Business Day Law & Tax: June 22 2020 by SundayTimesZA

BUSINESS LAW & TAX

ENSafrica.com

JUNE 2020 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Employers need a safety plan

Firms are obliged to take tough •health and safety precautions to

NO LONGER BUSINESS AS USUAL

prevent spread of Covid-19 Jonathan Goldberg & John Botha

Global Business Solutions

s the fight against Covid19 is far from over, with infections predicted to peak only in the later portion of 2020, employers will need to take stringent health and safety precautions to ensure workplaces don’t become breeding grounds for the virus. Steps that need to be taken as part of a holistic workplace plan include: ● Employers are required to screen workers and visitors; ● Sanitisers are to be provided at various points, and employees are to be provided with at least two masks and other required personal protective equipment; ● Social distancing measures as well as isolation protocols in the event workers present with symptoms of Covid-19 in the work environment; ● Appointment of a Covid-19 compliance officer who ensures the protocols are complied with and enforced. In addition, if a labour inspector visits an office, and

the company is found not to be complying with the Covid19 health and safety regulations, it risks being shut down. The business will remain closed until it becomes compliant and this holds significant cost implications for the employer. However, should every reasonable precaution be taken to prevent the spread Covid-19 and one of your employee still tests positive, what is the employer’s obligation then? If an employee displays Covid-19 symptoms There are a number of processes that need to be followed, depending on the context. If the employee is symptomatic when they arrive at work, they need to inform the chief compliance officer and will not be allowed to enter the workplace. The next step is to place them on sick leave so they can self-isolate at their home or at an appropriate isolation facility. If they have run out of sick leave benefits, the employee is entitled to apply for illness benefits from the Unemployment Insurance Fund (UIF).

/123RF — CITALLIANCE If, on the other hand, an employee displays symptoms while they are at work, the chief compliance officer needs to be advised. The employee needs to be immediately isolated — for example in an empty office — and handed a surgical mask. Safe transport needs to be arranged for them to the nearest testing centre. Then your obligation as the employer is to assess the risk of transmission of Covid-

19 having taken place, disinfect the area the employee was working in and under-

IF THE EMPLOYEE IS SYMPTOMATIC WHEN THEY ARRIVE AT WORK, THEY NEED TO INFORM THE CHIEF COMPLIANCE OFFICER

take contact tracing. You should refer other employees who may have contracted the virus for testing. If an employee comes into contact with a Covid-19 positive patient If one of your employees has been exposed to someone who has tested positive for Covid-19, the first thing that you need to do is to assess the risk that the patient has contracted Covid-19. This needs to happen

according to the department of health guidelines. If the employee is deemed to be a low risk, they can carry on working and need to be monitored for 14 days. If they are deemed to be high risk, they need to be placed in quarantine. If the employee still has sick leave benefits they must be allowed these. If they have exhausted these benefits, applications for illness benefits need to be made to the UIF.

BusinessDay www.businessday.co.za June 2020

BUSINESS LAW & TAX LATERAL THINKING

Judicial fix to social contract

Two high •court rulings

will nourish our rights culture, writes Evan Pickworth

t is unfortunate that SA has needed the judges to step in to define human rights and scold those in power who trample on them 26 years into a hardwon democracy. However, it is in turn a reflection of democracy in action and shows that the wheels of justice are moving in the right direction. It also shows why it is in all our interests that the judiciary remains strong, unbiased and fair as SA navigates its way out of the Covid-19 storm. The same principles of legality and fearlessness will be needed as more state capture and corruption cases head to court in the near future under equally intense media and political scrutiny. The facts in the Khosa case, as heard by Fabricius J in the Gauteng division of the high court in May, made for galling reading.

The ultimate judgment, however, was a masterpiece in reasoned deliberation and moral suasion. It should be used as a case study for LLB students well into the future and ideally made compulsory study material for SA’s legislators and regulators. The question of the ideal terms of the social contract between the people and a legitimate government may have long troubled philosophers, but this ruling shows it should not really be a question open to much debate in SA. It is, after all, clearly answered by our constitution. In effect, all Fabricius J had to do was apply these extremely powerful provisions, within the ambit of oth-

