

Though the national lockdown looks to be firmly in SA’s rear-view mirror, the concept of “working from home” and “remote working” appears to be here to stay.

Section 11 of the Income Tax Act (ITA) sets out the requirements for eligibility to claim home office expenditure against remuneration.

The ITA states that persons carrying on “trade” are eligible to claim the following deductions from all income derived from their trade:

● Expenses and losses actually incurred, in the year of assessment, in the production of income but excluding expenses of a capital nature.

● Expenditure actually incurred on repairs to the property used for purposes of that trade and machinery, and other tools, used by the

person for purposes of their trade.

However, Sars remains adamant regarding the rules to claim home office expenditure and disallowed more than 60% of the home office claims during the 2021/2022 tax year, expressing that taxpayers did not qualify in terms of current legislation or were incorrect in their calculations.

The unfortunate truth is that claims can only be made in respect of actual setup costs, and improvements directly related to the portion of the premises occupied and used solely as a home office.

When submitting claims to Sars for home office expenditure, taxpayers should therefore take cognisance of the exclusionary provisions in Section 23 of the ITA.

It must be noted that Sars is not always correct when disallowing home office deductions and taxpayers have the right to dispute assessments disallowing home office expenditure through the objection and appeal process.

If, after exhausting the above-mentioned avenues, Sars still refuses to concede, taxpayers should consider approaching either the tax board or tax court for relief.

Changes to Employment Tax Incentive (ETI) Act

The ETI scheme was implemented with effect from January 1 2014 and

SA HAS NUMEROUS TREATIES WITH OTHER JURISDICTIONS FOR THE AVOIDANCE OF DOUBLE TAXATION

aimed at encouraging employers to hire qualifying employees through a costsharing mechanism with the government. The scheme has a dual benefit and provides employment and training to young work seekers who would otherwise not have had the opportunity, while simultaneously reducing the PAYE liability of the employer and boosting their BEE rating.

However, to curb a perceived abuse of the incentive, the definition of “qualifying employee” in the ETI Act has been amended, with effect from March 1 2022, to exclude any employee who is primarily studying while fulfilling the conditions of their employment contract during any given month.

The exception to this exclusion is if the employer and their employees have entered into a “learning programme” as defined in the Skills Development Act, 1998 (SDA).

According to Section 1 of the SDA, a “learning programme” includes a learnership, a skills programme, an apprenticeship, and any other prescribed learning programme that includes a structured work experience component.

Therefore, both employers and employees should take cognisance of this change to ensure their eligibility to participate in the scheme.

As there are constant updates, it is paramount for all SA taxpayers to keep up to date regarding any changes to our tax legislation and policy to avoid falling foul of any of the provisions of the relevant tax acts.

BUSINESS LAW & TAX

Untangling tangible facts around NFTs

• Authorities are launching a probe into how to

classify and accommodate nonfungible tokens

Manisha BugwandeenDoorasamy ENSafri

ca

We’ve discussed nonfungible tokens (NFTs) in our articles before, and in theprocess, we’ve learnt manythings. These include:

● The term “nonfungible” means noteasily interchangeable.

● An NFThas been described as aunique digital asset that’s authenticated using blockchain technology.

● NFTs cancomprise digital artwork, photos, videos, GIFs, music and concert tickets.

● NFTs aresold on blockchain-backed marketplaces such as Opensea and Nifty Gateway,with payment made with cryptocurrency.

● Everyone’s invited: we have written about a 12-yearold boywho createda series of pixelatedartworks called Weird Whales,which hesold for an impressive £290,000. For awhile, itfelt as thoughNFTswereunregulated. However, twoof the world’s major intellectual property (IP)offices, the European IntellectualProperty Office (EUIPO)and the US Patentand Trademark

Office (USPTO),are now issuingguidelinesandundertaking investigations in regard to NFTs.

EUIPO

The EUIPO released a notification saying it receives many trademark applications that seek protection for “virtual goods” and “nonfungible tokens”. It says the office’s approach is as follows:

THESE VIRTUAL ASSETS IN THE METAVERSE COULD BE IMAGES, VIDEO CONTENT AND SOMETHING THAT IS NOT STATIC

● Virtual goods are classified the same wayas digital content orimages andclassified inclass9ofNICE(asystemof classifying goods and servicesforEUtrademarkapplications). This shows it won’t be sufficient for a trademark applicant to filefor the term “virtual goods”. Instead it will needtospecify thecontentto which the virtual goods relate. The office recommendstheuse oftermslike “downloadable virtual goods, namely virtual clothing”

● As forservices relatingto virtual goods,the EUIPOrecommends thatthese beclassified in line with the established principles relating to the classification of services.

