Business Day Law & Tax (April 2023)

LAW & TAX

Ransomware steps up game

• Techniques of cyber criminals improve efficiency, profitability

Aslam Moosajee & Olonathando Nxumalo ENSafrica

Cyber criminals have developed new ransomware techniques to improve the efficiency and profitability of their attacks

These include targeting large and high-value entities such as governments and the health care sector (also known as “big game hunting”), and the selling of userfriendly ransomware software kits (also known as ransomware as a service)

This has led to a significant increase in ransomware payments globally, although these attacks still remain underreported in some jurisdictions

Ransomware is a type of malicious software (malware) that is used by criminals to deny users access to data, systems or networks while demanding to be paid a ransom in exchange In addition to the threats relating to the disrupted systems, criminals often threaten to publish the victim’ s data if the ransom is not paid (double extortion)

These attacks are often conducted by various criminals across different jurisdic-

tions, which makes it difficult to trace the flow of money

Furthermore, cyber criminals demand to be paid almost exclusively in virtual assets, which are a “digital representation of value that can be digitally traded or transferred, and can be used for payment or investment purpose ” such as bitcoin

The payments are made through the use of Virtual Asset Service Providers (VASPs) The cross-border nature of virtual assets allows criminals to make large-scale cross-border transactions, nearly instantaneously, without involving institutions with anti-money laundering/ countering the financing of terrorism (AML/CFT) obligations They also use VASPs within jurisdictions with weak or nonexistent AML/ CFT controls, which allows them to cash out their illicit proceeds in fiat currency

The Financial Action Task Force (FATF) conducted a study that was co-led by experts from Israel and the US The study was aimed at improving the global understanding of ransomware payments as well as good practices to counter these payments and related money laundering The FATF report details methods to identify

and report ransomware payments, how these proceeds are laundered and efficient ways to prevent, detect and investigate financial flows related to ransomware

Typical financial flow of ransomware payments:

● Ransomware criminals, using anonymous enhancing techniques, disrupt or disable the systems of institutions and/or businesses, until the payment of the ransom by means of virtual assets;

● The victim or a third party acting on the victim’ s behalf, such as an insurance company, purchases virtual assets from a VASP;

● A payment of the specified type and amount of virtual

assets is then made to the criminals;

● Criminals use different techniques to conceal any links between the payment and the crime;

● They further use VASPs located in jurisdictions outside where they are based, to convert the laundered virtual assets into fiat currency; and

● Criminals then deposit, invest or spend their ransomware proceeds

GOOD PRACTICES FOR THE INVESTIGATION, PROSECUTION AND RECOVERY OF RANSOM PROCEEDS

A multidisciplinary approach is required to counter the

ransomware payment and related money laundering

This approach includes:

A legal framework

● Jurisdictions should criminalise ransomware as an offence For example it can be criminalised as a type of extortion; and

● Jurisdictions should accelerate compliance with relevant money laundering FATF standards on the VASP sector This will ensure that VASPs are complying with the necessary AML/CFT obligations required to capture critical financial information and report suspicious transactions

Detection and reporting

● Jurisdictions are encour-

aged to have communication channels with institutions that are not subjected to the AML/CTF obligations such as incident response companies as they are often informed first about the attacks by their client This will ensure that ransomware attacks are reported and detected timeously;

● Jurisdictions should support regulated entities such as banks and other financial institutions to detect and report suspicious transactions as they may not have insight of a ransomware payment or related money laundering since it involves virtual assets The support needed may include sharing trends detection guides and red flag indicators; and

● Jurisdictions should also encourage victims to report ransomware attacks to relevant authorities promptly Raising awareness of available support and safe reporting channels can facilitate this Quick reporting is crucial to trace the financial flow and facilitate a successful investigation as transactions move quickly It can also aid in the speedy recovery of the paid ransom Jurisdictions can be informed about ransomware attacks through information shared by other jurisdictions International co-operation mutual legal assistance and informal

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SOUNDING AN ALARM

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Still much life in mergers

EP: Angela, can you start by giving us an overview of the merger & acqusitions (M&A) situation in subSaharan Africa at present?

AS: According to our analysis of Refinitiv data for sub-Saharan Africa (SSA), inbound M&A transactions from foreign acquirers reached $17 2bn in 2021, with 313 transactions In 2022, this amount dropped to $12 7bn from 306 transactions So far in 2023, the SSA region was the target of 29 transactions, with a total value of $879m

So what we are seeing is the M&A market is down and conditions are challenging, but the market is not closed Dealmakers are planning their balance sheets and hunting for strategic deals, more is being deployed via equity funds, private credit availability and opportunities for well-positioned buyers either through taking advantage of distressed situations or through currency arbitrage There is still some uncertainty as to what the year has in store, but there is definitely still activity

EP: How does the situation in Africa compare to the global M&A environment?

AS: Globally, 2021 was a year of unprecedented M&A activity as dealmakers made up for time lost due to Covid19 restrictions and lockdowns In 2022, M&A deals were 38 8% lower than 2021 according to Merger Market

In 2022, deal volume dropped 40% between the first and second 2022 half-years due to rising interest rates, inflation, geopolitical conflict and economic uncertainty

For SSA, we believe while global geopolitical uncertainty will continue to have an impact on M&A transactions in Africa in 2023, transactions

LSR: Private markets in SSA have been boosted by plenty of dry powder, with private equity investors driving market activity in 2022 Although not as high as 2021, 2022 was still the second-highest year on record for private equity activity since 2007 The AVCA Private Capital Activity Report showed that the first half of 2022 was one of the strongest half-years for Africa’ s private capital industry, with 338 completed deals valued at $4 7bn This followed an upbeat 2021 for African private equity, a year of ample dry powder

are still happening, and private capital investors are driving a lot of the deals

EP: On that note, Lydia, what happened in the private equity space in Africa over the last year?

Likewise, according to a report by S&P Global Market Intelligence, private equity and venture capital investments in Africa soared 66% year on year in 2022 to $7 7bn, the highest aggregate value in the past five years S&P pointed out that this big jump was due mainly to the proposed acquisition of hospital operator Mediclinic International, which is valued at more than $5bn In terms of transaction volume, private equity transactions have shown a steady climb since 2018, to 404 deals in 2022 (S&P data entries include whole company acquisitions by private equity, minority stakes, acquisitions of assets and fundraising, so pretty much all activities that private equity general partners and venture capital firms are involved in EP: Is this expected to continue?

LSR: Yes, our view is that, going forward, private equity transactions in Africa will continue to grow The Deal Leaders International report was optimistic about the M&A market in SSA saying that foreign direct investment would increase in the next few years, despite the global economic recession

EP: What do you think is causing the growth of pri-

vate equity in Africa and are there any challenges to watch for?

LSR: I think that overall it is the confidence instilled in investors by private equity fund managers in Africa this means the continent is expected to remain a very strong investment opportunity for private investors This is despite the numerous crises of the past couple of years,

especially in terms of the looming global recession and energy crisis, which is significant in SA, as you know, but also a global issue with energy prices soaring Postpandemic and after the impact of global economic turbulence, investors have also been thinking carefully which sectors will do well and where the pandemic has allowed for discounts on quality assets Across the world, including in Africa, general partners have had to address new risks and stabilise their investments In addition, sellers have been holding on to their assets, waiting for an increase in value Currency volatility in Africa has also been a challenge in recent years, and the devaluation of certain local currencies has affected the value of deals In addition, the recent rate hikes mean money is not cheap and this adds complexity and makes for more risk-averse investors

Ransomware ups game as cyber criminals hone skills

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information exchange with foreign jurisdictions may provide information on funds layered through domestic exchanges linked to foreign attacks/victims

Financial investigations

● Competent authorities should use both traditional law enforcement techniques (such as surveillance interception of communication and undercover operations) and virtual asset-specific methods when investigating ransomware-related money laundering Since most virtual assets operate on a public blockchain by combining blockchain analysis with traditional methods it may help identify criminals and trace

the movement of illicit proceeds; and as soon as competent authorities are informed about the ransomware attack and the ransom payment, they must be given the legislative powers to act swiftly in tracing the ransom payment and to seize and confiscate assets within a matter of hours in order to prevent dissipation of the ransom that was paid

Skills and expertise

● In addition to traditional law enforcement skills, competent authorities should have the specialised skills and expertise, both legal and technological, necessary for a successful financial investigation which relates to ransomware;

● This includes develop-

ment, access and training relating to blockchain analytics and monitoring tools which will assist them to access and to interpret information; and

● Specialised mechanisms should be implemented in order to manage seized virtual assets properly National policies and co-ordination

● National risk assessments should include identifying and assessing the money laundering risks posed by ransomware This may support national cyber strategies by achieving a holistic national overview of ransomware risk;

