Refusal to take polygraph can result in legal dismissal
• Each case is unique, but employers would do well to consider test inclusion in employment contracts
Fritz
Malan, Nils Braatvedt & Themba Maduna ENS
While a polygraph examination alone cannot conclusively determine employee misconduct, it can serve as corroborating evidence, among other factors
But what happens when an employee refuses to undergo a polygraph test?
In the recent decision of CCD Couriers v Numsa obo Butani Fredy Maseko, the Labour Court deliberated on the fairness of an employee dismissal for refusing to undergo a polygraph examination This was based on what he was required to do regarding his employment
contract and the terms of the employer’ s policies
In this case, the employer had discovered a new set of tyres fitted to one of its vehicles had been replaced with old, worn-out and mismatched tyres The employer launched an investigation into the matter, which included requesting employees to undergo polygraph examinations
The employee’ s employ-
THIS DECISION EMPHASISES THE RECIPROCAL RELATIONSHIP OF TRUST ON WHICH EMPLOYMENT RELATIONSHIPS ARE PREMISED
ment contract included a clause in which he agreed to undergo a polygraph examination, failing which his refusal would constitute a material breach of his employment contract, and his employment would be terminated The employer’ s disciplinary code specified that a refusal to undergo a polygraph would attract a sanction of dismissal
The employee was charged with repudiating his employment contract and with gross insubordination and was dismissed on both counts of misconduct Numsa, acting on his behalf, referred an unfair dismissal dispute to the appropriate bargaining council (a dispute resolution tribunal) An arbitrator held the dismissal to be substantively unfair, and the
employer subsequently sought to review the arbitration onward in the labour court
The labour court found that the employer’ s disciplinary code prohibited the employee’ s repudiation and insubordination It also found that although the employer had explained the importance of the reasons for and consequences of refusing to undergo such a polygraph examination, the employee still refused to undergo one
The labour court considered several factors, including that the employee was aware of the rule regarding the requirement to undergo the polygraph examination, that the employee had been
employed for more than eight years, that his contract was binding on him and that his managers made him aware of his contractual obligations as well as the consequences for refusing to undergo the polygraph examination
Notwithstanding all this, the employee refused to undergo the polygraph examination
In the circumstances, the labour court found the dismissal was substantively fair
This decision emphasises the reciprocal relationship of trust on which employment relationships are premised
Where an employee has a contractual obligation to undergo a polygraph test, an outright refusal may, in some instances, impact the ability
of the employer to trust the employee going forward
Of course, there are instances where certain instructions would be unreasonable or unlawful and even where there is a contractual undertaking that an employee will do something, a refusal may not lead to grounds for a fair dismissal
These matters will have to be measured on a case-bycase basis
Employers should consider reviewing their employment contracts to see if there is scope for including the obligation to undergo polygraph examinations
● ENS represented CCD in this review application
THE TRUTH WILL OUT
BUSINESS LAW & TAX
Council, FIC team up on compliance
• Given responsibility of the legal profession, it is vital practitioners clearly understand obligations
Charity Nzuza Legal Practice Council CEO
In light of the recent concerns highlighted by the Financial Intelligence Centre (FIC) regarding compliance and integrity lapses among legal practitioners, the imperative for adherence to the FIC Act has never been clearer
This challenge underscores the extensive responsibilities shouldered by legal practitioners and the Legal Practice Council (LPC) in upholding the profession’ s credibility and standards
While the portrayal of these challenges might suggest a beleaguered legal sector, the LPC remains dedicated to strengthening legal practice and promoting a culture of governance across SA Our ongoing dialogue with legal practitioners and stakeholders including the FIC and the Financial Action
Task Force focuses on the clear communication of compliance requirements
This ensures that legal firms and practitioners understand their obligations, aided by webinars and awareness sessions conducted in partnership with the FIC, alongside strict enforcement actions against noncompliance
As one of the initiatives in promoting compliance in the legal profession, FIC and LPC have formed a partnership in conducting joint inspections at legal practitioners to assess the level of anti-money
WE ADVOCATE FOR MORE PROGRAMMES THAT HELP LEGAL PRACTITIONERS DEVELOP PERSONALLY AND PROFESSIONALLY
laundering and combating the financing of terrorism (AML/CFT) compliance This initiative is among the efforts aimed at assisting to remove SA from the greylist Pulitzer Prize-winning author Alice Walker’ s words “the most common way people give up their power is by thinking they don’t have any ” resonate deeply as we advocate for collaborative efforts to fortify and preserve our legal profession’ s integrity Indeed, everyone has a crucial role in maintaining high legal standards; the LPC cannot achieve this in isolation
As we mark the 30th anniversary of apartheid’ s end and the birth of our democratic government, it is a fitting moment to reflect on our professional journeys and future ambitions
The Legal Practice Act 28 of 2014 plays a pivotal role in regulating legal practitioners,
ensuring accountability and managing the Legal Practitioners’ Fidelity Fund and its governing board The act’ s effectiveness is greatly enhanced by the practitioners ’ willingness to adopt a growth mindset
We challenge legal practitioners to embrace robust corporate governance, which is essential for managing law firms effectively This includes promoting ethical culture, strong performance, comprehensive controls, fiscal accountability and rigorous legal practices all foundational to improving compliance and accountability
The credibility and trust of our legal fraternity depend on practitioners’ commitment to practice with utmost dedication and transparency This commitment is vital, given their significant role within communities
The LPC is dedicated to ensuring regulatory compliance and fostering a culture of compliance among practitioners, which is crucial for managing financial practices effectively
We have ingrained our commitment to high ethical standards and compliance in our mission, which includes proactive monitoring and resolution of non-compliance issues
It is crucial that both current and aspiring legal practitioners strive to become entrepreneurial leaders within credible law firms
Addressing issues of integrity and setting high standards are essential to prevent noncompliance from becoming the norm
Furthermore, the legal sector needs more discussions on the quality of practitioner education and training, skills development, and
support mechanisms This is why the LPC hosts virtual workshops to boost compliance awareness and guidance
We advocate for more programmes that help legal practitioners develop personally and professionally, achieve social consciousness, and acquire leadership skills that transform them into ambassadors of legal practice
Understanding compliance obligations is particularly critical in the first 90 days following admission as an advocate This knowledge significantly enhances the standards of legal education and training
Finally, the evident lack of compliance among some attorneys has emphasised the importance of risk management and compliance programmes, which empower practitioners to tackle noncompliance effectively Our mission includes improving financial management skills among practitioners, addressing prevalent financial management capacity constraints through targeted training programmes
By investing in the stability and future of legal practice, the LPC is committed to strengthening democratic governance and enhancing justice services for all South Africans Our goal is to cultivate an informed generation of practitioners who lead the way in innovating and shaping the future of our country’ s legal sector, deepening partnerships and building a prestigious network of changemakers in the law industry
Decoding penalties on CTC overstatement
Emile du Toit
Private Tax Leader for EY Africa
There are instances when the SA Revenue Service (Sars) conducts audits on companies and discovers discrepancies in their annual income tax returns, particularly regarding an inadvertent overstatement of contributed tax capital (CTC) disclosed
Typically, Sars believes the error could potentially lead to financial prejudice by preventing the collection of dividends tax due on any future distributions In addition to the typical financial prejudice concerns Sars raises, it also mentions nonfinancial prejudice in terms of the time and resources allocated when it comes to performing additional audits
Invariably, this will result in Sars imposing an understatement penalty, which can be quite significant depending on the amount of the error found The penalty would be calculated based on the probability the company would deduct the CTC disclosed in
its annual tax return from a future dividend and would apply the applicable dividends tax rate to the CTC it believes is incorrect
Sars applied the provisions of section 223 (read with sections 221 and 222) of the Tax Administration Act, No 28 of 2011 (TAA) to impose the understatement penalty
Section 1 of the Income Tax Act No 58 of 1962 contains a detailed and extensive definition of CTC
CTC generally includes an amount derived from contributions made by shareholders of a company as consideration for the issuance of their shares Where the corporate rules are applied to a transaction, taxpayers need to pay special attention to how those provisions may impact the value of CTC
Imagine the following illustrative scenario: a taxpayer (the resultant company) concluded an amalgamation transaction in terms of section 44 of the Income Tax Act, No 58 of 1962 In terms of the agreement the
resultant company paid a purchase price of R500,000 to the amalgamated company (the seller) to acquire the business of the amalgamated company as a going concern
The resultant company settled the purchase price through the issue of ordinary shares in the resultant company to the amalgamated company, with a par value of R1 and a share premium value of R9 per share
The CTC in respect of the resultant company s equity shares issued to amalgamated company will be determined in terms of section 44(4A) of the Income Tax Act In this regard, the CTC in respect of the resultant company equity s shares will increase as a consequence of the transaction by an amount equal to the total CTC in respect of the amalgamated company s shares, multiplied by the value of the amalgamated company s shares held by the relevant shareholder over the total value of amalgamated Company s shares The CTC in respect of
the resultant company ’ s equity shares increased by an amount equal to the total CTC in respect of the amalgamated company The value for CTC purposes of the merger shares is limited to R1,000 When completing its annual income tax return, the resultant company erroneously captured the CTC as R550,000, to agree to the share capital and share premium per the annual financial statements In other words, the CTC captured on the annual tax return incorrectly included the R500,000 resulting from the amalgamation transaction The share premium as per the annual financial statements does not take into account the provisions of section 44(4A) of the Income Tax Act, where the
SARS HAS A DUTY TO ENSURE TAXPAYERS COMPLY WITH THEIR TAX
CTC on the annual tax returns should have been reduced by R499,000 (being the R500,000 less the R1,000)
The dividend tax returns supporting dividends declared between the date the annual tax return was filed and the date the Sars audit was conducted did not rely on the CTC amount disclosed in the annual income tax return
For the purposes of this article, the behaviours in the understatement penalty table of section 223 of the TAA were not being considered, but taxpayers should consider how those behaviours apply to them in practice
Taxpayers should take care when completing annual tax returns, because even disclosures that do not impact the primary objective of an annual income tax return, which is to arrive at the corporate income tax liability accurately, could be used to impose understatement penalties