er legislation such as the Disaster Management Act, the Universal Declaration of Human Rights, the UN’s torture convention as ratified in SA, the Police Act, the Defence Act and the Criminal Procedure Act. To his credit, this is exactly what he did. With the devastating riots across the US fresh in our minds, the fate of Collins Khosa should, as with George Floyd, never be forgotten and this judgment may ensure it never will. That the defence force has tried to evade some responsibility with a rushed internal investigation only opens the door to further scrutiny and adds another stain to its image. The cold facts are that on Good Friday in the heat of the national lockdown, three soldiers felt compelled after a routine check, to pour beer on Khosa’s head, choke him, slam him against a cement wall, punch him and hit him with a machine gun. When neighbours tried to film it, the thugs took their cellphones. Soon after the officers left, the victim began vomiting. He lost the ability to speak and walk. An ambulance arrived, but he was dead on arrival at the hospital. It is a shocking tale of abuse and leaves every

reader of this judgment angry and in pain. What stands out most, though, is that the abovementioned social contract was severed and it leaves a sour taste that the government had to be told that despite the state of disaster, all persons in SA still have their rights to dignity (section 10 of the constitution), to life (section 11), not to be tortured (section 12) and not to be treated or punished in a cruel, inhuman or degrading way (section 12). It is cold solace that a judge needed to tell the defence force to suspend the members present during the atrocity pending an inquiry, to speak to the entire command structure about why torture is not permissible and develop a proper code of conduct and manual of operating procedures and guidelines on when someone may be arrested, among others.

THE ULTIMATE JUDGMENT, HOWEVER, WAS A MASTERPIECE IN REASONED DELIBERATION AND MORAL SUASION

The blistering admonishment hopefully will go some way to recast the already tenuous social contract. The story is not over yet, as the family of Collins Khoza is preparing to sue for damages. The second judgment which carries equally important constitutional themes was the early June decision in the high court in Pretoria by judge Norman Davis to declare the lockdown regulations invalid and unconstitutional. The nub of the decision was that insofar as the lockdown regulations do not satisfy the rationality test, their encroachment on the limitation of rights guaranteed in the bill of rights contained in the constitution is not justifiable in an open and democratic society based on human dignity, equality and freedom as contemplated in section 36 of the constitution. This judgment may have its critics — especially if it was a little vague on the actual provisions in need of review and did not distinguish clearly between the lockdown phases — but the main thrust was the underlying principle of reasonableness and rationality. One telling point is that the high court found that the

state’s response in its affidavit was rather superficial at times. More must be expected of the people trusted to act in the best interests of the public. At time of writing an appeal process was being launched, but until that decision is made the bottom line is that far more consideration needs to be given to this balancing act required between keeping the public safe and upholding rights. Further applications against lockdown regulations are pending before the constitutional court and will all add to the important body of knowledge and precedent that hopefully puts SA back on a firmer democratic and constitutional footing. Passing the rationality test is likely to linger as an awkward moniker for all legislators. They would do well to remember that acting without clear rational thought about the effect on human rights will not ultimately pass constitutional muster. That type of dictatorial and myopic approach is best left to the scrapheap of history. ● Evan Pickworth, an admitted attorney, is editor of Business Day’s Business Law & Tax.

COMPETITIVE EDGE

Commission spells out small business protection

ollowing the coming into force of the new buyer power provisions of the Competition Act, 89 of 1998 in February 2020, the Competition Commission has issued its expected Enforcement Guidelines on the Buyer Power Regulations. The guidelines seek to clarify the commission’s approach to the enforcement of complaints under the new abuse of dominance provision. The Buyer Power Provisions and the associated regulations prohibit dominant firms in designated sectors (currently the grocery wholesale and retail, agro-processing and e-commerce and online services sectors) from imposing an unfair price or trading condition on small and medium-sized enterprises (SMEs) and certain firms owned and controlled by historically disadvantaged persons (HDPs). In assessing a complaint in respect of the buyer

COMPETITIVE EDGE power provision of the act, the commission must consider whether: ● The buyer is dominant; ● The buyer operates in a designated sector; ● The supplier is an SME or qualifying HDP; ● The price or trading condition has been imposed by the buyer; and ● The price or trading term is unfair. It is perhaps this final element that is most novel and therefore we focus on this below. The guidelines provide direction for the commission’s investigation into unfair prices and unfair trading conditions. In respect of unfair prices, the guidelines identify two broad benchmarks for determining whether prices are unfair. If

the price at which an SME or HDP supplies to a dominant buyer is lower than the price paid to other suppliers or the price previously paid to the same supplier for their product, such a price may be deemed unfair. The commission will be particularly concerned about price differences that are sizeable, have persisted for a reasonable period and consistently discriminate against SMEs or HDPs. The guidelines provide that for screening purposes, the commission will apply a 3% threshold to relative price differences. The guidelines provide several indicators of where the commission will consider a price to be unfair, including: ● If the reduction was unilaterally imposed by the buyer without negotiation; ● Is retrospective in its application; ● Is selectively applied to the complainant or suppliers within the designated class; ● Lacks an objective justification; or ● Unreasonably transfers