● Jurisdictions where money laundering is not currently a domestic threat must also

adopt this because those jurisdictions may still be exposed to the illicit movements of ransomware proceeds due to the decentralised nature of virtual assets;

● Jurisdictions should develop co-ordination mechanisms across relevant competent authorities, ranging

COMPETENT AUTHORITIES

SHOULD USE BOTH TRADITIONAL LAW ENFORCEMENT TECHNIQUES AND VIRTUAL ASSETSPECIFIC METHODS

from law enforcement, AML/CFT and cyber-crime authorities, to nontraditional partners such as cyber-security or data protection agencies This facilitates information and intelligence sharing and provides a platform for cross-sharing of various technical expertise; and

● There must be an implementation of mechanisms that support public-private co-operation VASPs and other non-traditional partners should be included in such co-operation mechanisms

International co-operation

● Jurisdictions should establish and actively participate in bilateral, regional, and multilateral mechanisms, such as using liaison offices and establishing clear 24/7 con-

tact points, to facilitate rapid international co-operation and information exchange

The FATF report contains crucial information about the financial flow of ransomware payments and associated money laundering These illicit transactions move quickly across multiple jurisdictions, making them challenging to investigate

By sharing good practices, the FATF aims to help jurisdictions respond promptly to ransomware attacks, thus increasing the success rate of investigations

The report highlights the need for a co-ordinated approach to counter ransomware payments and related money laundering effectively

• Business Day Law and Tax Editor Evan Pickworth interviews Angela Simpson and Lydia Shadrach-Razzino from global law firm Baker McKenzie on the latest merger & acqusitions and private equity trends

Lydia Shadrach-Razzino

Angela Simpson

Big shake-up looms for EU patent regime

Danie Pienaar Spoor & Fisher

In Europe, the Unitary Patent and Unified Patent Court (UPC) are set to come into force on June 1 2023, bringing in automatic shared jurisdiction over European patents in many EU member states

Companies with European patents now in force need to prepare for the change, by reviewing their European patent portfolios

The UPC is an international, centralised court which has been established by certain EU member states of the European Patent Convention, in order to deal with patent infringement and revocation for:

● European patents which have already been validated in those specific EU member states; and

● European patent applications which will in future be granted and validated as socalled “Unitary Patents” (UP)

At present, the EU member states which have already ratified the Unified Patent Court Agreement (UPCA) are Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Germany, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovenia and Swe-

vakia Once the UPC comes into effect, the UPC will automatically have shared jurisdiction over European patents which fall under the scenario, where there are European patents which have already been validated in one or more of the Ratified European Union Member States Patent enforcement or revocation can then take place either before the UPC or before one or more of the national courts

revoked before the UPC, then the patent would be revoked automatically in respect of all the Ratified European Union Member States Also, the UPC is still untested at present

den (hereinafter referred to as the “Ratified European Union Member States”) There are also seven EU member states which have signed the UPCA but have not yet ratified it: Cyprus, Czech Republic, Greece, Hungary, Ireland, Romania and Slo-

One of the main advantages of the UPC is that patent enforcement can be significantly simplified when dealing with enforcement across various Ratified European Union Member States It can result in a significant cost saving, since it would not be necessary to institute separate actions in each of the national courts (ie just before the UPC)

A disadvantage of the UPC is that it provides a central point of revocation In other words, if a European patent is

It is possible for European patents which fall under scenario (i) to “opt out” of the jurisdiction of the UPC, by submitting an opt-out request

By filing an opt-out request, one would essentially be selecting not to fall

under the jurisdiction of the UPC and, as a result, patent litigation and enforcement would need to take place before the national court of each of the Ratified European Union Member States (as is currently the case)

The opt-out option became available from March 2023 1 and until the end of a transitional period, which ends seven years after the UPC comes into effect (the transitional period could later be extended)

It is important to bear in mind that an opt-out request can only be made if no action has yet been instituted before the UPC Therefore, although it is possible to delay the filing of an opt-out request for a number of years, it does come at a risk

It should also be remem-

bered that it will be possible to withdraw an opt-out later, in order to restore the shared jurisdiction of the UPC and the national courts This can only be done once So, once an opt out has been withdrawn, it will not be possible to opt out again It will also not be possible to withdraw an opt out if an action has already been instituted in one of the national courts In light of the above, it is important for companies which have European patents which are currently in force, to review their European patent portfolio during the next three months to determine whether they wish to opt out of the UPC’ s jurisdiction for some or all of their relevant European patents, prior to the UPC coming into force on June 1

PayShap bolsters national payments sector

Ashlin Perumall Baker McKenzie

In March 2023, the SA Reserve Bank announced the launch of PayShap, a realtime rapid payment platform that is aimed at offering safer, faster and significantly more convenient payment options for South Africans PayShap is the outcome of an industry-spanning collaboration, driven by BankservAfrica, the Payments Association of SA and the South African banking community, with the aim of modernising the national payments industry It is rooted in the Bank s Rapid Payments Programme, as part of its Vision 2025 strategy to reform the South African national payment system framework

The Bank has noted that PayShap will ultimately offer a cost-effective, instant payment service across banks, a proxy service to embed user banking details, a request to

pay service, as well as support for several known retail payment use cases The service also addresses gaps in the interoperability of banking payment systems by implementing a transactions cleared on an immediate basis payments platform

One of the more tangible benefits for day-to-day users will be the reduction in information that will be required for payments In its initial phase, PayShap users will be able to access its real-time payment feature to pay recipients instantly, using either their banking details or by proxy via a unique identifier called a ShapID

A person s ShapID could, for example, be a cellphone number or a bank-generated identification number, used as a proxy for their full banking details These IDs are far easier to share and use than, for example, the cumbersome details needed for electronic funds transfers, which still require manual inputs of

information such as branch codes, and the payee ’ s name and account details

Given that PayShap is a sector-wide project, it is also far more accessible to a wider range of South African customers, where speed in electronic payments has typically only been available to credit card holders, users of payment solution providers or open banking providers, for example PayShap also aims to reduce the use of cash for small transactions, an important step in an economy such as SA s

Recent estimates in a 2020 Worldpay Global Payments Report indicate that more than half of global payments are still cash based, and in the informal economy this shoots up to almost 90% At launch, it has been stated that PayShap will process real-time clearance of lowvalue transactions to a maximum value of R3,000

The next phase of the service will see the launch of a

request-to-pay function, which will allow users to initiate a request for payment and then securely receive funds almost instantly into their bank account PayShap uses a push payment system rather than a debitpull , meaning that the payment recipient in the system will maintain control of receiving the payment, making transactions safer and more secure

Payments will be processed by BankservAfrica, which is primarily an automated clearing house The service will be cheaper than the usual banking transactions

The implementation of PayShap will also improve adherence to global best practices for financial communication Last year, the Bank, participating banks and other financial markets infrastructures adopted the International Organisation for Standardisation financial messaging standard (ISO

20022) for high-value payments in the domestic market, and the PayShap platform is fully ISO 20022 compliant ISO 20022 financial messaging provides structured and data-rich communications that are more readily exchanged among corporates and banking systems

By 2025, most major reserve currencies will have moved to ISO 20022 as it becomes the de facto messaging standard for these types of transactions Being part of this global harmonisation will bolster SA s ability to participate in this wider ecosystem as it emerges

The introduction of the

PayShap platform comes at an exciting time in the South African payments industry, which has become one of the largest subsegments of the fintech industry on the African continent This development signals a progressive approach by local policymakers, together with the industry, and will hopefully lead to more dynamism in the sector and wider access to the country s fintech products and investment opportunities, while keeping in step with the growing demands of international standards

It is also, however, a potential disruptor in the fintech sector, where some successful fintech ventures have built their payment products in the gaps of the traditional banking digital payments infrastructure

It remains to be seen whether the introduction of PayShap will influence any consolidation of players in an already saturated payments industry

• Portfolios will have to be reviewed before shared jurisdiction applies in many of the member states

ONE OF THE MAIN ADVANTAGES OF THE UPC IS THAT PATENT ENFORCEMENT CAN BE SIGNIFICANTLY SIMPLIFIED

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THIS DEVELOPMENT WILL HOPEFULLY LEAD TO MORE DYNAMISM IN THE SECTOR AND WIDER ACCESS TO LOCAL FINTECH PRODUCTS

BEAR IN MIND THAT AN OPT-OUT REQUEST CAN ONLY BE MADE IF NO ACTION HAS YET BEEN INSTITUTED BEFORE THE UPC

BUSINESS LAW & TAX

ChatGPT and privacy law

TRUE TO LIFE?