Depending on the circumstances, it would be unjust for
Sars to rely on the cases noted above as precedent when the facts of those cases are significantly different to what is happening with other taxpayers
Sars reliance on a potential future prejudice could therefore be unfounded which means that no understatement penalty can be levied against an organisation in such an instance, especially when a company acts with sincere, honest intentions and there was no intent to deceive Sars
Sars has a duty to ensure taxpayers comply with their tax obligations and pay their fair share However, it must also respect taxpayers rights and not impose penalties where there are no grounds, no prejudice or where there is a bona fide inadvertent error
This balance is crucial in maintaining a fair and effective tax system
The creation of an artificial tax event, prejudice, bona fide inadvertent error and CTC are complex issues that require careful consideration
BUSINESS LAW & TAX
Substance of arrangement trumps form
• Judgment in Boerdery v Sars salutary reminder that taxpayers remain responsible for own tax affairs
Simon Weber & Jean du Toit
The judgment in
Taxpayer Boerdery v CSARS, March 20 2024 serves as a reminder that taxpayers should carefully consider the substance of an arrangement, rather than the form in which it is wrapped
The subject of this case was an insurance contract with integrated investment features The Tax Court (TC) disallowed the insurance premiums as a deduction in terms of section 11(a) of the Income Tax Act No 58 of 1962 (ITA) and upheld the concomitant understatement penalties and interest
Taxpayer Boerdery (taxpayer) conducts a farming operation from which it derives income from the sale of fruit and vegetables The dispute turned on the interpretation of a “Multi-Peril Contingency Policy Contract” (insurance contract) concluded between the taxpayer and an insurance company
The insurance contract requires the taxpayer to pay annual premiums, which would then be credited to a “Special Experience
Account” The experience account would also be credited with “notional interest” on the funds invested at the average Absa money market rate less 65 basis points The amounts in the experience account are reduced by the insurer’ s margin of 2 25% of the premiums received and an investment management fee of 65 basis points of the funds invested
THE INSURER COMPENSATES THE TAXPAYER ON THE OCCURRENCE OF DEFINED EVENTS DURING THE CONTRACT PERIOD
The insurer compensates the taxpayer on the occurrence of defined events during the contract period, where any amount paid to the taxpayer is debited to the experience account On expiry of the contract period, the insurer refunds the taxpayer the full balance of the experience account The taxpayer may, on 30 days’ notice, cancel the policy contract in which case the taxpayer will again be refunded
the full balance of the experience account
The annual premium in respect of the 2018 policy was R35m and the total annual aggregate limit of indemnity was R41 5m The annual premium in respect of the 2019 policy was R35 4m and the total annual aggregate limit of indemnity was R49 5m For the 2019 year of assessment, however, the taxpayer only paid R1 99m as the balance constituted a “roll-over premium”
The taxpayer deducted these premiums in terms of section 11(a) of the ITA Save for a marginal portion of these amounts, Sars disallowed the deductions on the basis that they did not constitute “expenditure” incurred
While agricultural insurance policies incorporate unique features, the current insurance contract exhibited markers that revealed a different character altogether In this regard, the TC identified the following:
The investment management fee is anomalous in the context of a short-term insurance policy During cross-examination, it was put to an executive of the insurer (Mr Tone), testifying for the taxpayer, that this fee was in substance the premium
charged to provide the insurance cover This was particularly compelling given the fact that the “actual” premiums were charged at a rate of 85% of the insurance cover
Despite Tone’ s suggestion that the “notional interest” did not constitute interest in the ordinary sense, the “notional interest” represented the return on the amount invested with the insurer
The taxpayer is entitled to cancel the contract on 30 days’ notice, in which case the insurer will refund the balance of the experience account The insurer will in any event refund the balance upon conclusion of the insurance period of 12 months
As a whole, the arrangement purported to be an insurance contract that permits the investment of pretax amounts that would generate a return for the taxpayer, while the amounts invested ranked as a tax deduction to boot
The TC assessed the features of the contract against the requirements of the general deduction formula under section 11(a) of the ITA:
It was found that the tax-
payer did not “expend” the insurance premiums Save for the insurer’ s margin, the payment of the premiums did not result in a shift in the taxpayer’ s assets On the contrary, the premiums established a right in respect of the balance of the experience account
Flowing from the preceding, the TC turned to question whether the premiums are of a capital nature The distinction was drawn between expenditure incurred for purposes of acquiring a capital asset and expenditure which is part of the cost incidental to the performance of the income-producing operations It was found that the premiums established a right to the balance of the experience account plus income in the form of interest an
THE INVESTMENT MANAGEMENT FEE IS ANOMALOUS IN THE CONTEXT OF A SHORT-TERM INSURANCE POLICY
income-producing concern And hence a capital asset
It was thus held that the taxpayer did not discharge its onus to prove that the premiums ranked for a deduction under section 11(a) of the ITA and the appeal was dismissed
When pressed to explain why this tax position was adopted, the accountant who filed the taxpayer’ s return (Mr One) testified that he did not consider the substance of the insurance contract One testified that the tax position was based on the advice dispensed by the insurer at a roadshow organised to sell the product to farmers
The ubiquity of taxpayers in the agricultural industry that similarly heeded the tax advice offered by their insurance provider is a matter of speculation Taxpayers are reminded they remain responsible for their own tax affairs Moreover, in the wake of this judgment, taxpayers, and specifically those in the agricultural industry, would be well advised to reconsider the design principles of their insurance coverage and the tax treatment thereof
Beefing up financial sector’ s cyber defences
Gabi
The financial sector regulation (FSCA) and the Prudential Authority (PA) published Joint Standard 2 of 2024 on Cybersecurity and Cyber Resilience Requirements in May
The Joint Standard 2 of 2024 (Joint Standard) applies to all financial institutions as defined in the Joint Standard It sets out the requirements for sound practices and processes relating to cybersecurity and cyber resilience for financial institutions The Joint Standard is expected to commence on June 1 2025
The FSCA and PA will formally publish the effective date by publishing a notice on their websites
The Joint Standard requires financial institutions to:
● Mitigate and cater for any risks relating to cybersecurity and cyber resilience from juristic persons structured under a bank, the insurer, or the insurance group when applying the requirements of the Joint Standard
● Notify the responsible authority of cyber incidents or information security comprises they classify as a material incident The specific format and manner for reporting these incidents are yet to be determined
● Establish and maintain a
regularly reviewed cybersecurity strategy to manage cyber risks and address changes in the cyber threat landscape
● Identify business processes and information assets that support business and the delivery of services, conduct risk assessments on its critical operations and information assets and maintain an inventory of all its
IMPLEMENT
MULTIFACTOR
AUTHENTICATION FOR ALL USERS
WITH ACCESS TO CRITICAL SYSTEM FUNCTIONS
information assets Implement appropriate and effective cybersecurity practices to prevent the impact of potential cyber incidents
● Ensure that access to information is limited to authorised users and devices only Develop data loss prevention policies and measures to prevent and detect unauthorised use of sensitive data and information Implement a cybersecurity awareness programme to maintain a high level of awareness among all users
● Maintain effective cyber resilience capabilities to monitor, detect, respond and recover from cyberattacks on IT systems Establish a data backup strategy to
ensure that any sensitive information stored in the backup media is secured
● Regularly test all elements of its cyber resilience capacity and security controls to assess vulnerabilities and determine its overall effectiveness
● Establish a regularly reviewed access control policy and process to enforce strong password security controls for users to access IT systems and information assets Secure administrative accounts and grant privileged access only when necessary
● Implement multifactor authentication for all users with access to critical system functions, including user accounts utilised to access
applications containing sensitive information Protect the network from unauthorised access and disruption through the implementation of security controls at its network perimeter
● Test and apply security patches to address vulnerabilities in IT assets Maintain written security standards for hardware and software configurations to minimise exposure to cyber threats Implement endpoint protection to prevent malware infection
The Joint Standard strengthens the financial sector s cyber defences Financial institutions have one year to comply, requiring proactive measures for a smooth transition and more secure future
BUSINESS LAW & TAX
Privacy is an essential in generative AI
• People must have autonomy over the use of their personal data or at least manage how it is used
Ahmore Burger-Smidt Werksmans
The development of generative AI requires the use of data To teach a machine how to “ answer ” a question or how to even speak a language, those who “teach” the machines must input into the machine data (in the form of words) from which it can learn
But, as with the launch of Open AI’ s Sora, AI machines are not only being taught how to “talk” but also how to “draw” and how to “paint” Sora, a generative AI machine, can generate images and videos from the prompts the user gives it
However, this is not the only AI machine that requires the input of images as data Facial recognition companies including Clearview AI have also built AI machines that require the input of images in order to operate
The use of images in AI development may seem innocuous, but this use of image data raises a host of privacy concerns Privacy
laws are underpinned by the idea that an individual should have autonomy over the use of their personal data or, at the very least, should be allowed to manage how their personal data is used
Practices such as data scraping limit that ability for one to have control over the
AI MACHINES DO NOT HAVE FEELINGS AND THEREFORE ARE NOT CAPABLE OF EXPRESSION BUT RATHER RE-CREATION
use of their personal data If the data that is inputted into an AI machine is collected without the consent of the data subject, that means the data subject is not in control, or at least aware, of how their personal data may be used Information that is collected by AI companies may contain biometric information which raises a major privacy concern relating to safety For example, images col-
lected may include information which is used to personally identify people, such as retinal scanning The concern with the use of images that contain such biometric information is that they may well lead to identity theft Publication of this information and its use for profit potentially poses a threat to the identity security of individuals
Although the protection of Personal Information Act, 2023 (Popia) stipulates, subject to various conditions, that personal information may be processed for journalistic, literary or artistic purposes, one has to question whether the processing of personal information by AI development companies is in line with this exclusion It is obvious that facial recognition technology does not serve any journalistic, literary or artistic purpose However, does AI technology generating images from user inputs fall squarely inside or outside of this category?