The officehas invitedpartiesto commentonthese suggestions on or before October 3 2022.

Clarivate discussed this topicat arecent IPforum. During the firstof three blog series, the discussion focused on “The Future of IP in the metaverse” and aimed to unfold the IP ownership of the newvirtual assets.A few pointsto notefrom thediscussions:

● Atthis stage,theprimary method of protection is trademarks. However, the challenge isthat thesevirtual assets in the metaverse could be images, videocontent and something that is not static.

● Over time, the preferred routeofprotectionmaymove away from trademarks, and possibly focus on copyright.

● Inline withtheEUIPO’s notification, the forum identified a significant increase in the numberof newtrademark applications in class 9, which indicatesan interestin thevirtual world.Theforum also highlighted the fact that NFTsmaynot “neatly fit” into the current classesof the NICE classification.

DIGITAL ASSETS

● Lastly,the forumalsodiscussed the monitoring and enforcement of brand owners ’ rights. They specifically mentioned that brand ownersmay findit challengingto “take down” domain names as the virtual world continues to iterate and mature.

USPTO

TheUSPTO andtheUS Copyright Office will undertake a wide-ranging probe into NFTs. This is on the instruction of the judiciary subcommittee onintellectual property.

The point of the investigation is toreach an understandingof “howNFTs fitinto the world of intellectual property rights”, including what thoserights looklike today andhow theymay evolve in thefuture. The instruction makes the point that “NFTs arealreadyin global use today and their adoption continues to grow since their relatively recent introduction”. It makes the further point thatNFTs are already “found innearlyall spheres from academia to entertainment to medicine, art and beyond”

Thebrief setsout anonexhaustive list of issues that the subcommittee feels need

consideration.Here area few:

● 1. What are the current and potentialapplications ofNFTs and theirrespective IPand IP-related challenges?

● 2.With regardstocurrent andpotential futureapplications of NFTs:

i) How dotransfers of rights apply? Howdoes the transfer of an NFT affect the IPrights intheassociated asset?

ii) How do licensing rights apply? If,and howcan, IP rightsin theassociatedasset, be licensed in an NFT context?

iii) Inwhat waydoes infringementapply? Whatis the potential infringement analysis where an NFT is associated withan assetcovered bythird-party IP?Or wherethe underlyingasset associated withan NFTis owned by the NFT creator and infringed by another?

iv) WhatIP protectioncan beafforded tothe NFTcreator? Whatif theNFT creator isadifferent personorentity from thecreator ofthe associated asset?

There’s a recognition on thepartof theauthoritiesthat thingsmovefast, andthat “ as technology, creativityand businessmodels continueto

evolve atan incrediblyrapid pace,therewill likelybenew issues to consider” by this time next year.

COURT CASES

Interestingly, the instruction fromthe subcommittee also mentions a number of the cases we havediscussed in ourprevious articles,cases whichthe instructionsays are “shedding lighton theIP andIP-related challengesat playinthisspace”.Theymention the following cases: ● Miramaxv Tarantino,the casewhere Miramaxsued QuentinTarantino, thedirector of the film Pulp Fiction, for issuingand planningtosell sevenNFTs ofpreviously unseen clips from the film. ● Thecase whereHermes suedMason Rothschildfor trademark infringement and dilution. Thiscase relatesto thetrademark Birkinand, moreparticularly, thefact thatRothschild ismarketing digital assetsunder thename Metabirkins. Rothschild claims this is merely a “playful abstraction”, whereas Hermes claims itwill suffer serious harm.

Giventhefact thatthisis unchartedterritory, it’s good toseethat theauthoritiesare taking a real interest.

Refusing to testify at CCMA could put job at risk

Jonathan Goldberg & Grant Wilkinson Global Business Solutions

Inthe caseof KaeferEnergy Projects (Pty) Ltd v Commissionerfor Conciliation,Mediation and Arbitration and others [2021] JA59/20 LAC JHB,the employeewitnessed analtercation betweentwo co-employees and intervenedto preventtheincident from “getting out of hand”

Oneof theemployees party tothe altercationwas dismissed andhe referredan unfairdismissaldisputetothe CCMA.