Ahmore Burger-Smidt

Werksmans

ChatGPT is an OpenAI developed artificial intelligence (AI) chatbot which has been programmed for advanced conversational capabilities It can answer questions and assist users with composing essays, emails and even writing code in response to certain inputs

There has been a great buzz about ChatGPT over the past couple of months quite remarkable, since it was only launched on November 30

Perhaps of great significance to ChatGPT’ s meteoric rise has been the fact that it is open for public usage free of charge This is mainly because the service is still in its research phase, and although that may seem attractive for users it also means that ChatGPT is collecting a significant amount of data and personal information

ChatGPT is enabled by its language model A language model is a probability distribution over a sequence of words One example of this is predictive text which allows your device to predict the next word or even complete a sentence for you when typing a message or email This function allows language models to learn from text and

gain the capability to produce original text, predict words or sentences, and recognise speech

To function effectively and improve, the language model requires a large volume of data The more data the AI is fed the better it becomes at detecting patterns, anticipating text and speech, and creating new text and speech, among other functions

OpenAI supplied ChatGPT with more than 300-billion

words mined from the internet Sources include articles, blogposts, online reviews and comments To give an example of the scale of data required for AI models, the entirety of English Wikipedia (about 6-million articles) made up only 0 6% of the data required to “train” ChatGPT

Further, user prompts or inputs to the service along with other background data such as IP address, browser type and settings and

behavioural data, also contribute towards improving ChatGPT This raises issues around personal information and data protection In light of the Protection of Personal Information Act 4 of 2013 (Popia), some of the main concerns that ChatGPT raises include:

● Further processing OpenAI uses data, including personal information, to “train” ChatGPT and improve its functionality This begs the question whether data subjects, especially where their information is not publicly available (that is scraped from the internet), have consented

to such actions;

● Data retention ChatGPT records and stores every input or message a user provides to it without an option of erasure/deletion;

● Information quality ChatGPT has been alleged to

CONSUMER BILLS

spread misinformation by responding to factual questions in misleading or inaccurate ways; and

● Data subject access rights there is currently no process available to data subjects to exercise their participation rights as envisioned in the Protection of Personal Information Act

The advent of ChatGPT and, indeed, other AI chatbots calls for data subjects to be more prudent with the information they share online This may include making one ’ s social media account private However, where providing information onto a

public platform is unavoidable (online reviews, comments and so on) this will call for policymakers and lawmakers to start developing frameworks for AI use incorporatimg the right to privacy AI will only become more consumer facing Therefore, its effects on data subjects and consumers more generally must be controlled by effective regulation Without sufficient protection to data subjects who are subject to AI, policymakers, lawmakers and regulators will run the risk of falling further behind Big Tech and AI developers on data protection

Changing times call for new insurance concepts

In recent years there have been major developments in the way in which insured risks are underwritten by insurers and reinsurers

The increasing frequency of severe natural catastrophes and increasingly sophisticated artificial intelligence (AI) are playing a major role in the underwriting decisions of insurers Huge losses from catastrophic weather events and the generosity of the courts in providing Covid-19 cover for the consequences of a pandemic under an extension intended for local events have battered the industry

A good example of natural catastrophe consequences is the weather events is Florida in the US where frequent, destructive hurricanes have resulted in failed insurers,

insurers who no longer offer property damage cover and the state of Florida itself offering reinsurance backing to try to preserve the available insurance capacity

Besides some major risks becoming more difficult to insure or more costly to do so, the number of general exclusions in risk policies has grown Policies now generally exclude contagious disease cover, cyber risk that is not specifically insured and, more recently in SA, electricity grid failure No prudent insurer can take on

the risk of huge widespread and concentrated losses

AI has made insurers far more intelligent in regard to the risks they underwrite Good AI can accumulate climate data, health behaviour and driving patterns, for instance The more information insurers are able to gather in regard to the risks they underwrite, the more they will be able to select the good risks and reject the bad risks

These developments have cut across the basic principle of insurance The principle of insurance is that the risks of the many are pooled to cover the losses of the few When the many outnumber the few, premium income cannot sustain the consequences

Two things can be readily foreseen First, unless the insurers come up with

solutions, some types of insurance, like motor insurance, will ultimately have to recognise the principle already embodied in health risk cover provided by medical schemes, namely community rating Motor insurers may be obliged to take the good with the bad albeit with exclusions for reckless behaviour Perhaps the added cost of owning a vehicle will include compulsory comprehensive or liability cover similar to the situation many years ago where each motorist bought a disc annually to provide cover for personal injury claims arising from motor accidents

Second, in the commercial world, more flexibility is needed by the tax authorities and the auditing world applying IFRIS to risk

management

As it becomes more and more difficult for major enterprises to secure cover economically for a growing list of very real business risks, they are turning to what is sometimes referred to as contingency policies

These policies allow the enterprise to pay large premiums to insurers to be expertly invested and controlled by the insurers who carry a small share of the risk and held against the uncertain risk of major

TO COVER THE LOSSES OF THE FEW

uninsurable losses A refund or rolling over of any unused premium follows at the end of the insurance period Tax and auditing authorities frequently label these essential risk management tools as investments rather than insurance, with adverse tax consequences That attitude needs to be revised entirely There is no reason why these risks cannot be insured with the encouragement of the authorities

Insurance concepts, which were developed from the discussions of merchants and shipowners in the late 1600s in Lloyd s Coffee House in London, need to move fast in these fastmoving times

● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright

THE PRINCIPLE OF INSURANCE IS THAT THE RISKS OF THE MANY ARE POOLED

• Advent of AI chatbots calls for data subjects to be more prudent sharing information online

CHATGPT HAS BEEN ALLEGED TO SPREAD MISINFORMATION BY RESPONDING TO FACTUAL QUESTIONS IN MISLEADING OR INACCURATE WAYS

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THE ENTIRETY OF ENGLISH WIKIPEDIA (ABOUT 6-MILLION ARTICLES) MADE UP ONLY 0.6% OF THE DATA REQUIRED TO ‘TRAIN’ CHATGPT

Tax incentive not enough for solar uptake

• The maximum solar panel rooftop rebate is not really accessible for most households

Ziyaad Moosa PKF Octagon

The much-hyped solar panel rooftop tax incentive for individuals, announced in February’ s budget speech, kicked in at the beginning of this March, which means taxpayers can claim the rebate on assessment for the 2023/24 tax year

The jury is, however, out on exactly how popular this will be, with upfront costs of installing the costly panels a major hurdle, while nonprovisional taxpayers will have to wait a good 18 months before they see their rebate

Coupled with this are the equipment shortages in the market, with taxpayers having long lead times before being able to secure the equipment and then finding an installer to fit the system

The industry is getting innovative, allowing for leasing options and repayment via instalment for those who qualify for financing, but the delays and costs are creating stumbling blocks

According to the budget, registered taxpaying individuals can get a rebate of 25% of the cost of new and unused solar panels (excluding inverter and batteries and other charges), which is limited to R15,000 per individual

It will be allowed for panels brought into use for the first time in the period March 1 2023 to February 29 2024 To qualify for the full rebate, a

where we may go in SA after an incentive at the 25% mark

money on bills as a reason

household would probably have to purchase somewhere between 15 and 20 panels at a cost of R60,000 for the panels The full system cost of a solar installation that would support this many panels would be about R220,000

The experience of other countries is illuminating on

It is notable that US President Joe Biden is also pushing bigger solar incentives to help address climate change US legislation, passed last year, provides for a 30% solar tax credit – a healthy increase from the 26% for solar installation costs before Surprisingly, residential solar only occupies a small part of overall electricity provision in the US (3%), but it is rising fast –by 34% to 3 9GW in 2021 compared to 2020 Many US states also give additional tax credits for installing solar Pew Research notes that the high cost of solar panels –they have increased recently due to supply chain constraints – remains a hindrance It says even with the new federal tax credit – and other available incentives, including state tax incentives – home solar panels are expensive

However, when asked about possible reasons for installing solar panels, almost all homeowners who have installed them or considered doing so (92%) see saving

Most homeowners who said they’ ve installed or are considering installing solar panels at home said helping the environment was a motivation for doing so (81%) About six in 10 (59%) said they did so because it would be better for their health and their family’ s health Another 64% cited solar investment tax credits as a reason

At the end of the day, it is expected all these factors will combine to see a major drive to solar in the residential space over the next 10 years in the US

I am not sure the same will be true in an emerging market such as SA, where installations and running costs will be a far bigger disincentive This is why the incentive in SA is likely to be too low to see a huge sea change over the next 10 years especially in the middle and lower classes

Let’ s look at the numbers

In SA, a solar system that can take advantage of the full R15,000 rebate will cost upwards of R200,000 For

those households that can afford to fork out large sums of money to get off the grid a typical 8kW system will probably only allow them to qualify for R10,000 off the rebate and not the full R15,000

So the maximum rebate is not really accessible for most, deeming the incentive rather lacklustre Notably, it applies only to the panels and does not include the fitting and installation costs, battery and inverter costs, another drawback when compared with other countries