The Cambridge Dictionary defines expression as “the act of saying what you think or showing how you feel using words or actions” Therefore,
MIND OVER MATTER
artistic expression would mean expressing one ’ s feeling using artistic means
Although this is yet to be determined, it is unlikely that an AI machine or company would be exempt from the application of Popia on this basis This is simply because AI machines do not have feelings and therefore are not capable of expression but rather re-creation It is painstakingly clear that the rate at which AI is developing is incongruent with the rate at which the regulatory framework in respect to AI is developing To a large extent companies have been left to self-regu-
PRACTICES SUCH AS DATA SCRAPING LIMIT THAT ABILITY FOR ONE TO HAVE CONTROL OVER THE USE OF THEIR PERSONAL DATA
CONSUMER BILLS
late This is evident considering companies such as Amazon, Google and Meta, among others, have come together to commit themselves and publish AI Safety Policies
According to the Cambridge Dictionary, artificial intelligence is “ a particular computer system or machine that has some of the qualities that the human brain has, such as the ability to interpret and produce language in a way that seems human, recognise or create images, solve problems, and learn from data supplied to it” Therein lies the rub
Though there is a mountain of good for which AI can be used, and its potential to alter the world is exciting, there also exist numerous ethical dilemmas which are attributable to AI These include concerns relating to data collection processes, the quality of data inputted to AI machines and the protection of potentially private information contained in data col-
lected A clear illustration of such a data collection concern is in the Clearview AI data collection issue
Clearview AI (a facial recognition company) built its database by scraping images on the internet, which were uploaded onto public platforms, and retaining them in order to refine its facial recognition abilities
Australia’ s private regulator indicated that even though individuals had uploaded the collected images onto public platforms, that did not mean the users had consented to their images being used for the purpose of developing Clearview AI’ s artificial intelligence facial recognition machine
Privacy cannot be ignored when considering AI advancements It is imperative for all companies which are incorporating AI into their businesses and for AI developers themselves to carefully consider the ethical dilemma of privacy Always
Generative AI opens new window on lawfare
The legal profession, like all professions, has a language of its own
On the one hand, this is useful to create the precision required for legal documents
On the other hand, when documents are consumerfacing it creates barriers to access to justice The particular ability of generative AI to summarise and simplify difficult documents is going to be an important tool for improving access to justice by consumers
Most consumer laws recognise the need for plain language The Consumer Protection Act entitles the consumer to receive information in plain language where there is not a specific form prescribed Plain language is the language that
an ordinary consumer in the circumstances could be expected to understand without undue effort
The National Credit Act requires documents to be provided to a consumer in plain language in similar terms to the Consumer Protection Act The Policyholder Protection Rules for the protection of insurance policyholders refers to communications that are clear and easy to understand for the average
person at whom the communication is targeted In relation to court process, the rules of court and court forms have used the same wording for generations The unfortunate defendant will be told that a plaintiff hereby institutes action claiming the relief on the grounds set out in the particulars annexed hereto If you are a respondent in application proceedings you will be pleased to take notice the abovementioned applicant intends to make an application against you for specified relief AI has usefully allowed the electronic filing of documents by lawyers, but use of the system is not for the uninitiated
Generative AI has shown its impressive ability to write
letters in plain language, summarise facts down to what is important, and to produce documents significantly simpler and shorter than their traditional form Changing the paperwork and the rules to make them more intelligible will undoubtedly improve access to justice and the cost of getting legal help
A user of AI in the US reduced a trust agreement down from 10 dense pages and dozens of clauses to a single page That was an exaggerated effort and not everything in the long version is captured in the simple version, but it illustrates what can be done
There are an increasing number of customer hotlines where AI legal advice is available Legal advice call
centres have been in place for some time but AI is taking a big step forward Legal advice bureaus can have an AI co-pilot to help them give advice to consumers who come in with an array of issues which are not always within the experience of the person behind the desk Clearly, AI cannot yet be substituted for specialised legal services that require a qualified person admitted under the Legal Practices Act to perform the tasks There
THERE ARE AN INCREASING NUMBER OF CUSTOMER
HOTLINES WHERE AI LEGAL ADVICE IS AVAILABLE
are, however, many aspects of legal advice that can be better fulfilled by generative AI than with services that have been used until now
The best place to start is with consumer contracts Credit agreements, insurance policies, and elaborate sale agreements should be tested against an AI generated simpler version to see what needs to be done
And if it can be done, it should be done
Now that legal advice and documents can be rendered more quickly, better and at a lesser cost than before, consumers deserve the advantage of these developments
●
Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright
BUSINESS LAW & TAX
Downside of ignoring graft
• Leaders of organisations are responsible for guarding against corruption and putting a stop to it
Lionel van Tonder & Danniel Kruger Webber Wentzel
SA is continuously suffering from the effects of corruption and draining of resources, some of which were highlighted in the state capture saga
Optimistically, significant changes have occurred in the public and private spheres to ensure the industrial-scale corruption perpetrated does not continue to repeat itself
One such change is the recent signing of the Judicial Matters Amendment Bill into law by President Cyril Ramaphosa on April 3 2024
Critically, the bill expands culpability for corruption under Section 34 A of the Prevention and Combating of Corrupt Activities Act (Precca)
Section 34 of Precca makes it obligatory for anyone in a public or private company who learns of corruption or fraud to report it to the SA Police Service if the value of the incident loss is more than R100,000 As of April 3, if authorities in private
or public companies fail to stop “associates” from engaging in corruption, they themselves will be liable
The inclusion of thirdparty contractors in the widened definition of the Precca is informative Third parties were at the heart of corruption in SA before, during, and after the state capture era due to their ability to abuse public and private procurement processes
Instead of corrupt parties dealing directly with their facilities, third parties are often used to create a layer of bureaucracy between the parties committing the fraud, so it’ s harder to identify, with third parties compensated for their efforts
It’ s a timely and needed change Section 34 A gives public and private companies
THE MOST PROACTIVE CLIENTS DO MORE THAN JUST MONITOR DATA AS IT ENTERS THE SYSTEM IN REAL TIME
the opportunity to avoid sanctions if they can show that they have put “ reasonable measures ” in place to prevent corruption in their organisations
However, “reasonable measures ” are not yet defined in SA law, which leaves a lingering question: what can reporting organisations do to show they have done all they can to prevent corruption by a member of staff or an associated third party?