risks and costs onto the supplier that should ordinarily be borne by the buyer or distributed evenly between the parties. In respect of unfair trading conditions, the guidelines also provide a list of trading conditions that will be considered unfair within the designated sectors, as the case may be. These include: ● Instances where a buyer pays an SME or HDP later than 30 days after delivery; ● Cancellation of orders on perishable goods on too short notice; ● Unilateral changes to the terms of the supply agreements; and ● The imposition of strict liability for loss or damage on the seller despite the passing of ownership. The examples and factors listed above in determining whether a price or trading term are unfair are by no means exhaustive. Some other trade practices will be considered unfair unless they have been previously agreed in clear and unambiguous terms in the supply agreement. The

trading conditions are in some instances specific to the relevant designated sector and are not necessarily considered universally unfair. The guidelines note that the commission is obliged to present a prima facie case on all the essential elements of the contravention. However, the guidelines also note that the act creates an express evidential burden on a buyer accused of an abuse to adduce evidence that rebuts the evidence presented by the commission. The commission envisages assessing conduct in terms of the four elements identified above alongside any justification or defence put forward by a respondent. Importantly, the guidelines make it clear that the

THE PROVISIONS ARE ALREADY IN EFFECT AND THERE IS NO GRACE PERIOD FOR COMPLIANCE

commission considers that where no justification is provided, or insufficient evidence for the justification is provided, then the presumption will be that the conduct cannot be justified. The provisions are already in effect and there is no grace period for compliance. Indeed, the commission has already sought to rely on the new provisions in a case involving the dairy industry. It is also looking to apply them urgently in other parts of the food value chain and online services. The act specifically states that a dominant buyer cannot avoid or refuse to buy goods or services from SMEs or HDPs to evade the operation of the act or regulations. A contravention of the buyer power provisions of the act may result in an administrative penalty of up to 10% of annual turnover for a first-time offence, or 25% for repeat offenders. ● This article was written by ENSafrica’s Competition/ Anti-Trust team.

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BusinessDay www.businessday.co.za June 2020

BUSINESS LAW & TAX

Amazon beats off Coty case on trademark

BOXING CLEVER

• Court distinguishes between storage and sale Delene Bertasso

T ENSafrica

he Coty v Amazon case was concluded recently in Amazon’s favour, as so much seems to be at the moment. Coty, which owns the Davidoff trademark, discovered that infringing Davidoff Hot Water perfumes were available on Amazon. Coty sued Amazon (there were two separate Amazon companies involved) for trademark infringement in Germany, but was unsuccessful. The German court referred the case to the Court of Justice of the European Union (CJEU). The awkward

question for consideration by the CJEU was: is a person who stores goods infringing trademark rights on behalf of a third party without having knowledge of the infringement of the trademark rights, to be regarded as possessing those goods for the purpose of offering them for sale or putting them on the market within the meaning of those provisions if he himself does not pursue those purposes? The question makes it clear that the German court drew a sharp distinction between storage and sale of infringing goods, a distinction that plays an important role in this case. In proceedings before the CJEU, the advocate-general (AG) hands

/123RF — ADRIANHANCU

down an opinion before the CJEU hands down its judgment. The AG, in this case, said that Amazon “can be expected to show particular care in terms of control of the lawfulness of the goods they trade. What this means is that Amazon cannot simply discharge its responsibility by attributing it exclusively to the seller, precisely because it is aware that, without this control, it can easily serve as a channel for the sale of illegal, counterfeit goods, pirated, stolen, or unlawful or unethical in any other way, infringing the property rights of third parties.” The CJEU, however, absolved Amazon of any liability. It also distinguished

clearly between storage and sale. It said it was relevant that Amazon merely stored goods without taking any action to offer them for sale. It held that the mere storage of infringing goods in an online marketplace did not infringe trademark rights. It said using a trademark involved active behaviour and control, whether direct or indirect. The mere storage