Questions remain on how easy it will be to administer and get the rebate through without getting mired in red tape I don’t think this will be an administratively easy process For instance, during Covid-19 it became difficult to claim for work from home expenses Sars subjected these claims to extensive audits and several taxpayers were audited until they gave up Taxpayers will not forget that and I hope there won t be similar challenges with this

This is also not an incen-

tive that can be claimed upfront Instead, individual nonprovisional taxpayers will need to wait until after the tax year to claim back

So, on the whole this could have gone a lot further to help the average, cashstrapped and energy-depleted household in SA

By contrast, the 125% deduction for business is a much better and more practical incentive Between March 1 2023 and February 28 2025, businesses will be able to claim a deduction of 125% in the year in which a renewable energy project is brought into use These projects have no thresholds on generation capacity

It is a pity the individual incentive to go off the grid was not more appealing However, it is possible the incentive is increased in future, like in the US

The Treasury may need to go further on the cost problem by relooking the duties on costly imported solar panels if we want household solar to see the light in SA over the long term

Proof key factor in misconduct dismissals

Dhevarsha Ramjettan & Dumisani Ndiweni

Webber Wentzel

The labour appeal court has ruled against an employer s reliance on collective misconduct for shrinkage in an unfair dismissal case, reinforcing the importance of evidence and the burden of proof placed on the employer

The concept of collective misconduct applies when employers address misconduct involving many employees However, it may be difficult to prove collective misconduct because employers often fail to rely on appropriate evidence This was the case in SACCAWU & Others v Cashbuild (Pty) Ltd

Cashbuild dismissed 12 employees, who held various positions, from their Klerksdorp branch The dismissals resulted from stock shrink-

age, which was detected during a stock-take in January 2016 Further stock shrinkage was revealed during stock-takes in February and March that year

To address the issue, Cashbuild conducted a shrinkage workshop wherein the employees were interviewed and given a questionnaire to complete indicating the cause of stock losses

They were also encouraged to use an anonymous tip-off line to report future incidents that might contribute to shrinkage concerns

The employees were issued with final written warnings, valid for 12 months, for failing to control shrinkage collectively or individually Despite these interventions, in June 2016 a further stock shrinkage was identified Cashbuild conducted another shrinkage workshop

This time, the employees identified various deficiencies in Cashbuild s approach towards monitoring or preventing shrinkage, including staff shortages; the absence of an end controller stationed at the exit of the store; the lack of adequate controls at the stock receiving section; control of keys to the receiving area; and the malfunction of the CCTV system Despite these discrepancies, Cashbuild charged the employees with collective and/or team misconduct, which resulted in their dismissal

ACCOUNTABILITY

The employees referred an unfair dismissal dispute to the CCMA The commissioner found that the employees contravened the employer s rules and failed to report what they saw to be irregularities The employees tried

to deny their conduct contributed to loss of stock and sought to implicate others in the questionnaires Their refusal to take accountability was found to have exacerbated the problem Their dismissals were therefore found to be both procedurally and substantively fair

Still aggrieved, the employees referred the arbitration award to the labour court on review However, the labour court upheld the award as reasonable

The employees appealed against the decision to the labour appeal court (LAC)

The LAC explored the four different approaches to collective misconduct: common purpose, team misconduct, derivative misconduct and situations where individual culpability cannot be determined Cashbuild had relied on team misconduct, alleging

that the employees, as members of a team, had failed to adhere to its rule meant to prevent and halt shrinkage at the store However, the LAC found that Cashbuild failed to present adequate evidence of the details of the systems and controls in place at its Klerksdorp store to prevent stock losses For example, no evidence was presented on any attempt to ascertain how stock was being lost or the size of the store Having considered the evidence available to this extent, the LAC found that the size of the store meant that employees in one section of the store would have been unaware of stock being lost in another section Had Cashbuild taken care to secure evidence of its attempts to determine how the stock was being lost, the LAC might have reached a different finding However, as

a result of the inadequate evidence presented by Cashbuild, the LAC found that the dismissals of the employees were unfair It ordered retrospective reinstatement with backpay

This case highlights the importance of employers being cautious when they embark on disciplinary measures under the umbrella of collective misconduct Employers must obtain and assess the evidence properly before electing which approach to take

Failure to consider the nature of the evidence adequately may result in the employer adopting the incorrect approach and presenting insufficient evidence, thus failing to prove the misconduct This failure could lead to unfair dismissals and potential unnecessary legal action from employees

IN SA, A SOLAR SYSTEM THAT CAN TAKE ADVANTAGE OF THE FULL R15,000 REBATE WILL COST UPWARDS OF R200,000

LRA ‘shield’ invoked as a sword

Henry Rossouw & Claire Nolan ENSafrica

The purpose of section 197 of SA’ s Labour Relations Act, 1995 (LRA) is to protect and maintain employment in circumstances where a transfer of business takes place

In terms of section 197 and section 197B(1)(b), a “transfer” means the transfer of a business by one employer (the old employer) to another employer (the new employer) as a going concern In Nehawu v University of Cape Town & Others, the Constitutional Court stated that section 197 of the LRA has a dual purpose “it facilitates the commercial transactions while at the same time protecting the workers against unfair job losses”

The primary aim of section 197 is to ensure job losses do not occur simply as a

result of one business being transferred to a new owner

The default position is: if you want to take ownership of a business, you also get the employees who come along with that business as an automatic consequence of the transfer of ownership

However, in the recent case of Numsa obo Members and Others v AIH Logistics

certain of its employees to Blacksuits (Pty) Ltd, relying on section 197 to ensure the transfers took place It was envisaged that, after this transfer, the employees would perform the same functions for AIH, but as employees of Blacksuits

there was no sale or lease of tools or transfer of assets; and AIH had retained meaningful control over the employees

(Pty) Ltd and Another, Witcher J considered the intricacies of applying section 197 in an unusual situation

In this case, AIH Logistics

(Pty) Ltd sought to transfer

The applicant employees opposed their transfer to Blacksuits and approached the Labour Court for relief They argued that the purported transfer was a sham “to get rid of them” and that there had been no real transfer of a business as a “going concern ” They argued that the business that had allegedly transferred continued to operate in exactly the same way as it had prior to the transfer but, crucially, this business had not “changed hands” as was required by section 197

Additionally, no price had been paid for the transfer; Blacksuits was making rentfree use of AIH’ s premises;

As a result, the employees sought a remedy setting aside the purported transfer and restoring the status quo that applied before the transfer

Witcher J held that, in order for section 197 to apply, there need not be a transfer of all assets and personnel from the old to the new employer; however, in a true arm ’ s length transfer of business, what should be transferred are those assets and personnel essential to the business

She held further that, considered properly, the purpose of the transaction between AIH and Blacksuits in this case was actually to shift employees from one entity to another and not to transfer a business Therefore, Blacksuits was not in possession of

a going concern after the transfer, but rather in possession of the right to perform certain limited HR timemanagement and disciplinary functions for AIH

This is hardly an indication of a true transfer of a business

Witcher J ultimately found that the transfer of the employees was not one that fell within the prescripts of section 197, and ordered that the position between AIH and the employees prior to the transfer be restored

This case serves as a reminder that whether section 197 applies to a particular transaction or transfer is entirely fact-specific and each case has to be judged on its merits Further, the court makes it clear that section 197 is certainly not a vehicle employers can use to try to rid themselves of certain employees by purporting to

transfer a business to a new employer

Judge Witcher specifically noted in her judgment that section 197’ s primary function is the protection of employees’ rights, specifically their right to continuity of employment As such, the business should be capable of standing on its own two feet following the transfer, otherwise employee jobs could be in jeopardy if the business to which they transferred ended up having no substance to it

Employers should be cautious when seeking to utilise section 197 to shift employees to a purported new employer Failing to scrutinise potential section 197 transfers could see the purported transfer and its automatic consequences (including the transfer of employment of affected employees) reversed, as was the case here

Outlook seems grim for falling jobless rate

Jonathan Goldberg & Grant Wilkinson

Global Business Solutions

At the end of February, the results for Q4:2022 of the Quarterly Labour Force Survey (QLFS) were released by Statistics SA These revealed a slight reduction in the country s unemployment rate The official unemployment rate experienced a 0 2% decline, dropping from 32 9% in Q3:2022 to 32 7% in Q4:2022

Furthermore, the expanded definition of unemployment also witnessed a decrease of 0 5%, falling to 42 6% in Q4:2022 from Q3:2022 As per the survey, the country acquired 169,000 jobs during the period from Q3:2022 to Q4:2022, with a total of 15 9-million individuals being employed in Q4:2022