A good starting point is to consider the UK’ s Bribery Act because section 34 A of Precca is based on the UK Bribery Act The UK Bribery Act refers to six principles used to judge whether an organisation has “done enough” to stop corruption from within and by parties they work with externally These principles are proportionality, toplevel commitment, risk assessment, due diligence, communication, monitoring and review
At present, these principles are being applied as guidance for what “enough” looks like in a SA context Over time, the courts will provide clarity on the mini-
BREAK THE CYCLE
mum requirements as matters enter litigation Until that happens, organisations and their leaders must proactively act to set up and leverage systems that can identify problematic employees, patterns and third-party contractors in advance
Prevention is better than cure, with technology providing new ways to stop corruption at the source
We’ ve found that companies and public organisations are far more reactive than proactive in stopping corruption at the source
Leaders of organisation can fall into the trap of “fight-
TAXING MATTERS
ing the last war ” since the most up-to-date view of corruption they have is the last corrupt transaction perpetrated before the instigators were caught
Reactively, whistleblowers generally provided 75% of the intelligence used to catch corrupt employees and third parties The importance of whistleblowers is likely to stay the same; however, looking at it more from a proactive view, data analytics is providing a new front for companies to tackle corruption before it can take place
The most proactive clients do more than just monitor
data as it enters the system in real time They analyse and sift through current and historical data to identify previously missed patterns and red flags (such as invoices that are processed on weekends (fewer people means less oversight) and an employee taking no leave in three or four years)
Stopping corruption at the source requires setting up the systems and parameters for continuous learning, testing, proactive reporting and filtering out false positives from acts of corruption and fraud
Organisations that fail to address and report corruption promptly face potential legal and reputational risks
To mitigate these risks, creating a supportive environment that empowers employees to report fraud as they see it is strongly recommended Furthermore, time spent vetting third parties is now of vital importance since third parties a company uses are more likely to be purveyors of corruption than the company itself
While it is impossible to stop all corruption criminals are ingenious in that way it is the fiduciary responsibility of organisational leaders to do everything they can to meet the threshold of "enough" and more
Tax implications for leaving SA or working abroad
Estian Haupt, Leonard
Willemse & Bradley Zebert
AJM Tax
With the current political climate, many South Africans have considered either emigrating or temporarily working abroad
So much has been expressed in the countless articles and talks over the past few years in regard to the brain drain where skilled individuals pursue more lucrative opportunities abroad With the politics surrounding the 2024 elections, the topic has again come to light
The question that arises is how an individual s tax situation should be treated in two scenarios:
● Leaving to a foreign jurisdiction with the intention of permanently settling there; or
● Leaving to a foreign jurisdiction to temporarily render services abroad
Leaving to a foreign jurisdiction with the intention of permanently settling there SA levies tax on a worldwide
basis on its tax residents, while it taxes nonresidents on a source basis In relation to natural persons, a tax resident is defined as a person who is ordinarily resident in SA or meets the physical presence test (we do not discuss the latter factual test)
The term ordinarily resident is not a defined term but has been dealt with at length in case law In the case of Cohen v CIR 1946 AD 174, 13 SATC 362, it was stated that it would be natural to interpret ordinarily by reference to the country of his most fixed or settled residence his ordinary residence would be the country to which he would naturally and as a matter of course return from his wanderings, as contrasted with other lands it might be called his usual or principal residence and it would be described more aptly than other countries as his real home
Ultimately, the test determines where a person, subjectively, intends their real home to be Intention alone is, however, not
enough, and it must be supported by objective factors to prove it, which may include where your personal relations are based, as well as your economic assets This is not a “ one shoe fits all exercise and is extremely fact-dependent
Upon ceasing your SA tax residency, you will be subject to an exit tax This is a deemed disposal of your worldwide assets the day prior to ceasing your residency, which may give rise to adverse tax consequences It is, however, subject to the exclusion of certain assets, such as immovable property located in SA
Should you no longer intend to return to SA, which is supported by objective evidence, it would be worthwhile placing this on record with the SA Revenue Service (Sars) by undertaking the cease-to-be-resident process on the e-filing platform Although you may not be a tax resident, you may still be in the eyes of Sars, which will continue to assess you on your worldwide income
Furthermore, doing so allows you to declare your exit tax, avoiding understatement penalties in future Leaving to a foreign jurisdiction to temporarily render services abroad
Most foreign countries levy taxation on a source basis for nonresidents In other words, where income is earned in a foreign country which has its originating cause therein, such as the provision of services, the foreign country usually reserves the right to tax that income
This then raises concerns regarding the possibility of double taxation, as SA would attempt to tax its resident s income on a worldwide basis while the foreign country would also attempt to tax the income on a source basis
Fortunately, SA has concluded agreements for the avoidance of double taxation with a large number of countries Generally, in these instances, the taxing rights of the foreign jurisdiction are restricted where various conditions are met being that:
● The employee spends less than 183 days in that
jurisdiction;
● The remuneration is paid by, or on behalf of, an employer who is not a resident of the foreign jurisdiction; and
● The remuneration is not borne by a permanent establishment which the employer has in the foreign jurisdiction
However, the above provision may not always be available For example, SA may not have a double taxation agreement in force with that specific country In these scenarios, the SA resident may, subject to specific requirements, claim a tax credit for the amount of foreign tax paid, thereby reducing the tax payable in South Africa
Additionally, the employee may spend more
SA HAS CONCLUDED AGREEMENTS FOR THE AVOIDANCE OF DOUBLE TAXATION WITH A LARGE NUMBER OF COUNTRIES
than 183 days in a foreign jurisdiction In this instance, a foreign employment income exemption (which exempts up to R1 25m of your income) may be applicable to reduce double taxation
To conclude, when you permanently decide to leave SA, you will cease to be a SA tax resident, triggering an exit tax This change should also be placed on record with Sars to avoid potential penalties and further assessments
Should you only intend to work abroad briefly, your income may be exempt from taxation in the foreign country should you not be there for prolonged periods of time
However, should your income be taxable in that foreign country, you may be able to claim a tax credit or a foreign employment exemption
● Estian Haupt is associate director: SA Direct Tax; Leonard Willemse, associate director: SA Indirect Tax and Bradley Zebert, a senior associate at taxation specialists AJM Tax
BUSINESS LAW & TAX
Two-pot system no cash cow
• Overeager withdrawals from retirement funds could substantially complicate post-retirement life
Anthony Fineberg PKF Octagon
Those hoping for a quick cash injection when SA formally switches on the “two-pot” pension system in September may need to tread warily
While there was a delay in implementation from early 2024, come September 1 2024 your retirement savings will be split into a vested, savings and retirement component Industry is gearing up for a sudden surge in withdrawal requests
In a nutshell, in September you will be able to make partial withdrawals from your retirement funds before retirement, but must preserve a portion that can only be accessed at retirement to help improve retirement outcomes New seed capital rules also give another option to withdraw from built-up funds
While it may be tempting to make a withdrawal as soon as possible, keep in mind that you will be giving up the amount drawn plus all interest on that amount in retirement Plus, if you wait to withdraw money from the savings component until
retirement, it will attract less tax The consequences of looking for quick cash to splurge are therefore less money available at retirement, a loss of compounding interest and paying more tax
Remember only the “ savings component” and “retirement component” can receive retirement contributions from implementation
ONE POSITIVE IS THESE CHANGES SHOULD SLOW
THE TREND OF PEOPLE RESIGNING TO ACCESS THEIR PENSION MONEY
date onwards The vested component will house retirement benefits you accumulated before the implementation date Investment growth will still be credited to this component
How it works is from September 1 2024, retirement contributions will be split by your retirement fund into a savings component (or pot) and a retirement component A ratio of one-third of total contributions will go into
the savings component and two-thirds of total contributions into the retirement component This example provided by Treasury clarifies how it works: Person A’ s retirement contribution in September 2024 is R900 per month, R300 will go to the savings component and R600 into the retirement component Person A would be able to withdraw any amount from the savings component, but the withdrawal should not be less than R2,000 and a withdrawal can only be made once in a tax year
It is important to understand that the retirement value accumulated at August 31 2024, referred to as the “vested component” , will not take further contributions but will remain invested by the retirement fund This means should you resign in future, your current right (vested right) to access this component or have it transferred to a preservation fund is maintained
However, the savings component will be accessible at any time, with withdrawals limited a minimum of R2,000 (no maximum limit), with only one withdrawal allowed in a tax year
But here is the major concern this is taxed at your marginal tax rate, meaning you will pay far more tax than if you had retired, where much more beneficial rates apply Also, while the savings component can be paid in cash when you retire or resign, this is only if you did not make a savings withdrawal in the preceding 12 months
Remember you do not need to make a withdrawal from the savings component every tax year Amounts in the account will still be available for withdrawal in future
years and would benefit from tax-free growth within the account until a withdrawal is made
There is no doubt changes set out in the 2023 Draft Revenue Laws Amendment Bill will also have far reaching consequences Recent changes relate to seed capital where 10% of the value of the assets in your vested component, subject to a limit of R30,000, whichever is lesser, are added to the savings mix To work this out, take the value of your fund on August 31 2024, take 10% or R30,000, whichever is low-
er, and this will be allocated to the savings component as seeding capital This will be a once-off transfer at the start of the two-pot system and will not be repeated in the following years
So if you have contributed to your retirement fund over several years, you may have access to a withdrawal from the seeding capital on implementation
Note that pensioners and members of provident funds who were 55 years and older on March 1 2021 can opt not to be part of the two-pot system, meaning they only have the vested pot and can continue making contributions to the vested pot
However, the key is to understand the rules, think through the consequences and not make hasty decisions to take a withdrawal, keeping in mind accessing savings may well be needed by those with high debt, or other emergencies
One positive is these changes should slow the trend of people resigning to access their pension money The two-pot system therefore strikes a careful balance and the new seeding capital rules are progressive However, withdrawals may take time from a practical perspective if there is a major surge come September members will have to be patient
Non-trial resolution sets out new standards
Nick Alp, Lionel van Tonder, Aaqilah Nagdee & Prianka Soni Webber Wentzel
The National Prosecuting Authority (NPA) recently published its Corporate Alternative Dispute Resolution (C-ADR) Policy, which allows the use of an alternative mechanism to resolve criminal cases against companies, as opposed to only relying on normal criminal court proceedings Therefore, companies implicated in corruption may, in certain circumstances, avoid criminal conviction at a cost
The policy does not apply to individuals as directors (former or current), employees or other individuals involved in wrongdoing can still be prosecuted independently