Theemployee whowitnessedthe altercationwas told shewould havetogive

evidence insupport ofthe employer’s case atthe arbitration. Afterinitially refusing to do so, sheagreed to testify. However, shortlybefore the arbitration commenced,she changed hermind againand refused totestify. This employeewas subjectedtoa disciplinary inquiryand was dismissed. Shethen referred anunfairlabourdisputetothe CCMA.

The commissioner found that therewas noevidence to showthat theemployeehad deliberately refusedto testify to protect theaccused or to conceal evidence. According tothe arbitrator,she hadnot committed anyact ofmisconduct.

The commissionertherefore found thatthe employee had beenunfairly dismissed. Thecommissioneraddedthat if the employerhad regarded herevidence asimportantfor the case, she could have been subpoenaed to give evidence.

Thus, theemployer approached theLabour Court on review. Thecourt upheld the commissioner’s decision.

CLEAR INSTRUCTION

Onappeal, theLabourAppeal Court reliedon commonlaw contract principlesand found the dismissal had been fair.

Itfound theemployeehad been given a clear and reasonable instructionto testify. She had not been told what

she should say when giving evidence.

The appealscourt also said itwas notforthe employee todecide whether theevidence tobegiven would be relevant.

Inthis matter,therehad been no threatsor external pressures thatcould have justified a refusal to testify.

In addition,the employee had initially indicated a willingness to testify but had changed hermind onthe Friday beforethe commencement of arbitration on the following Monday.

The LabourAppeal Court found that thefact that an employer hasthe optionof using a subpoena,but who

choosesnottodoso,doesnot mean theemployee can refuse areasonable request togive evidence.Thecourt found thatthe employeewas guiltyofadisciplinaryoffence and that a reasonable person sitting as an arbitrator could nothave cometo theconclusion thatthe commissioner had come to.

The employee’sview on the matter did not excuse insubordination. She was instructed to performan act that was reasonable and valid and she refused to obey that instruction. Theemployee had notadvanced any acceptable andvalid reason for not complyingwith the instruction.

Furthermore, itwas the court’s view that the consequence of treatingsuch misconduct lightly was that it would have anegative effect on the entire workforce and management whenit comes to discipliningany individual in the workforceby relying on evidence ofa fellow employee or employees. The commissioner’s award was set aside and substituted with a finding that the dismissal was fair.

Employees areobliged to give evidence ata disciplinary hearingor subsequent CCMA or Labour Court proceedings.It goesbackto the duty of goodfaith an employee has to the employer.

BUSINESS LAW & TAX

Sars does not need warrant to search, seize

• The circumstances in which these powers may be exercised by the taxman are highly fact-dependent

Francis Mayebe & Virusha Subban Baker McKenzie

The caseof Bechan andAnothervSars Customs Investigations Unitand Others (19626) [2022] hingeson fundamental aspectsof constitutional democracy.

Section62 oftheTax Administration Act 28 of 2011 (TAA), whichpermits the search ofpremises notidentifiedin awarrant, hasbeen under scrutinyfor many years dueto itspotential to infringe the right to privacy as enshrined in the constitution

The SA Revenue Service (Sars)andthe TAAplayan essential role in ensuring that taxes are collected in an efficient andeffective manner. Therefore,inorder todoso and ensurefiscal security, section 62 of the TAA permits Sars toconduct warrantless searchesand seizuresoftaxpayers ’ property.

Thispower grantedto Sars collideswith thetaxpayer’s constitutionalrights to privacy asentrenched in section14 ofthebill ofrights, contained in chapter two of the constitution.A question remainsas towhethersuch an infringementon one’s constitutional rightsmay be justifiable undera limitation

clause covered insection 36 of the constitution.

In theBechan case,Sars wasissuedwith awarrantin terms of sections 59 and 60 ofthe TAA,whichauthorised themtoseizeinformationand documentation concerning the case at thepremises of a particular taxpayer. On arrival atthe taxpayer’s premises to execute the warrant, Sars was delayed access to the office park in which the premises ofthe taxpayer were located.While waiting andattemptingtogainaccess, Sars noticedseveral people carryingitems fromthetax-

THE TWO DIFFERENT VERSIONS BETWEEN THE PARTIES OUGHT TO HAVE TWO DIFFERENT OUTCOMES FOR THE SECOND ISSUE

payer’s office and placing them in thevehicles around the parking lot.