While these latest results are encouraging, one has to wonder whether or not

these positive levels are sustainable given the current

state of the SA economy

What the SA economy looks like at this point in 2023

At the end of January, PwC released its first South Africa Economic Outlook Report for 2023 which details a number of their analyses

According to PWC s baseline scenario, the rand is predicted to have an average of R16 90/$ this year, in contrast to the mean of R16 37/$ in 2022

The rand is highly vulner-

able to external factors and tends to be unstable This year, political divisions in Washington, DC and local policy changes pose risks to the currency

Additionally, high inflation and rising energy costs on a global scale could cause social unrest and political instability, which decreases interest in emerging market assets such as the rand

Also at the end of January, the SA Reserve Bank made a revision to the country s GDP

growth projection for 2023, reducing the forecast to a mere 0 3% for the year

The Bank has lowered its 2024 and 2025 projections as well, to 0 7% (from 1 4%) and 1 0% (from 1 5%), respectively, by a significant margin

On March 6, GDP figures plummeted to levels last seen in the third quarter of 2021 The next day, Stats SA released figures showing a decline in the fourth quarter

The central bank attribut-

ed the downward revision to the severity and prolonged nature of load-shedding in the country, stating that rolling blackouts have caused a two percentage point decline in the annual growth projection

Even though R5bn worth of solar panels were imported into the country in 2022, up from about R4bn the year before, this could be too much too late as the cost of these back-up energy solutions remains prohibitive

The impact on the employment will be felt especially in the domestic sector with minimum wage increases well above inflation

THE BANK MADE A REVISION TO SA’S GDP GROWTH PROJECTION FOR 2023, REDUCING THE FORECAST TO

Given this economic backdrop will unemployment rates continue to fall?

Ultimately, it will depend on the size and nature of the business And, more importantly, whether or not their customers still have the where-with-all to purchase from them

The latest liquidation figures for SA, released by Stats SA, don t look good These indicate that company liquidations increased by more than 30% year on year in December 2022, although the overall number of closures for the entire year was slightly lower than the previous year Stats SA reported that there were 159 liquidations in December 2022, a rise of 30 3% compared to December 2021

The outlook for job growth looks grim and, unfortunately, the predictions could well be that in 2023 the economy will continue to lose jobs Hopefully this does not turn out to be the case

• Judge finds against use of ownership transfer simply to move employees to new entity

NO PRICE HAD BEEN PAID FOR THE TRANSFER; BLACKSUITS WAS MAKING RENT-FREE USE OF AIH’S PREMISES

/123R FRINAMONS

/123RF LIGHTWISE

BUSINESS LAW & TAX

ESG no longer a pleasant nice-to-have

Verushca Pillay

Baker McKenzie

Environmental, social and governance (ESG) has been incorporated into PE funds’ general investment considerations for several years now, but it’ s fair to say that it is no longer a nice-to-have Projects focusing on clean energy, community healthcare, green transport, sustainable water, wildlife protection and low-carbon developments, for example, are attracting much attention Investors have been prioritising investments that meet acceptable ESG standards Energy efficiency, staff training and qualifications, greenhouse gas emissions, highest standards of governance and best business practices, social impact and litigation risks are some factors they have been considering

Alongside the increased equity investor focus on ESG, some lenders are also prescribing particular ESG principles that a company must meet to receive funding

There have been, among other things, ongoing concerns about the extent to

Empowerment Commission publishes an BBBEE trends report that considers, among other things, whether there has been an improvement in black ownership of assets in the country

Its report for 2021 showed a decline in compliance and a drop in black ownership of businesses

The ownership information was based on data derived from annual compliance reports submitted to the commission by JSE-listed entities, organs of state and public entities, and verifications certificates voluntarily submitted by verification agencies

state of affairs is actually unclear

The commission also highlighted that a potential cause could be the effect of the Covid-19 pandemic and that it would conduct a separate investigation into this

of BBBEE violations by establishing a specialised tribunal

which broad-based black economic empowerment (BBBEE) implementation has made a meaningful change to the representation of black people in the economy

Each year, the BroadBased Black Economic

However, the commission indicated that there had been a decrease in the submission of compliance reports and that its report was not based on sufficient information

So while it has indicated there has been a decline in black ownership, the true

It also expressed the view that a contributing factor to the noncompliance is the fact that the BBBEE Act does not provide for consequences in the event of noncompliance with reporting requirements

As a result, the commission has recommended that the BBBEE Act be amended to include administrative penalties and criminal sanctions for noncompliance

Separately, it also wants to provide speedier resolution

TAXING MATTERS

The amendments suggested by the commission are not expected to have an effect on investment in SA They are fairly limited in nature and aimed at compelling compliance with the regulations and also resolving BBBEE disputes more quickly

If other amendments are proposed, one would have to consider the potential impact on investment

Generally speaking, investors are already well prepared for black ownership requirements when investing in SA In fact, it is seen as a positive by most investors who prioritise sustainability

A study conducted by Ruhr University, namely ”The Impact of Black Economic Empowerment on the Performance of Listed Firms in South Africa” (Bussea et al), examined how BEE affects turnover, profit and labour productivity of companies listed on the JSE

Overall it was found that BEE had a positive impact on firms’ turnover and a positive but not robust effect on labour productivity

BEE is a particularly SA ESG factor which continues to require sustainable forms of implementation to have an effect and to in turn assist businesses to increase their turnover and ensures that they are sustainable

Check that letters of personal liability are lawful

Under Commissioner Edward Kieswetter’ s tenure, the SA Revenue Service (Sars) has made significant strides in reversing the breakdown in control, systems and enforcement that took place under Tom Moyane A division that has exceedingly improved in discharging its mandate is the criminal investigations and debt enforcement department Over the past few months, many tax practitioners who deal with corporate clients tax debts have received notices issued to company directors or senior financial management to indicate that Sars intends to hold those persons personally liable for the corporate taxpayer s debt

Such a personal liability is a statutory exception against the principle that company directors and shareholders cannot be held personally liable for company debt (apart from, of course, where the Companies Act

specifically provides for such liability)

However, a closer reading of section 180 in the Tax Administration Act, No 28 of 2011, suggests that Sars may be overstepping and attempting to hold persons accountable where the necessary legislative requirements have not been adhered to

Principle to their overreach is that section 180 requires, before any personal liability, that a person acted negligently or fraudulently In terms of criminal law principles, the conduct of either negligence or fraud has different elements and tests Sars’ approach in their notices is to indicate that

“ person X has acted negligently and/or fraudulently” Such a statement is extremely vague and suggests that Sars has no evidence of a person s conduct Alleging negligence and/or fraud, as opposed to statutory negligence or fraud, is clearly an attempt to utilise a provision where the facts do not support such a case Sars cannot commit to a specific behaviour simply because they do not have the facts to support that behaviour Although in most instances, the burden of proof in tax matters is on the taxpayer, one can argue strongly that either negligence or fraud is a behaviour Sars must prove

Moreover, section 180 provides for the personal liability of a person who controls or is regularly involved in managing the overall financial affairs of a taxpayer Such liability can be attributed to a person only to the extent that any negligence or fraud by that

person has resulted in the failure to pay a (taxpayer s) tax debt This suggests that if the mentioned behaviour is found to be present, some attribution would have to be made that links the behaviour to the failure to pay the tax debt

Another overreach is the information Sars requests as part of the personal liability notice Typically, these include financial statements, bank statements, management accounts and other similar company documents Those documents do not belong to the relevant individual to whom the notice was issued, and the individual would likely be in breach of contract with their employer should they divulge the information

The appropriate person Sars should request this information from is the relevant assigned public officer Sars confuses the principles as contained in section 46 of the TAA

relating to the power to request relevant information from a taxpayer or another person, with those in section 184 relating to representations where Sars intends to hold another person responsible for the tax debts of a taxpayer

In terms of section 46(1), Sars may, for the purpose of administering a tax act in relation to a taxpayer, require the taxpayer or another person to, within a reasonable period, submit relevant material that Sars requires Section 46(3) provides that a request by Sars for relevant material from a person other than the taxpayer is limited to material maintained or kept

ONE CAN ARGUE STRONGLY THAT EITHER NEGLIGENCE OR FRAUD IS A BEHAVIOUR SARS MUST PROVE

or that should reasonably be maintained or kept by the person in relation to the taxpayer

None of the information requested from the person is generally material that is maintained or kept or that should reasonably be maintained or kept by that person in their capacity

Accordingly, the request must be directed at the relevant taxpayer, not the person in their own name

Taxpayers and their representatives should carefully study letters of personal liability in the context of the provisions of the Tax Administration Act

While full compliance and assistance are always encouraged, it must be done in line with the relevant legislative requirements

● Pieter Janse van Rensburg is a director at AJM Tax He also serves as a nonexecutive director on the board of the South African Institute of Taxation

• Noncompliance with reporting requirements leads to skewed view on black-owned businesses in SA