The NPA s adoption of the C-ADR follows a recommendation from the Zondo commission of inquiry into state capture and brings SA in line with international best practices These best practices highlight the importance of non-trial resolutions to
combat corruption
As the world becomes more advanced and interconnected, conventional rules and regulations fall short in effectively combating corruption This calls for a collective approach, including public-private partnerships and innovative tools and mechanisms such as non-trial resolutions
These mechanisms have been effective in combating corruption in several countries including Brazil, Britain, Canada, France, Germany, Kenya, Malaysia and the Netherlands The US and the UK both use deferred prosecution agreements, which suspend prosecution for a defined period, provided the company meets certain specified conditions
In 2007, a novel approach to the fight against corruption emerged when Prof Johann Graf Lambsdorff proposed the invisible foot principle
This theory recognises that the unreliability of corrupt actors and the risk of betrayal among corrupt counterparts is something that can be
used to induce honesty and good governance in corrupt networks
The strategy targets the vulnerabilities of corrupt networks, which typically operate on weak trust, as corrupt deals cannot rely on legal enforcement and members are wary of their untrustworthy associates By exploiting this weakness, law enforcement can incentivise individuals to step forward with crucial information, crippling the network from within
This approach is endorsed by the UN, which recognises it as a powerful tool against corruption, similar to fighting organised crime
Both rely on hidden networks, often necessitating inside information obtained through leniency incentives
CONVENTIONAL RULES AND REGULATIONS FALL SHORT IN EFFECTIVELY
for effective investigation and prosecution
C-ADR sets out four guiding principles and 10 criteria prosecutors should consider when determining whether C-ADR will apply The four guiding principles include:
(i) A legality and rationality principle commits the NPA to making decisions that uphold the rule of law
(ii) A public interest principle requires that decisions are taken in line with objectively justifiable public interest considerations
(iii) A transparency principle requires the NPA to record and publish its decisions to ensure transparency and accountability
(iv) A guided discretion principle sets out the principles and practical considerations that should guide the NPA in exercising its discretion on whether to use C-ADR
The guided discretion principle states that a prosecutor s discretion should be guided by whether there is:
(i) Voluntary and effective disclosure of wrongdoing by
the company and proactive remediation including, where appropriate, compensating victims;
(ii) Full cooperation by the company with current and future investigations, asset forfeiture proceedings in terms of the Prevention of Organised Crime Act and prosecution of individuals and/or other implicated companies;
(iii) Willingness and capacity on the part of the company to implement and monitor an effective compliance programme and internal controls;
(iv) Pervasive wrongdoing within the company; and
(v) A likelihood that conviction might result in significant adverse collateral effects on the company s employees, shareholders, creditors, the economy, how investigations are conducted and co-operation with law
For the government, the C-ADR policy offers significant cost and time savings compared to lengthy trials which require it to prove its case beyond reasonable
doubt Importantly, where C ADR is used, the company must bear the cost of the investigation, the cost of cooperating with authorities, the disgorgement of its profits and the compensation of victims
This policy sets out a new standard for corporate behaviour It assumes companies have effective compliance programmes that outline and dictate how internal investigations should be conducted
The responsibility for anticorruption is now shared but the private sector is incentivised to maintain high standards of corporate governance and corporate accountability This policy could be a key step towards greater accountability
THE PRIVATE SECTOR IS INCENTIVISED TO MAINTAIN HIGH STANDARDS OF
GOLDEN YEARS /123RF OSARIEME
BUSINESS LAW & TAX
Navigating hearsay at a CCMA hearing
• Labour Appeal Court clarifies commissioners’ duties in engaging with hearsay evidence
Jacques van Wyk & Danelle Plaatjies Werksmans
There is some debate surrounding the extent to which commissioners are required to apply the general rule against the admission of hearsay evidence in matters before the Commission for Conciliation, Mediation and Arbitration (CCMA)
The role and treatment of hearsay evidence and its admissibility in CCMA proceedings was considered by the Labour Appeal Court (LAC) in the recent case of Numsa obo Mokase v Nissan and Others (JA46/2023) discussed herein
Lungile Mokase (the employee), previously employed by Nissan South Africa Ltd (the company), had been involved in a series of confrontations with his supervisor
These incidents notably included a verbal altercation where the employee accused his supervisor of undermining him while pointing at him, and another instance where the employee was found in possession of scissors during a meeting and refused to surrender them until much later on the same day
Months after these confrontations, a complaint of
poor workmanship led to disciplinary steps being taken against the employee Following a disciplinary hearing, the employee’ s supervisor and another colleague received anonymous threatening calls prompting them to obtain protection orders
For the company to establish whether the employee was behind the threats made, the company requested that the employee and his supervisor undergo polygraph tests The polygraph tests
ULTIMATELY, THE ADMISSIBILITY OF HEARSAY EVIDENCE WILL DEPEND ON THE CIRCUMSTANCES OF EACH CASE
were conducted on both parties, indicating deception on the employee’ s part regarding the threats made and no deception on the part of the employee’ s supervisor The employee was subsequently dismissed for gross misconduct in that he had intimidated or threatened his colleagues
The employee referred the matter to the CCMA No ruling was made on the admissibility of the hearsay
evidence tendered during the proceedings before the CCMA However, the commissioner rejected the hearsay evidence presented and concluded there was no reasonable suspicion of the employee’ s involvement in alleged threats or intimidation
The company took the CCMA’ s decision on review, arguing that the commissioner disregarded crucial evidence, including polygraph tests results showing deception by the employee The labour court agreed with the company, setting aside the arbitration award and ruling that the dismissal was fair
The labour court found that the CCMA award was unreasonable in that the commissioner had disregarded the results of the polygraph tests and that on a balance of probabilities, the evidence had shown that the employee had threatened and intimidated his colleagues
The matter was referred to the LAC which had to consider whether the labour court correctly overturned the arbitration award which found that the employee’ s dismissal was unfair
In summary, the LAC first considered the CCMA commissioner s treatment of the evidence before him in light of the general rule that hearsay evidence not admit-
AGREE TO DISAGREE
ted in accordance with the provisions of section 3 of the Law of Evidence Amendment Act 66 of 1995 (LEAA) is not evidence at all In this regard, the LAC considered section 138 of the Labour Relations Act 66 of 1995 (LRA) Section 138 of the LRA affords a commissioner the discretion to determine the manner and form of the proceedings in an unfair dismissal dispute
In terms of section 138(2), subject to the discretion of the commissioner, a party to a dispute may give evidence, call and question witnesses and address concluding arguments to the commissioner The LAC found that while notionally a commissioner is not obliged to apply section 3 of the LEAA because of the discretion bestowed by section 138 of the LRA, it is prudent that section 3 of the LEAA be applied to ensure both a fair process and outcome at arbitration proceedings before the CCMA
The LAC found that the decision to exclude hearsay evidence, without having regard to the provisions of section 3 of the LEAA or making a timeous ruling on its admissibility, constituted a
material misdirection on the part of the commissioner and led to a gross irregularity in the conduct of the arbitration proceedings
Second, the LAC considered why setting aside the CCMA award and referring it back to the CCMA for a new hearing was not necessary in the circumstances The LAC considered that no direct evidence had been tendered before the CCMA to prove that the employee caused his colleagues to be threatened or intimidated
Accordingly, what was in issue before the commissioner was whether the inference that the employee committed the misconduct by causing someone to do so on his behalf could be drawn from all of the proven facts In this regard, the LAC found that without regard to the hearsay and polygraph evi-
THE POLYGRAPH TESTS WERE CONDUCTED ON BOTH PARTIES, INDICATING DECEPTION ON THE EMPLOYEE’S PART
dence tendered, the undisputed facts before the commissioner were that the employee felt aggrieved with how he was treated at work and the proven facts before the commissioner were that the employee had previously engaged in aggressive and intimidatory behaviour at work when he took scissors to work and initially refused to hand these over The inference was capable of being drawn that it was the employee to whom the anonymous caller referred given that it was consistent with all the proven facts From the totality of the evidence before the commissioner the LAC found that the company proved the employee committed the misconduct alleged and that his dismissal for such misconduct was substantively fair Ultimately, the admissibility of hearsay evidence will depend on the circumstances of each case Particularly, if the parties to a dispute fail to agree on the admissibility of hearsay evidence, the commissioner presiding over the matter should make a ruling on this point having due regard to the rules of evidence and the LEAA
Hate Crimes Act has bearing on off duty workers
Jan Norval ENS
On May 9 2024 President Cyril Ramaphosa assented to the Prevention and Combating of Hate Crimes and Hate Speech Bill (Hate Crimes Act), after it was introduced as a bill in the National Assembly more than six years ago
The Hate Crimes Act creates the criminal offences of hate crime and hate speech , which are defined below:
A hate crime is committed if a person commits any recognised crime (excluding crimen injuria or hate speech), referred to as an
underlying crime , and the commission of that underlying crime is motivated by prejudice and intolerance on one or more of the grounds listed in the Hate Crimes Act Hate speech is committed if any person intentionally publishes, propagates or advocates anything, or communicates to one or more persons in a manner that could reasonably be construed to demonstrate a clear intent to: be harmful or to incite harm; or promote or propagate hatred, based upon the grounds listed in the Haute Crimes Act The intentional distribution or displaying of hate speech is also a
crime This includes the forwarding or reposting of an electronic communication on which a person knows is hate speech
From an employment law context, the Hate Crimes Act has several consequences: ● The Hate Crimes Act widens the possibility of offduty misconduct
Not only personal interactions but online and particularly social media postings of employees can fall under the scope of the Hate Crimes Act
This off-duty misconduct covered by the Hate Crimes Act would have been disciplined on various grounds, including bringing the
employer into disrepute before the assent of the Hate Crimes Act That the misconduct has now been criminalised could make it simpler to prove that the employer has been brought into disrepute because the employee has committed a crime based upon prejudice or intolerance or has sought to harm or incite hatred
It is important to note that employers could discipline in relation to the Hate Crimes Act even if no criminal complaint has been laid or a guilty finding has been handed down, provided the employer has the necessary evidence
The Hate Crimes Act
expands upon the listed grounds found in the Employment Equity Act (EEA) related to discrimination and harassment In relation to Hate Crime and Hate Speech, a list of characteristics and grounds are defined The characteristics and grounds found in the Hate Crimes Act that are not listed grounds in the EEA include:
● Albinism;
● Occupation or trade (only in relation to Hate Crime);
● Migrant, refugee or asylum seeker status;
● Gender identity, expression or sex characteristics; and
● Skin colour
Defences created in terms of the Hate Crimes Act such as bona fide artistic creativity, academic inquiry, reporting in the public interest, and the espousing of religious conviction will probably become defences in misconduct hearings related to Hate Crimes and Hate Speech
Employers are advised to carefully consider their policies to ensure they align with the Hate Crimes Act and to ensure effective training for their employees regarding what will be expected of them and how their conduct inside and outside of work may result in misconduct
BUSINESS LAW & TAX
Does Sars owe you a refund on royalties?