USING A TRADEMARK INVOLVED ACTIVE BEHAVIOUR AND CONTROL, WHETHER DIRECT OR INDIRECT

of goods is not use of a trademark. The CJEU found that the two Amazon companies “have not themselves offered the goods for sale or put them on the market and that the third party seller alone pursued that aim”. It follows “that the Amazon companies have not themselves used the Davidoff mark”. The CJEU’S decision was perhaps not totally unexpected given some of its earlier decisions. There was the pivotal AdWords case in 2010, where the issue was whether the sale by Amazon of Louis Vuitton keywords directing people to sites selling counterfeit Louis Vuitton goods infringed the Louis Vuitton trademark. The court there

held that it did not constitute use of this trademark. In the case of e-commerce platforms, the trend in Europe seems to be that infringing use of trademarks displayed on those platforms will be seen as an action of the seller, who is a customer of the platform operator, rather than the operator of the platform itself. So, Amazon is in the clear. It reaffirmed its commitment to uphold trademark rights and said it would “drive counterfeits to zero” on its platforms. Brand owners will welcome that. ● Reviewed by Gaelyn Scott, Head of ENSafrica’s IP department.

DUES DATE

Tax aspects of debt restructuring need diligence

ebt relief and restructuring arrangements are and arguably will become more prevalent in the current economic climate. Debt restructuring is considered for a variety of reasons. These include economic hardship and restructuring of debt to present a more favourable financial position to the market to optimise shareholder value and attract debt for expansion or other reasons. These arrangements may entail reducing certain expenses or negotiating extended payment terms for expenditure that cannot be reduced. The arrangements may include restructuring of debt obligations to enable obtaining more funding. Debt restructuring often involves connected persons, who would be willing to enter into renegotiations. Arrangements in terms of

FERDIE SCHNEIDER which the outstanding balance of a loan is settled should not attract tax, except disposals for consideration not in cash. If the consideration to settle or reduce the loan is less than the loan balance, it may constitute debt forgiveness or debt reduction for income tax purposes. The tax consequences are often not well considered before embarking on such exercises. The tax implications can be fairly complex and requires careful consideration. The Income Tax system caters comprehensively for debt relief, concessions, compromises and restructurings. These activities have possible income tax, capital gains tax (CGT) and donations tax consequences. For years of assessment starting before January 1 2013, debt reduction was subject to income tax, donations tax and/or CGT, which often

undermined the economic benefit of the debt relief. As a result, the SA Revenue Service (Sars) introduced a uniform system that caters comprehensively for the income tax consequences of debt reduction (section 19 — concession or compromise in respect of a debt) and the CGT consequences (para 12A of the Eighth schedule — concession or compromise in respect of a debt). The Income Tax provisions (non-CGT) essentially apply if a debt (which excludes a tax debt or interest) owed by a person is reduced; the amount of the debt was used to fund deductible expenditure, acquire allowance assets (a capital asset in respect of which a deduction or allowance is allowable for purposes other than the determination of any capital gain or capital loss); or trading stock; and a difference exists between the amount advanced and the amount repaid (reduction amount). The income tax provisions determine that a recoupment will arise, in the event of a cancellation, waiver or extinction of a debt, or conversion or exchange of a debt (debt relief). The recoupment will

arise to the extent that the debt relief of the loan account resulted in a tax-deductible expenditure in the current and previous years of assessment. The recoupment is subject to tax at the normal rate. In essence, to determine the tax implications for the debtor, it must be determined how the debtor applied the debt and, in particular, whether such proceeds were used to fund expenditure incurred to acquire trading stock held and not disposed of by the debtor at the time of the debt reduction; expenditure incurred to acquire, create or improve an allowance asset; and other deductible expenditure. These provisions exclude debt owed by a person who is an heir or legatee of a deceased estate to the extent that the debt is owed by the deceased estate, the debt is reduced by the deceased estate, and the amount of the reduction forms part of the estate property for estate duty purposes. They also exclude debt reduced through a donation or deemed donation. Finally, a debt owed to an employer to the extent that it will be a fringe benefit is also excluded from these provisions.

The CGT provisions essentially apply if the debtor applied a loan to acquire an asset on capital account and there is a reduction amount. In terms of the CGT provisions, to the extent that the loan was used to finance a capital asset or an allowance asset (eg plant and equipment), a reduction in the base cost of the capital asset or allowance asset must be made. Even if the capital or allowance asset was disposed of prior to the debt reduction, a capital gain must be calculated to the extent that it would have arisen on the disposal of the asset, if the asset has been on hand at the time of the debt relief. This capital gain must be included in any recalculated capital gain in the taxable income in the year that the debt is reduced. Specific income tax provisions may apply to the interest portion of a debt reduction. These provisions