Some hourslater, Sars was grantedaccess tothe premises. Besides finding the directorsofthetaxpayer,they also encountered Bechan (applicant) on the premises, who wasat thepremises to do businesswith adifferent

entity. The mainissue began when Sars began investigating thecars inthe parkinglot when executing its warrant.

It noticedthat thevehicles contained items and documents relating to the taxpayer. Thisproved tobe acritical factor further on in the case.

The applicant’scar was amongthecars parkedinthe parking lotand, accordingto Sars, when askedto open his vehicle, he stated he did not have the keys. Considering the applicant’s resistance, Sars sought assistance from the SA Police Service and the Hawks,as wellas theservices of alocksmith to open the vehicle inquestion. Once opened, Sars took possession ofseveral itemsbelongingto the applicant.

According tothe applicant’s version,he handedthe keys over toSars and denied being present when Sars tookpossession oftheitems in question.

Thecritical issueinthis mattercame aboutuponthe institution of a mandament vanspolie applicationbythe applicant, who sought an orderforSars toreturncertainitems initspossession. For this applicationto succeed, two legal questions had to be answered:

● Wasthere adisturbeddispossession of the applicant’s property? and

ON CLOSER INSPECTION

● Was the search and seizure of the applicant’s vehicle bySars, whichfell outside the scope of the granted warrant, unlawful?

In dealing withthis issue, thecourtrelied ontheprinciples of the Constitutional Court in AnaleNgqukumba v TheMinister ofSafetyand Security 201 (5) SA 112 (CC), in which theConstitutional Court held that the “ essence ofthe mandamentvanspolie is the restoration before all else of unlawfully deprived possession of the possessor. Itfinds expressioninthe maxim spoliatus ante omnia restituendus est (the despoiled person must be restored to possession before or else)”

Essentially, the spoliation order is meantto prevent taking possessionunless itis in accordance with the law.

On the first issue, it was undisputed that Sars had taken possession of the applicant’s property.However, the twodifferent versions between the parties ought tohave twodifferent outcomes for the second issue. The court found, on balance, the probability that the applicant did not relin-

quish possessionvoluntarily, therefore there was a disturbed dispossession.

Section 62of theTAA empowers a Sars official to enter and search premises not identifiedin awarrant, subject to the following requirements:

● The property included in a warrantis atpremisesnot identified in thewarrant and may be removed or destroyed.

THE SPOLIATION ORDER IS MEANT TO PREVENT TAKING POSSESSION UNLESS IT IS IN ACCORDANCE WITH THE LAW

● Thewarrant cannotbe obtained in time to prevent the removal ordestruction of the relevant material.

● Thedelay inobtaininga warrantwould defeatthe object ofthe searchand seizure.

The courtfound thatSars was entitled, inthe execution of thewarrant, toascertain

whether Bechan had in his possessionor underhiscontrolany ofthetaxpayer’s materialsspecified inthe warrant. Thisview bythe courtwas mostlikely motivated by the fact that Sarshad earlierobserved materialsbeing carriedto motor vehicles in the parking lot of the premises. With respectto theapplicant’sargumentthatthewarranthad tobe confinedonly to theactual premisesof the taxpayer,which excludedthe parking lot, the court dismissed this view by stating that the warrantreferred to the address ofthe taxpayer’s premises,which wouldalso include the parking, and the interpretationargued bythe taxpayer wouldundermine the warrant's efficacy.

To concludethe case,the courtdismissed theapplication andordered theapplicant to pay the costs jointly and severally.

The importance of this finding is entrenched in the factthat, althoughawarrantlesssearch maybeexecuted bySars,this searchissubject tomuch morestringent requirements, even though the rightsto privacymight be infringed at times. Such rights aresubject tolimitationsand in the court’s view, section 62 of the TAA would be sufficient tomeet thescrutiny of thelimitation clauseinsection 36 of the constitution.

Further, there are unanswered questionswith respectto thetrue scopeof the ability ofSars to investigateand seize,particularly withoutawarrant,andifsuch collected evidencecould extendbeyond theobjects and purposeof theoriginal warrant.

However, it is important fortaxpayersto notethatitis notalways thecase thatSars officials would needto furnish them with a warrant to search and seize their propertyand,as thecourthighlighted,the circumstancesin which these powers may be exercisedby Sarsarehighly fact-dependent.