• Mineral royalty statements of account from Sars are often incomplete and inaccurate
Kristel van Rensburg & Simon Weber ENS
The Mineral & Petroleum Resources Royalty Act
No 28 of 2008 was promulgated in November 2009 and has been in effect for almost 14 years However, despite the perceived familiarity with its provisions, challenges continue to emerge within this regime
The SA Revenue Service (Sars) is currently implementing a new system aimed at streamlining the mineral royalty process, although implementation is still a work in progress One notable inconvenience is that Sars’ mineral royalty statements of account may only reflect the transactional data (ie returns, payments and refunds) captured by Sars on the new online system As Sars is uploading this data in batches, mineral royalty statements of account are often incomplete and inaccurate
The mineral royalty regime operates on estimates An extractor must estimate its mineral royalty liability and submit a first provisional return not later than six months after the start of the tax year
A second provisional return, also based on an estimate, is due by the last day of the tax year Then, if the final
ARE THE ASSUMPTIONS UNDERLYING THE CALCULATIONS STILL VALID 13 YEARS AFTER THE ROYALTY ACT WAS INTRODUCED?
royalty liability is higher than the provisional payments, the extractor must submit a return of excess within six months of the end of the tax year The final return is only due by the end of the subsequent tax year
So it is not uncommon for the final (annual) royalty liability to be less than the payments made under the first and second provisional mineral royalty returns In such cases, Sars may owe the extractor a refund However, given that accurate mineral royalty statements of account are not readily available, extractors are often not aware that they have overpaid mineral royalties
Moreover, the Royalty Act is complex, often resulting in ambiguity In this respect, the following serve as examples of possible pitfalls that warrant proper consideration:
The mineral royalty is only imposed in respect of the “transfer” of a “mineral resource ” “extracted” from within SA So, for example, where the extractor transfers a mineral that does not fall within the ambit of the definition of “mineral resource ” , then the royalty liability will not be imposed in respect of that mineral
Relevant here is that the term “mineral resource ” is
defined in section 1 of the Royalty Act concerning the Mineral & Petroleum Resources Development Act No 28 of 2002
A question that arises, then, is whether minerals extracted from tailing dumps that were created under “old order” mining rights are “mineral resources ” for royalty purposes
Generally speaking, an extractor may, in calculating its earnings before interest and taxes (ebit), deduct capital expenditure as per section 36 of the Income Tax Act No 58 of 1962 (ITA) that was incurred to win, recover and develop the mineral resource to the “condition specified”
But, for instance, do the “ capex per mine ring-fence” provisions in section 36(7F) of the ITA, read with section 36(10), impact the calculation of ebit for mineral royalty purposes?
Schedule 1 and schedule 2
of the Royalty Act, which contain the “condition specified” for refined and unrefined mineral resources, respectively, are central to calculating the mineral royalty liability
It is crucial that extractors continually monitor if, or at what point in its mining process, the mineral resources reach the “condition specified” Considering this, extractors should review their mineral royalty positions and consider whether the act has been interpreted and applied correctly
Are the assumptions underlying the calculations still valid 13 years after the Royalty Act was introduced?
Or has there been a change in mining processes or output?
At the least, extractors should compile a manual statement of account based on historical returns and payments
It should be kept in mind that royalty amounts due,
either to an extractor or to Sars, will account for the interest in terms of the Mineral and Petroleum Resources Royalty (Administration) Act No 29 of 2008, read with chapter 12 of the Tax Administration Act No 28 of 2011 So, a manually prepared statement of account should account for interest If an extractor has established that a refund is due, it is necessary to formally request Sars to pay such a refund This request should be made considering the legislative framework applicable to royalty refunds
Extractors should obtain professional legal advice given these practical challenges and legal complexities In the current economic climate, coupled with the challenges presented by a downturn in the commodity price cycle, a refund from Sars can be a handy windfall for many businesses
Unpacking burden of proof on tax estimates
Emile
According to section 102(2) of the Tax Administration Act (TAA), “the burden of proving whether an estimate under section 95 is reasonable or the facts on which Sars based the imposition of an understatement penalty under Chapter 16, is upon Sars
At the same time it is important to note that the Promotion of Administrative Justice Act 3 of 2000 prescribes that Sars must take the relevant decision having regard to the relevant considerations set out in the legislation, at the time when the decision is actually taken
While each case is unique, that does not mean Sars simply explains how the provisions of section 222(1) are satisfied It also means there could be a high likelihood that Sars does not present any facts to support its intention
of imposing an understatement penalty on an organisation that made the contributed tax capital (CTC) error In practice, this means a company can dispute Sars decision, prompting Sars to prove the facts on which it relied to impose understatement penalties Especially where Sars has the intention of imposing understatement penalties not on fact but on a hypothetical future event which may result in potential financial prejudice
Of course, there is legal precedent in challenging Sars in this regard The Supreme Court of Appeal in Sars v Pretoria East Motors (Pty) Ltd 291/12) [2014] ZASCA 91 ruled that Sars is obligated to provide a fair process and clear reasons for additional assessments, challenging the notion that Sars can assess without proper justification
Similarly, the high court in Nondabula v Sars and Anoth-
er (4062/2016) ZAECMHC 21 emphasised that Sars’ actions are constrained by statutory provisions and must not exceed its legal mandate
These rulings safeguard taxpayers against arbitrary assessments and ensure Sars operates within the bounds of the law
When Sars raises an additional assessment, it must have proper grounds and facts for doing so There must therefore be a factual and legal basis for an assessment
The term understatement is defined in section 221 of the TAA to mean any prejudice to SARS or the fiscus as a result of:
● Failure to submit a return required under a tax act or by the commissioner;
● An omission from a return;
● An incorrect statement in a return;
● If no return is required, the failure to pay the correct
amount of tax ; or
● An impermissible avoidance arrangement
Section 222 of the TAA provides that in the event of an understatement by a taxpayer, the taxpayer must pay, in addition to the tax payable for the relevant tax period, the understatement penalty unless the understatement results from a bona fide inadvertent error
In some instances, Sars would state that a company did not make a bona fide inadvertent error As such, its argument would be that the error did not result from an unintentional default, an accidental omission or an unplanned statement
In the decision by the Supreme Court of Appeal in the Purlish Holdings (Proprietary) Limited v Commissioner for the SA Revenue Service [2019] JOL 41208 (SCA), the court found that the fact that Sars had to conduct
an audit to discover the taxpayer’ s tax liability constituted prejudice to Sars for purposes of section 221:
“Given the circumstances of this matter, I agree that the use of additional Sars resources for purposes of auditing the appellant s tax affairs indeed prejudiced Sars As correctly conceded by counsel for the appellant in argument before this court, prejudice is not only determinable in financial terms
The crux of Sars case relies on the Purlish case and ITC 1948 (84 SATC 110 at 15) in support to its averment that an understatement penalty may be imposed on a hypothetical prejudice to Sars, ie an artificial tax event is created
These cases are not authority for charging (understatement) penalties where there is no tax actually underassessed In both those cases there was an actual
underpayment, heinous conduct by taxpayers (eg Purlish Holdings), which is contrary to the fact pattern depicted in the illustrative example Taxpayers are therefore advised to review case law relied on by Sars in its assessments to determine if, in fact, the patterns are the same
The term bona fide inadvertent error , while not explicitly defined in any tax act, refers to a sincere, unintentional mistake by a taxpayer Court cases such as ITC 1890 (79 SATC 62) clarified that such errors should originate from a place of good faith, not intentional deception Determining factors for these errors include the taxpayer s knowledge and error specifics In Commissioner, Sars v Thistle Trust ([2022] ZASCA 153), the court acknowledged that a taxpayer might err based on legitimate expert advice and still be exempt from penalties
BUSINESS LAW & TAX
Don’t wait to make changes
• Public can comment on emission targets, which will affect sectors such as mining and energy
Garyn Rapson, Nonhlanhla Mnengi, Sabeeha Loonat & Sinalo Matubatuba Webber Wentzel
To support the implementation of SA’ s nationally determined contributions (NDC) under the Paris Agreement, the minister of forestry, fisheries & the environment published the sectoral emissions target (SET) report for public comment on April 26
This development comes at a timely juncture, as the Climate Change Bill has just received parliamentary approval and is now awaiting the president’ s signature to become law Notably, the bill includes a provision that mandates emission reduction targets, in line with our global obligations, to be implemented across various sectors,
which will be binding when the bill becomes law
This reiterates the call to action for these sectors to reinvent themselves and meet the growing demand to reduce emissions and align with the SETs
The SETs emerged as an outcome of the latter stages of COP28 which was the first global stocktake
Countries were assessed on the progress made in meeting the objectives of the Paris Agreement (which aims to limit global warming to
BUSINESSES SHOULD NOT
WAIT
UNTIL SPECIFIC GOVERNMENTAL REGULATIONS ARE IMPLEMENTED TO MAKE CHANGES ALL SMOKE,
1 5°C above pre-industrial levels) and are being held accountable for lowering emissions through their NDCs On the other hand, the shift towards net-zero emissions unlocks a combination of financial incentives as well as large-scale investments