THE INCOME TAX SYSTEM CATERS COMPREHENSIVELY FOR DEBT RELIEF, CONCESSIONS, COMPROMISES AND RESTRUCTURINGS

would, however, generally not apply unless the taxpayer is a moneylender. In such case an adjusted gain or loss would be capital in nature. If the loss is revenue in nature, the lender may be entitled to a tax deduction relating to the loss. A waiver of a loan may also constitute a donation. A donation means any gratuitous disposal of property including the gratuitous waiver or renunciation of a right. If the debt reduction occurs due to commercial reasons (inability to pay), it should not constitute a donation or deemed donation. However, no donations tax is payable on a donation by a company to another company that is a resident and a member of the same group of companies as the company making the donation. Taxpayers who embark on debt restructuring or debt relief exercises must ensure that they carefully consider the tax consequences to ensure a thorough understanding of the benefits or relief granted by the Income Tax system, but also to understand the potential tax leakage issues. ● Ferdie Schneider is CEO of Sta Konsult.

BusinessDay www.businessday.co.za June 2020

BUSINESS LAW & TAX

Ventilators and patent rights

• When an application for a compulsory licence against a holder can be done to secure vital equipment Thapelo Montong Adams and Adams

n an attempt to thwart the spread of Covid-19, the SA government published an urgent call for proposals (CFPs) for the design, development, production and procurement of ventilators. Item five of the CFP states: “Respondents must indicate the status of the intellectual property applied and any restrictions for access to or use of intellectual property that is required for the project.” The restriction for access to intellectual property can in certain circumstances be interpreted as the abuse of monopoly rights by those who hold intellectual property rights to the detriment of the public. In this regard, and provided a good case can be made, the respondents can in their response to the CFP indicate they believe the owners of certain patents that relate to ventilators have been abusing their patent rights in SA, and can simultaneously approach the relevant patent holders for vol-

untary licences, and failing which, or also simultaneously, can apply for a compulsory licence against the patent holder. To succeed with an application for a compulsory licence, the respondents to the CFP would need to make a case that proves at least one of the following: (a) That the patented invention is not being worked in the republic on a commercial scale or to an adequate extent, after the expiry of a period of four years subsequent to the date of the application for the patent or three years subsequent to the date on which that patent was sealed, whichever period last expires, and there is in the opinion of the commissioner of patents no satisfactory reason for such nonworking. (b) That the demand for

THE STRATEGIC USE OF EXISTING IP RIGHTS TO COMBAT COVID-19 MAY COME IN HANDY IN ASSISTING TO FLATTEN THE CURVE

the patented article in the republic is not being met to an adequate extent and on reasonable terms. (c) That by reason of the refusal of the patentee to grant a licence or licences upon reasonable terms, the trade or industry or agriculture of the republic, or the trade of any person or class of persons trading in the republic, or the establishment of any new trade or industry in the republic, is being prejudiced, and it is in the public interest that a licence or licences should be granted. (d) That the demand in the republic for the patented article is being met by importation and the price charged by the patentee, his licensee or agent for the patented article is excessive in relation to the price charged therefore in countries where the patented article is manufactured by or under licence from the patentee or his predecessor or successor in title. Under the unfavourable prevailing health conditions in which we find ourselves, if the respondents to the CFP have identified patent holders who have patents that are related to ventilators that may

BREATHE EASIER

/123RF — MSPOINT be useful in the fight against the coronavirus, and such patents have not been worked in SA as mentioned in (a); or, as it is currently, that the demand for ventilators is high and the demand is not being met by the patent holders as mentioned in (b); or a

voluntary licence on reasonable terms is refused to the detriment of health care as mentioned in (c); or the price of the ventilators charged by the holders of the patents or respective licensees is excessive in relation to the price charged in countries where

such ventilators are manufactured, as is mentioned in (d), then a submission underpinned by a possible compulsory licence application against the patent holder could be made to the government. Patent right holders who are concerned about compulsory licence applications against them in cases where patent rights may be suspected to have been abused should be able to avoid a successful compulsory licence applications by: working their patents during this period; issuing voluntary licences to firms that can manufacture the ventilators; ensuring the ventilators that are the subject of their patents are in adequate supply to meet the demand of the country; and/or by maintaining the prices to standard international prices. These are indeed extraordinary times we live in, and the strategic use of existing intellectual property rights to combat the novel coronavirus (either by a forced hand or voluntarily) may come in handy in assisting the government in its efforts to flatten the curve.