THE AMENDMENTS SUGGESTED BY THE COMMISSION ARE NOT EXPECTED TO HAVE AN EFFECT ON INVESTMENT IN SA

BUSINESS LAW & TAX

Spotlight falls on illicit activity

• Habib Overseas Bank was flagged for alleged exchange control contraventions

Evan Pickworth Business Law & Tax Editor

The recent decision by finance minster Enoch Godongwana, based on a recommendation by the central bank’ s Prudential Authority (PA), to place Habib Overseas Bank under

curatorship, is a welcome case of the regulators flexing their legal muscle Habib, of course, was famously a buyout target of Gupta associates after many banks put the Guptas on ice

For the past four years, the PA has been reviewing it closely and has found many compliance holes

One area flagged relates to exchange control In this regard, and in line with the more aggressive regulatory stance, the recent case of Singh v South African Reserve Bank [2023] ZAGPPHC 112, is informative

In this case, the head office of Bidvest Bank made a report to the financial surveillance department of the Reserve Bank concerning alleged transactions suspected to be in contravention of the Exchange Control Regulations The head of the PA

wrote to the bank regarding R80m moved to Mr Singh’ s Absa account and that it was extremely unlikely that a one-man attorney in Pietermaritzburg would have been able to make those profits from his attorney business

BLOCKING ORDER

The Reserve Bank is, of course, vested with the power to recover capital exported illegally and the law is on its side in terms of Regulation 22A the Bank can issue a blocking order relating to

VIEWPOINT ARICA

tainted funds and in terms of Regulation 22C untainted funds can even be blocked

That may sound severe but when the extent of these transactions are measured, it is quite a clever provision to cover when amounts in excess of those already blocked need to be recovered

In the matter, Singh was unable to give a plausible explanation as to the source of the R80m transferred from his account held at the State Bank of India into several of

his other accounts

The source is still being investigated by the Reserve Bank and should a further contravention be revealed it would be entitled to recover funds in excess of those already blocked

The law is getting sharper at helping investigate and track illicit activity With Africa becoming a veritable playground for launderers (the recent Al Jazeera documentary on the gold mafia refers) this can only be a good thing

Namibia aims to keep it local with green energy

Rewaldo Quest & Nicole Tjitendero ENSafrica

Namibia’ s emerging green energy industry has the potential to create thousands of jobs and contribute billions to the country’ s GDP

In November 2022, the Namibian government released the Namibia Green Hydrogen and Derivatives Strategy Report (GH2 report) which drew significant attention from locals, who are anticipating the development of legislation for Namibia’ s green hydrogen sector

The GH2 report captured ambitious local content aspirations, such as creating local employment of up to 80,000 additional jobs and creating local manufacturing industries that will produce the components required to produce and transport hydrogen and CO2, together contributing up to $6bn to GDP, 30% more than 2030

GDP estimates

Despite its expressed political willingness and expressed local content aspirations, if the current local content policies (LCPs) which comprise all legislative and regulatory instruments, policy tools, contracts and licensing arrangements imposed by the government that require firms to purchase and to use input goods and services available locally is not investigated, then the current LCPs will not yield the expected socioeconomic returns

Policymakers have a crucial role to play to ensure the echoed local content aspirations are achieved, particularly to localise linkages to create local value chains The current LCPs model utilised in other extractive sectors, such as mining and petroleum, does

not create sufficient confidence that Namibians will benefit The LCPs model has yet to yield the expected socioeconomic development objectives as envisaged in the Strategic Plan 2017-2022 of the ministry of mines and energy

MINING

In the mining sector, section 50 of the Minerals (Prospecting and Mining) Act, 1992 contains certain general terms and conditions that form part of all mineral licences, which fall within the scope of LCPs:

imposed by the minister on licences in terms of section 48 (4) of the Minerals (Prospecting and Mining) Act form the legal basis on which LCPs can be established and facilitated in light of localising linkages Put differently, the minister may use information gathered from mining licence applications to impose certain terms and conditions on licences that may lead to the establishment of local linkages

PETROLEUM

Namibians is broad and does not single out a particular community in close proximity to energy generation plants, which makes it difficult to assess the socioeconomic impact of local content efforts channelled towards them Policymakers must at the onset define what “local” is to determine who the beneficiaries of the LCPs are Once the beneficiaries of the LCPs are defined, certain LCP criteria must be considered

previously disadvantaged Namibians must hold between 5% to 15% shareholding in mining companies More efforts to redress injustices are captured in the Namibia Investment Promotion Act, 2016 and the New Equitable Economic Empowerment Framework; however, the promulgation of the aforesaid has been halted

consequence of linkages

● The employment of employees, give preference to Namibian citizens who possess appropriate qualifications, expertise and experience for purposes of the operations to be carried on in terms of such mineral licence;

● Carry out training programmes to encourage and promote development of Namibian citizens employed by such holders;

● With due regard to the need to ensure technical and economic efficiency, make use of products or equipment manufactured or produced, and services available, within Namibia; and

● Co-operate with other persons involved in the mining industry to enable such citizens to develop skills and technology to render services in the interest of that industry in Namibia

These conditions and any other condition that may be

Similarly, in the petroleum sector, section 14 of the Petroleum (Exploration and Production) Act, 1992 contains the very same general terms and conditions that can be imposed on licences, as found in the Minerals (Prospecting and Mining) Act, 1992, which can also be described as LCPs The minister may, in addition to the prescribed terms and conditions, impose these conditions and further ones on petroleum licences to initiate the facilitation of local linkages in the petroleum sector

GREEN ENERGY

There are no LCPs legislated for in the emerging green energy sector yet; however, if the LCPs model is used when formulating LCPs for the emerging green energy sector then policymakers must assess the success rate of the LCPs model in the mineral sector and the petroleum sector and make the necessary modifications to improve the LCPs model success rate

CONSIDERATIONS FOR POLICYMAKERS

The word or reference to local must be clearly defined The minerals act refers to Namibians as the beneficiaries of LCPs However, the reference to

The local content criteria must be established There are four types:

● Geographical location;

● Value addition;

● Ownership; and

● Redress of injustice

The geographical location criterion is concerned with the physical location of the business, in particular, the registration of businesses locally

The value addition criterion is satisfied if there is local value addition and the inputs to produce and services are not simply imported but such inputs are sourced locally

The ownership criterion is satisfied if the locals own a certain stake in extractive industry companies and derive certain capital benefits or profit shares

The redress of injustice criterion is satisfied when previously disadvantaged Namibians are made to benefit from extractive industry projects

The LCP criterion features in various local content initiatives For example, with regard to the ownership criterion, an initiative was taken to establish Epangelo Mining Company (Pty) Ltd to hold shares in mining companies on behalf of the state In relation to the redress injustices criterion, the ministry of mines and energy regularly imposes conditions on licences that

Research shows that Namibia relies heavily on local content, the ownership criterion as discussed above and the geographic location criterion The geographic location criterion is satisfied when businesses that supply foreign input capital goods and services are merely registered in Namibia

This also means registration of businesses in Namibia is sufficient to satisfy the LCP condition relating to the “ use of products or equipment manufactured or produced, services available within Namibia No further local content inquiry is made to screen the goods and services provided by businesses to ensure they are locally produced

An assessment of the percentage of inputs that are locally acquired by businesses or, if in the service industry, what percentage of the production is processed, must be done

Further assessment must be done to assess to what extent value is added locally and to what extent domestic value is added into inputs or outputs from other related sectors, as a direct

When it comes to the ownership criterion, the acquisition of shares in companies by the state does not necessarily yield dividends; specifically, if the company is still in the development stage and most funds are used for the development of the project The use of dividends is also not legislated for, in regard to channelling the same towards socioeconomic development objectives

The local content policies must be made more quantitative than qualitative

Most mandatory local content requirements imposed on licensed mining and petroleum companies are qualitative rather than quantitative, which is problematic because those local content requirements are vague and broad and compliance with the same is not strict Reporting on qualitative local content requirements is easier and less onerous

However, quantitative local content requirements have prescriptive binding targets in terms of volume or value: the number of local employees to be employed and the number of local suppliers to procure from Through the implementation of quantitative local content requirements, companies can easily be kept accountable compared to qualitative local content requirements

The Namibian government, through its policymakers, must carefully study each project and its commercial case and impose the quantitative conditions on licences or in agreements to ensure that socioeconomic development objectives are achieved

● Reviewed by Wolf Wohlers, an Executive at ENSafrica in Namibia

MUST DEFINE WHAT ‘LOCAL’ IS TO DETERMINE WHO THE BENEFICIARIES OF THE LCPS ARE

Trends in cross-border tax in Africa

Michael Hewson Graphene Economics

In 2022/23, the business world has moved on from predominantly being concerned with Covid-related matters to broader issues, ranging from global tax reform to new technologies and their implications