SETs are greenhouse gas emissions reduction targets, applicable to sectors or subsectors over a period The SETs are designed to steer sectors to make transformative changes to ensure that we achieve long-term climate action
The report identifies sectors that are significant contributors to emissions, which will be subject to the SET These include mining, agriculture, energy, industry, human settlements (residentials), transport and environmental sectors
The implementation of the
NO MIRRORS
SETs will be monitored annually They will then be revised and updated in accordance with any changes to the NDC, which is expected every five years while considering the current and projected greenhouse gas emissions Climate change issues must be considered in investment decisions, and busi-
VIEWPOINT AFRICA
nesses should not wait until specific governmental regulations are implemented to make changes Companies that transform their business to factor in the risks of climate change and to take advantage of the opportunities presented by the global shift towards a sustainable future will gain long-term competitive advantage
The report aligns closely with ESG principles, emphasising the interconnectedness of environmental sustainability with broader societal and governance considerations
It underscores the importance of integrating ESG factors into decision-making processes to drive positive environmental outcomes
Mozambique’ s labour law strong on privacy rights
Employers in Mozambique should be aware of the extent to which Mozambican law protects the employee’ s right to privacy, as a breach of this fundamental right could have serious legal and practical consequences for the employer’ s business
The new Labour Law (Act 13/2023, of August 25), which came into operation on February 21 2024, protects the employee’ s right to privacy under the following four broad headings
Employers are, by operation of statute, prohibited from requesting or requiring employees or applicants for employment to provide information relating to the person s private life, unless there are specific requirements inherent to the nature of the job that require such information, by virtue of either the law or the practices of a particular profession This prohibition expressly applies at the time of hiring a new employee and during the course of the employment contract, so employers should continuously ensure they are, in fact, legally entitled to request various personal data from their employees or job applicants If any personal data is requested, then the employer is required to provide written reasons for requiring the personal data to the employee/applicant
before that person provides the data
If an employer makes use of computer files and computer systems to store and access the personal data of job seekers and/or employees, then Article 8(1) of the labour law records that these practices will be regulated by specific legislation, so most employers will also need to have regard to what these specific regulations may require in each instance
The final general protection accorded to personal data is that any personal data that is confidential, as well as any information whose disclosure will violate the employee s privacy, cannot be provided or conveyed to any third party without the employee s express consent, unless there are legal reasons for doing so without consent (for example, reporting a criminal offence concerning an employee to the Mozambican authorities)
Employers are, therefore, advised to obtain broad written consent from their
employees upfront, which will entitle them to convey personal and confidential information to third parties, should this become necessary during the course of the employment relationship
Employee privacy in the context of medical tests and exams
Employers in Mozambique may generally (unless specifically prohibited by a legal provision) require applicants for employment or their employees to undergo or submit themselves to a medical test or examination This must be intended to assess their physical or mental condition, either for the purpose of admission to employment or for the execution of the contract of employment
However, Article 9(2) of the labour law provides that the doctor responsible for administering these medical tests or examinations may not communicate any information to the employer other than the person s capacity to work (or the lack thereof)
Medical tests and examinations intended to determine the HIV/AIDS status of a job applicant or employee are specifically prohibited in Mozambique
Can an employer use remote surveillance
measures at the workplace?
The use of remote surveillance in the workplace is limited by the labour law, in the sense that it is only permissible when intended for the protection and security of people and goods, as well as when such use is part of the normal production process of the company or the sector in which the employer operates “Remote surveillance” would typically refer to closed-circuit television (CCTV) cameras, but the wording used in the labour law is wide enough to cover any “technological equipment” used to conduct remote surveillance in the workplace
If an employer is entitled to use any such technological equipment and does so, then that employer will be required to inform its employees, in writing, concerning the existence and purpose of the remote surveillance used This is an important obligation to adhere to, with serious practical consequences for the employer: this is because the written notice is deemed to constitute legal proof that the employer duly complied with its obligation to notify the employees; and failure to do so will mean that any evidence acquired via the remote surveillance will be considered null and void under Mozambican law
Imagine the frustration, as an employer, of having CCTV footage showing that one of your employees has stolen from your business, but being unable to discipline or dismiss that person for that wrongdoing because you failed to inform him/her in writing that you were using remote surveillance measures at the workplace, in accordance with what the labour law requires
The employee’ s right to privacy of communications
The privacy of an employee’ s communications is also protected in Mozambique
This is referred to as the employee’ s “right to confidentiality of correspondence and provides that correspondence of a personal nature effected via any means of private communication is inviolable, except in cases expressly provided for by law This legal protection would cover all correspondence, including traditional letters, various types of electronic messages and e-mails
The labour law does,
THE USE OF REMOTE SURVEILLANCE IN THE WORKPLACE IS LIMITED BY THE LABOUR LAW
however, expressly entitle an employer to establish rules and limits that seek to regulate the use of information technologies (IT) at the workplace This effectively refers to the need to have an IT policy at the workplace, and this policy must be set out in the internal regulations of the organisation Because the statutory right to confidentiality of correspondence expressly refers to “correspondence of a personal nature” , the internal regulations should make it clear that other types of correspondence (ie communications that are not of a personal nature) will not be protected Moreover, these regulations should also make it clear that any e-mail accounts or message platforms provided or facilitated by the employer to its employees should not be considered means of private communication and should not be used by employees to transmit information of a personal nature Accordingly, anything transmitted by or to an employee on the company s communication systems will not be regarded as personal or private and may be referred to and actioned by the employer
● Alex Ferreira is an executive in the employment practice at ENS
BUSINESS LAW & TAX
LLB students’ bid denied in appeal court
• Decision to defund postgraduate LLB found to be fair, no legitimate expectation of funding existed
Aslam Moosajee & Olonathando Nxumalo ENS
The Supreme Court of Appeal (SCA) in NSFAS v Moloi had to determine whether the Pretoria High Court erred in reviewing and setting aside the decision of the National Student Financial Aid Scheme (NSFAS) and the minister of the department of higher education & training to “defund” the LLB postgraduate programme
On March 11 2021, the minister released a media statement announcing changes to the guidelines for the NSFAS bursary scheme
These changes were driven by a shortfall in the budget allocated to the bursary scheme for the 2021 academic year
One of the changes introduced was that the bursary would only be awarded to first undergraduate qualifications Previously postgraduate qualifications were generally not funded and only “ some limited second qualifications in key areas ” were funded
However, as a consequence of the changes, new entrants in second or postgraduate qualifications would
not be funded Students who were already registered for postgraduate degrees would still be funded if they met the qualifying criteria One of the postgraduate degrees that did not meet the criteria under the changes was the LLB postgraduate degree
Subsequently, three LLB students who were studying at the University of the Witwatersrand at the time (the respondents) instituted an
THE DIFFICULTY THAT THESE WITS STUDENTS FACED WAS THAT WITS ONLY OFFERED LLB AS A POSTGRADUATE DEGREE
application in the high court to review and set aside the decision to “defund” the postgraduate LLB programme under section 6 of the Promotion of Administrative Justice Act, 2000 (PAJA), alternatively under the principle of legality
The difficulty that these Wits students faced at the time was that Wits only offered LLB as a postgraduate degree Therefore, this decision meant that LLB students
at Wits would not be funded by NSFAS
The review application in the high court was successful which resulted in the appeal to the SCA
The SCA was not convinced it was necessary to determine whether the action was an exercise of executive power or an administrative action since the main question revolved around procedural fairness, and our courts have affirmed the requirement of procedural fairness in respect of the exercise of public power (with a few exceptions)
The students contended that when they commenced their Bachelor’ s degrees, NSFAS was funding LLB postgraduate degrees Furthermore, NSFAS’ response to the frequently asked question (FAQ) published in 2018 indicated that LLB is one of the postgraduate qualifications that they accept Therefore, this created a legitimate expectation that NSFAS would fund their postgraduate LLB
In setting out the principle for legitimate expectation, the SCA relied on Administrator, Transvaal and Others v Traub and Others where it was held that a legitimate expectation may arise where an express promise had been made by a
FUNDING FURORE