The 2022/23 report by specialist African TP advisory firm Graphene Economics seeks to explore some of these themes, including information derived from its second annual Transfer Pricing Matters Survey

Subjects covered include evolving tax regulation, notable cross-border developments on the continent over the past year, and potential challenges and opportunities in 2023 and beyond, as well as perspectives on various topics from Graphene Economics, based on survey results and industry experience

There’ s a lot going on in

the global tax arena, from the proposal by the Organisation for Economic Co-operation and Development (OECD) to address the tax challenges of globalisation and digitalisation to an increase in transfer pricing court cases, and the UN looking to take up more of a leadership role in global tax matters

It’ s important that African countries are not only abreast of these developments but are playing an active role in ensuring the continent’ s interests are represented

For multinational entities (MNEs) operating in Africa, transfer pricing is becoming a priority with CFOs and board members, rather than the

sole domain of the tax department Covid-19 shifted risk models, and crossborder tax is now being recognised as a potentially significant business risk at senior management level

The survey yielded several findings, including:

● Representatives from MNEs listed the three most significant TP trends as 1) increased information sharing between revenue authorities in different countries, 2) more frequent and rigorous transfer pricing audits, and 3) taxation of digital transactions

● There has been a spike in the number of respondents who said their organisation’ s transfer pricing transaction models have changed over the course of 2022 versus 2021 This could be for several reasons:

Businesses are starting to move forward again after pausing many aspects during the height of the pandemic Organisations are responding to the increase in

transfer pricing audits from tax authorities

Companies are re-evaluating their models and changing them as required to meet regulatory requirements and to avoid disputes down the line

There was a significant spike in M&A activity in 2021, so changes to transfer pricing models may also have been in response to this trend

● There are more changes ahead Sustainability and climate change are pressing issues of our times, and as businesses grapple with them, there are sure to be tax implications

Macroeconomic and geopolitical factors will continue to affect economies and therefore MNEs and their tax strategies

We believe that transfer pricing and related issues are likely to remain priorities for revenue authorities on the continent and that the role of the tax function continues to increase in importance with regards to mitigating and managing business risk

We expect increased focus on data collection and management (to a more granular level), and changes to transaction models and

BUSINESSES ARE STARTING TO MOVE FORWARD AGAIN AFTER PAUSING MANY ASPECTS DURING THE PANDEMIC

information sharing processes, and a continuation of the increase in transfer pricing disputes and controversies we noted in 2021

These trends indicate that organisations in which transfer pricing is escalated to the attention of the CFO or board of directors are likely to be better placed to proactively adapt to the changing landscape and to navigate any unexpected events that arise

Our advice to MNEs operating in Africa is to develop a strategy that will enable them to actively manage their cross-border taxes, determining how to achieve the various compliance requirements timeously, and proactively identifying potential issues, rather than after the event

Human connection still the key to success

Lerisha Naidu Baker McKenzie

While it may be tempting to envision, the law firm of the future will not be populated by highly intelligent, unemotional, artificial intelligence (AI) chatbots that render automated legal output based on massive databases of knowledge and repositories of precedent

To me, the sustainability of law firms resides in the humanity they represent If I were to crystal-ball gaze, law firms will be home to a new breed of lawyers who have adapted to operate in a connected world These lawyers will be innovators, oozing passion, dynamism, enthusiasm and authenticity, not afraid to cultivate friendships and camaraderie in business partnerships

They ll explore ways to do things differently, finding practical, innovative solutions for clients, always consider-

ing the social impact of their actions and contributions, and exercising humanity in their practice as lawyers

This people-centric approach applies as much to leaders as to employees

Simply put, human connection is essential in creating

high-performing teams The sense of belonging that comes from real connection is a vital part of creating an inclusive employee experience When employees feel safe and comfortable, they are able to bring their whole selves to the workplace Such

employees are more productive, produce higher quality, more creative work and are less likely to leave

To hone in on our peoplecentric approach, we created a compact for our employees, which outlines our focus on deeper connections at work, home and in the community, the implementation of radical workplace flexibility, a focus on personal growth and the holistic wellbeing of our employees, and a sense of connectedness and shared purpose across all our teams

This inclusive approach also makes good business sense

Likewise, employees want to know they are working in a role that provides not only personal meaning and connection, but that the business is fulfilling its responsibilities to other employees, society and the environment They are increasingly demanding that their employer s activities match

their own personal ideals

This extends to clients, shareholders, investors and other stakeholders, who want the organisations they work with to take a stance on important issues such as racism, sexual harassment, unemployment and inequality

Law firms, like all other businesses, are looking at ways to attract and retain diverse and sought-after talent by redefining policies that are based on the overriding vision of creating happy and fun work environments, underpinned by lived values and enabled through transparent, respectful, diverse and inclusive, connected, solutions-driven and collaborative cultures

And while collaborating with AI tools has become an integral part of the work we do in providing innovative solutions for our clients, it is the strength of our human connection that will allow us to unleash our full potential

• What 2023 may hold for transfer pricing and multinational entities in an evolving landscape

TRANSFER PRICING AND RELATED ISSUES ARE LIKELY TO REMAIN PRIORITIES FOR REVENUE AUTHORITIES

/123RF HAFAKOT

EMPLOYEES ARE INCREASINGLY DEMANDING THAT THEIR EMPLOYER'S ACTIVITIES MATCH THEIR OWN PERSONAL IDEALS

/123RF PITINAN

How to decode ‘specific goals’

new preferential procurement regulations

Pippa Reyburn, Yana van Leeve & Sibongile Sibeko ENSafrica

The government’ s new Preferential Procurement Regulations, 2022 have created uncertainty about how organs of state will identify “specific goals” in their procurement processes

While the regulations do not specifically require the consideration of broad-based BEE (BBBEE), organs of state can still use it as a factor in preference point scoring, along with or instead of other goals such as employment equity, green procurement, and local content and production The regulations give organs of state more flexibility in their procurement policies but they must ensure their allocation of preference points is fair, equitable and transparent

The exclusion of specific reference to the BBBEE contributor status level of tenderers in the 2022 regulations does not prevent organs of state from applying BBBEE as a key consideration in their preference point scoring, but rather allows organs of state to prioritise other “specific goals” in their procurement processes

SPECIFIC GOAL

Under the legislation in terms of which the 2022 regulations were issued, namely the Preferential Procurement Policy Framework Act, 2000, “specific goals” refers to contracting with persons historically disadvantaged by unfair discrimination on the basis of race, gender or disability as well as the long-abandoned Reconstruction and Development Programme (RDP) as

published in the Government Gazette on November 23 1994

One of the main goals of the first democratic government’ s economic policy was the fundamental transformation of SA by diverting the country’ s resources towards socioeconomic programmes aimed at redressing the inequalities entrenched by apartheid law

Through the RDP, the government designed an integrated socioeconomic framework, which prioritised

ORGANS OF STATE MUST APPLY THEIR CHOSEN SPECIFIC GOALS IN A MANNER WHICH IS CLEAR AND ASCERTAINABLE

the development, reconstruction and reconciliation of the new and democratic SA The five key programmes of the RDP were:

1 Meeting basic needs which includes:

● Creating infrastructure for job creation;

● Land and agrarian reform;

● Access to housing;

● Water and sanitation;

● Energy;

● Transport;

● Nutrition and health care;

● Environment; and

● Social welfare and security

2 Developing human resources: through participatory decision making, recognising the importance of cultural diversity, and creating programmes for cultural diversity for the youth, as well as prioritising the development of the education system

3 Building the economy: prioritising the development of the mining, manufacturing and agricultural sectors as well as regional and international trade and co-operation, particularly with regard to manufacturing, security, transport and energy

4 Democratising the state and society: the establishment of democratic institutions and practices; as well as increasing the efficiency, productivity and accountability of the public sector

5 Implementing the RDP: the establishment of RDP structures in local, provincial and national government to ensure implementation of the RDP programmes

By 1996, the Growth, Employment and Redistribution (GEAR) plan had replaced the RDP It jettisoned many of the RDP s initial calls for specific programmes and prioritised the introduction of macroeconomic policies focused on attracting foreign direct investment, increasing

the performance of the manufacturing sector, and the redistribution of wealth

The resurfacing of the RDP 26 years after it was shelved was a result of the predecessor Preferential Procurement Regulations having been set aside by the courts on the basis that the finance minister’ s discretion to regulate preferential procurement is limited

The 2022 regulations give organs of state the choice to align their specific goals with BBBEE or the RDP programmes This provides a chance for organs of state to prioritise transformation and other developmental priorities For instance, they may prioritise developmental and transformative priorities such as employment equity, green procurement, and local content and production We outline these below

EMPLOYMENT

The Employment Equity Amendment Act, 2020 was recently passed by parliament and will come into effect on September 2023