relevant authority or a where regular (well-established) practice had arisen which a claimant reasonably expected to continue “The test is objective and determination of whether an expectation, in the legal sense, exists, is made on a case-by-case basis” Courts are generally reluctant to afford such relief, being wary of fettering with the discretion of state authorities In the circumstances of this case, the SCA held that “ as much as financial hardships which confront students pursuing second qualifications was real and the negative effects had to be understood, the courts could not tamper with the discretion of the executive to prioritise first-time entry to higher education institutions, unless such discretion was exercised in a manner that offended the law and the Constitution”
In any event, the SCA held it was not satisfied that the respondents had demonstrated there was a wellestablished practice of funding second-degree LLB programmes Therefore, the SCA held that the respondents had no legitimate expectation that the LLB programme would be funded by NSFAS
LEGAL SCOOP
Section 33 of the Constitution guarantees to everyone a right of administrative action that is lawful, reasonable and procedurally fair Although executive decisions are not reviewable under PAJA, the exercise of executive authority must still comply with the law and the Constitution The requirement of procedural fairness in the exercise of executive authority has been affirmed in various cases including the Constitutional Court judgment of Democratic Alliance v President of the Republic of SA Considering the above principles, the SCA concluded that NSFAS and the minister’ s decision was procedurally fair because of inter alia the fact that:
● NSFAS consulted with the representatives of the Universities South Africa (USAF) and South African Union of Students (SAUS) organisa-
CONSULTATION WITH STUDENT REPRESENTATIVE BODIES IS AN ACCEPTABLE FORM OF COMMUNICATING WITH STUDENTS
tions, although the general student community was not invited to make representations;
● Consultation with student representative bodies is an acceptable form of communicating with students; and
● The media statement published in 2021 (detailing the “defunding” of the LLB postgraduate programme) gave the impression that the details of how the 2021 funding scheme would be structured were only provided for on the previous day when the National Cabinet approved the budget Therefore it would have been impractical, in those circumstances, to afford the general student body an opportunity to make representations prior to publishing the guidelines Consequently, the consultation with SAUS and USAF constituted a reasonable and justifiable form of compliance with the requirement of procedural fairness
In light of the above considerations, the appeal against the high court order was successful Given that the students were asserting their constitutional rights to further education, as provided in section 29 of the Constitution, there was no cost order against them
What is needed to determine validity of a waiver
Kagiso Moatlhodi Fluxmans
The recent Supreme Court judgment in Christopher Charles Hughes v Nicolas Gargassoulas and Others reinforces a test for determining a valid waiver
This issue occurs frequently in residential property agreement sales
In this matter, Hughes and Green entered into a sale agreement Green purchased the property for his daughter and her life partner, and a deposit of R1m was paid
The agreement included a suspensive condition to the
effect that if the purchaser was not able to obtain a loan against the security of a mortgage bond, the agreement would become null and void and the deposit and interest thereon would be repaid in full to the purchaser To reiterate, this is a standard clause in sale of residential property
agreements where the transaction is suspended pending the loan approval
This agreement, furthermore, included a clause requiring that any additions and variations to be done in writing and signed by both parties as the purchaser intended to complete renovations on the property
During the Covid-19 pandemic, the seller was advised by the conveyancing attorney that the purchaser was considering paying the purchase price in cash The seller believed that this constituted a waiver of the said suspensive conditions
The loan was not approved by the due date
The purchaser s daughter and her partner vacated the premises due to there being no approved plans for the property which rendered their proposed renovations illegal
The seller argued that the purchaser repudiated the agreement and as such he was entitled to cancel and claim damages because, according to him, the purchaser had waived fulfilment of the suspensive condition
At the heart of this matter was the question of whether the purchaser had in fact
waived fulfilment of the suspensive condition and, as such, also waived his right to the deposit and the interest thereon
The court found in favour of the purchaser on the basis that the party claiming waiver (the seller) must show the person waiving:
● Knew of the relevant facts; and
A VALID WAIVER MUST TAKE PLACE PRIOR TO THE EXPIRY DATE OF THE SUSPENSIVE CONDITION
● Intended to waive the right
It was not clear whether the conveyancing attorney had full knowledge of the rights allegedly waived by the purchaser, and there was no proof of an unequivocal intention on the purchaser s part to waive his rights
In addition, a valid waiver:
● Must be in writing and signed by both parties; and
● Must take place prior to the expiry date of the suspensive condition
This matter emphasises the importance of understanding the waiver conditions and ensuring they are valid
/123RF LIGHTFIELDSTUDIOS
Ignore claims of harassment at your peril
• Employer ordered to pay compensation for failing to investigate sexual harassment complaints
Jacques van Wyk & Danelle Plaatjies Werksmans
An employer’ s liability when it fails to comply with its statutory duties and its own sexual harassment policy by not adequately investigating an employee’ s complaints about improper conduct of a colleague was considered by the Commission for Conciliation, Mediation and Arbitration (CCMA) in the recent case of ZG/Massmart Wholesale (Pty) Ltd [2024] 3
BALR 350 (CCMA)
A senior employee claimed to have been sexually harassed by a colleague on two occasions The employee reported the incidents to her manager who advised her to contact the ethics department The employee subsequently completed a formal report of the incidents on April 29 2022 and an investigation was initiated
Months later, in December 2022, the employee was suspended and issued with a notice to attend a disciplinary hearing The disciplinary hearing was chaired by an advocate who found that the incidents that occurred in April 2022 were insufficient
to constitute sexual harassment for purposes of the Employment Equity Act 55 of 1998 (EEA)
After this, the employee referred an unfair discrimination dispute to the CCMA In terms of section 6(3) of the EEA, harassment of an employee is a form of unfair discrimination and is prohibited on any one or combination of grounds of unfair
IT TOOK FOUR MONTHS TO CALL A DISCIPLINARY HEARING, AT WHICH THE PERPETRATOR’S BARE DENIAL WAS ACCEPTED
discrimination listed in section 6(1), which includes, among other things, direct or indirect discrimination on the basis of sexual orientation, gender and sex It was on this basis that the employee referred the dispute The commissioner was required to determine whether (1) the employee was unfairly discriminated against by the employer on the basis of sex, sexual orientation and gender in breach of the EEA; (2) the employer
was liable in terms of section 60 of the EEA; and (3) the employee was entitled to payment of compensation
Section 11 of the EEA provides that if an unfair discrimination allegation is made against an employer, it is the employer who must prove that such discrimination did not take place or that it was justifiable
Clause 5 of the Code of Good practice on the Prevention and Elimination of Harassment in the Workplace provides a detailed definition of sexual harassment
The commissioner relied on the following excerpt of the code:
“5 2 5 The unwanted conduct must be of a sexual nature and includes physical, verbal or nonverbal conduct, whether expressed directly or indirectly Conduct amounting to sexual harassment may include
5 2 5 1 physical conduct of a sexual nature ranging from touching, kissing, to sexual assault and rape
5 2 5 3 following, watching, pursuing, or accosting of an employee”
The employee testified that the perpetrator made physical contact with her body by tapping her on her back (above her bra line) while she was working on
her computer The commissioner found her explanation for not reporting this incident plausible
However, the employee was clearly uncomfortable with the second incident, the pinching of her waist (direct physical contact) and immediately sent an email to her colleague and formally reported the incident These actions are in line with the conduct described in the code and the commissioner thus found that the employee met the test for sexual harassment
LIABILITY
Section 60 of the EEA provides for liability of employers in instances where an employee, while at work, has contravened a provision of the EEA Section 60(2) and 60(3) of the EEA provides that the employer must consult all relevant parties and must take the necessary steps to eliminate the alleged conduct and that failure by the employer to take such steps will render the employer deemed to have also contravened that provision
The commissioner held that the employee’ s claims pertaining to the perpetrator showing an interest in her movements and that he had touched her to be true
Moreover, it took the employer four months to call a disciplinary hearing, at which the perpetrator’ s bare denial was accepted The commissioner provided that the employer did not follow its own harassment policy when it investigated the incidents and denied the employee’ s request for CCTV footage as proof of the incidents Furthermore, no consideration was taken of the fact that a witness confirmed that the employee immediately brought to his attention the physical contact that had occurred
THE EMPLOYEE WAS CLEARLY UNCOMFORTABLE WITH THE SECOND INCIDENT, THE PINCHING OF HER WAIST
The commissioner held that the employer failed in its duty to consult all relevant parties to take the necessary steps to eliminate the alleged conduct and comply with the provisions of the EEA The employer was therefore deemed to have contravened section 60(3) of the EEA and ordered to pay the employee an amount equivalent to two months’ compensation
This case underscores the critical importance of upholding workplace harassment policies and conducting thorough investigations into allegations of misconduct, and to do so expeditiously
The ruling highlights how incidents such as unwanted touching or undue attention can constitute sexual harassment, and thus the failure to promptly address may result in the imposition of liability on the part of the employer Furthermore, the failure to follow established harassment policies and consult the employee during the investigation process demonstrates a disregard for statutory obligations and employee wellbeing
HANDS OFF