The bill amends the Employment Equity Act, 1998 (EEA) and allows the employment & labour minister to regulate sector-specific employment equity targets

When the bill comes into effect, it will empower the minister, by notice in the

Government Gazette, to set numerical targets for any national economic sector for the purpose of ensuring equitable representation of suitably qualified persons from designated groups at all occupational levels

As such, organs of state can prioritise employment equity by setting minimum employment equity targets for prospective tenderers and scoring them for preference points based on how close they are to those targets

GREEN PROCUREMENT

The Climate Change Bill, 2022 was introduced to parliament by the department of forestry, fisheries & the environment and forms the legal basis for SA’ s response to the global climate crisis

The Climate Change Bill provides that every organ of state affected by climate change or entrusted with powers and duties aimed at the achievement, promotion and protection of a sustainable environment must review and, if necessary, revise, amend, co-ordinate and harmonise its policies, programmes and decisions to ensure the risks of climate change impacts and any associated vulnerabilities are taken into consideration

In addition, the relevant minister must, within one year of the coming into operation of the Climate Change Act, publish a list of greenhouse gas emitting sectors and subsectors that are subject to sectoral emission targets, which must be aligned with the national greenhouse gas emissions trajectory and include quantitative and qualitative greenhouse gas emission reduction goals The Climate Change Bill is still under consideration by the National Assembly, but could, once enacted, serve as a catalyst for green procurement

LOCAL CONTENT AND PRODUCTION

Regulation 8 of the predecessor Preferential Procurement Regulations provided for the

designation of minimum thresholds for local production and content in respect of certain sectors, products or components

When procuring goods and services under those regulations, organs of state were required, in the case of a designated sector, to advertise the invitation to tender with a specific condition only locally produced or locally manufactured goods or services meeting the stipulated minimum threshold would be considered

The 2022 regulations don’t require local content and production, but organs of state can still ask tenderers to source and produce goods and services locally for the contract They can even set aside contracts for people in certain areas to help the local community

CONCLUSION

While the 2022 regulations do not specifically require organs of state to consider BBBEE in their preference points system, reference to the broader concept of “ specific goals” is an opportunity for organs of state to highlight their key transformational priorities in their procurement policies

The obvious concern, however, is the breadth of the RDP and the imperative for measurable goals to ensure that the allocation of points for “specific goals” is fair, equitable and transparent, as required by the constitution It remains to be seen whether the imminent Public Procurement Bill will provide more clarity on the meaning of specific goals to be applied by organs of state

Until then, organs of state must apply their chosen specific goals in a manner which is clear and ascertainable and does not fall foul of other applicable legislation

Also, potential tenderers must carefully consider tender invitations to ascertain whether they can achieve the identified specific goals for that tender

Deadline looms for probe into claims of tyre dumping

Meluleki Nzimande

Wentzel

Webber

The International Trade Administration Commission of SA (Itac) has until July 29 2023 to complete its investigation into whether Chinese tyres imported into SA constitute dumping and harming local manufacturers

While importers may be rejoicing at the news that the 38 33% provisional duties imposed on eight sizes of

tyres imported from China in September 2022 have lapsed, this may be only a temporary reprieve The provisional duties affected tyres for cars, buses and lorries imported into the Southern African Customs Union (Sacu) The duties were imposed for six months pursuant to ITAC s decision to protect the Sacu industry from harm while the anti-dumping investigation is continuing

The South African Tyre Manufacturers Conference (SATMC), representing Continental, Bridgestone, Goodyear and Sumitomo, applied to Itac for antidumping duties to be imposed, alleging that prices at which tyres were being imported from China constituted dumping and that this was causing harm to the Sacu industry, including putting 6,000 jobs in local tyre manufacturing at risk

The Road Freight Association and National Taxi Alliance were, however, unhappy about the effect of the provisional duties on their operating costs

In terms of the antidumping regulations, Itac has a maximum of 18 months to complete the full investigation This period expires on July 29 2023

It is understood that its investigation is at an advanced stage Because the

provisional anti-dumping duty expired before the imposition of definitive antidumping duty, importers of these tyres who imported and paid provisional duties may now apply to Sars for a refund of the duties paid

Despite the expiry of the provisional measures, if Itac finds that the dumped imports caused or threatened to cause material injury to the Sacu industry, it may decide to recommend the imposition

of a definitive duty on those tyre imports Definitive duties would have to be implemented before July 29 2023; if they are not, there will be no scope to introduce protective duties later to assist the Sacu tyre manufacturing industry

The sooner Itac and the minister finalise the matter, the better for the tyre industry Whether or not duties are imposed, finalising the investigation will bring certainty to the industry

• An analysis of the

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Unfair to stop employees’ commission?

Bradley Workman-Davies Werksmans

In a recent case the Commission for Conciliation, Mediation and Arbitration (CCMA) had to examine whether an employer, by excluding employees from a scheme that allows employees to earn commission, had committed an unfair labour practice (ULP)

The issue arose when the employer stopped paying commission to the sales team’ s support staff after introducing a new sales commission policy that excluded employees from earning commission

This was the issue to be decided in the recent case of Broadcasting, Electronic, Media & Allied Workers Union obo Van Der Ross and others v South African Broadcasting Corporation (SOC) Ltd [2023] 1 BALR 20 (CCMA)

This matter concerned several employees who are employed as support staff (the employees) to the sales team of the employer These employees occupied different positions and earned different salaries (being their basic salary plus commission)

Before to the introduction of the new policy in April 2022,

the support staff had been receiving commission since 2001, followed by the introduction of a formal policy that regulated payment of commission in July 2003 known as the Economic Added Value policy (EVA Policy) The EVA Policy allowed for the employees to receive commission but was due to terminate after a three-year period of its implementation

The dispute arose when the employer introduced a new policy which excluded support staff from earning

In its determination, the CCMA considered the Labour Appeal Court in Hospersa and another v Northern Cape Provincial Administration (2002) 21 IJL 1066 (LAC), where the court held that employees may enforce existing rights to benefits through the dispute process relating to unfair labour practices The court defined the word “benefit” to mean rights that an employee is entitled to arising ex contractu, ex lege or from a collective agreement In this respect the CCMA found that the employer’ s commission scheme constituted a benefit

benefit provision of which they had been subject/participants of for a long period:

years

commission The employer contended that the support staff were consulted before the decision to exclude them from earning commission had been taken The employer also contended employee participation in any scheme had always been subject to management’ s discretion and accordingly that this could be withdrawn at any time

The CCMA highlighted the fact that the employer excised its discretion to include employees from benefiting from the commission scheme for more than 20 years The CCMA held that even if the new policy came into effect immediately after terminating the EVA Policy, an employer cannot, after 20 years, choose to use its discretion to exclude participants (ie employees) from benefiting in the commission scheme without providing valid reasons for doing so

The CCMA highlighted the following factors which an employer must consider before using their discretion to exclude employees from a

1 The employer’ s discretion is subject to CCMA scrutiny in terms of section 186 (2) of the Labour Relation Act 66 of 1995, which regulates unfair labour practice;

2 The employer must exercise its discretion in a fair manner; and

3 The employer’ s reasons for excluding employees from a benefit provision (in this case earning commission) must be clear, especially in circumstances where employees had been allowed to participate in a benefiting provision for a long period (ie 20 years)

The CMMA found that the employer, in this case, had committed an unfair labour practice by unfairly excluding certain employees from participating in the commission scheme in which they had been participants for several

The CCMA ruling highlights the important points that when employers make a decision to introduce a new policy which excludes certain employees from a benefit of which they had been participants of for an extended/long period, it is critical for employers to consult with employees prior to its introduction and implementation

Furthermore, even if an employer’ s policy provides that the policy is subject to management’ s discretion to include or exclude participants to a benefit provision,

employers must be cautious when exercising their discretion to exclude employees in circumstances where the benefit had been received for a long period of time

Lastly, that failure on part of the employer to exercise this discretion in a fair manner will amount to unfair labour practice

On the other hand, this ruling is also useful to demonstrate that a benefit does not necessarily constitute a term and condition of employment which can never be unilaterally amended by the employer, or without the employee s consent

Rather, provided that the issue is consulted on, and there is a rational justification for why the benefit should be ended or amended, and the discretion of the employer is exercised fairly, benefit schemes may be adjusted by an employer, even in the face of employee objections

• New incentive scheme leads to Commission for Conciliation, Mediation and Arbitration proceedings

EMPLOYEE PARTICIPATION IN ANY SCHEME HAD ALWAYS BEEN SUBJECT TO MANAGEMENT’S DISCRETION

THE EMPLOYER’S REASONS FOR EXCLUDING EMPLOYEES FROM A BENEFIT PROVISION MUST BE CLEAR