LABOUR PAINS

Does fallout with previous boss need to be aired?

t’s not surprising that job applicants will typically be reluctant to reveal an acrimonious termination of employment with a previous employer. This is as common as the all too common patterns of CV embellishment seen daily. So how much is a job applicant required to reveal about how they left their previous employer, in a subsequent job application process? Also, does the nondisclosure of an adverse relationship with a prior employer amount to misconduct and, if so, dismissible misconduct? The extent to which a job applicant is obligated to disclose facts was prescribed by the Labour Court in Galesitoe v CCMA & others [2017] 7 BLLR 690 (LC). It said: “Accordingly, it is not unreasonable to ensure that a person applying for the senior level of post in question would have realised that the nature of his relationship with his former employer was a material consideration for his prospective new employer and could affect his employment prospects. That

TONY HEALY would have given rise to the obligation to disclose having regard to the principle enunciated in Absa v Fouche which the LAC and the LC followed in the Fipaza case.” In a more recent judgment in Intercape Ferreira Mainliner (Pty) Ltd v Rory Mark McWade & others — (Labour Court: Case number JR158/170) on September 13 2019, the court pronounced on this issue by holding that “outside the category of deliberate false representations of fact, a prospective employee may nonetheless be required to disclose information not specifically requested, if that information is material to the decision to employ: or where (as in the present instance) a question is asked, that a less than honest and complete answer might form the basis for a dismissal when the

truth is … discovered.” The question of whether the nature of a job applicant’s relationship with a former employer must be disclosed to a prospective employer was once more addressed in a more recent Labour Court judgment (May 8 2020) in Maye R Makhafola v National Bargaining Council for the Road Freight and Logistics Industry & 2 others (Case number J2673/16). The employee had resigned from her previous employer after she had been found not guilty at a disciplinary hearing. She was especially aggrieved by the disciplinary hearing process, and subsequently resigned and lodged a constructive dismissal claim against the previous employer. Prior to being issued the disciplinary notice, she had received a job offer from another employer.

SHE WAS ESPECIALLY AGGRIEVED BY THE DISCIPLINARY HEARING PROCESS, AND … RESIGNED

What appears to have been somewhat relevant in this case is that her previous employer was a client of her prospective new employer. The employee did not disclose her disciplinary hearing or pending constructive dismissal case against her previous employer to her new employer until she had commenced employment with her new employer.

APPLICANT WAS CHARGED WITH FAILURE TO DISCLOSE Her new employer “did not respond favourably to this and instituted disciplinary action against the applicant which led to her dismissal”. The new employer charged the applicant with (1) “Failure to disclose information relevant to your employment with Imperial in that you have known of the adverse relationship that you have with Aveng Trident Steel and (2) Among others, the new employer charged the applicant with failure to disclose information relevant to the employment with Imperial in that the applicant had known of the adverse

relationship with Aveng Trident Steel at the time of the appointment with Imperial and that the adverse relationship with Aveng Trident Steel was not disclosed. She was found guilty and dismissed. The applicant challenged the fairness of her dismissal at the CCMA, which held that the dismissal was “for a valid and fair reason. The failure by the applicant to disclose an adverse relationship that she had with the client (Trident Steel) damaged the trust component that is corollary to an employment relationship.” The Labour Court held that “it cannot in my view be said that the so-called nondisclosure of the adverse relationship amounted to any form of misrepresentation on the applicant’s part, nor constituted misconduct which became a dismissible offence”. In yet another related judgment, the Labour Court in Galesitoe v CCMA and Others [2017] 7 BLLR 690 (LC) held: “Accordingly it is not unreasonable to ensure that a person applying for the

senior level of post in question would have realised that the nature of his relationship with his former employer was a material consideration for his prospective new employer and could affect his employment prospects. This would give rise to an obligation to disclose…”. The Labour Court continued that the failure to disclose must pertain to material information, “at least in the sense that the prospective employer would have conducted its own enquiry into the relevant facts and determined eligibility or sustainability for employment as a consequence”. ● Tony Healy is CEO at Tony Healy & Associates Labour Law Consultants.

BusinessDay www.businessday.co.za June 2020

BUSINESS LAW & TAX

Major world events lead to a shift in tax

• Covid emphasises OECD’s work on digital sector Michael Hewson & Henry Dicks

Graphene Economics he entire world is grappling with the coronavirus pandemic and its effects. It’s become clear that this epidemic will have far-reaching economic consequences. In fact, Bloomberg Tax reported that “the Organisation for Economic Co-operation and Development (OECD) has warned that Covid-19 is the greatest danger to the world economy since the 2008 financial crisis. It is to be expected that the Covid-19 epidemic will have a negative bearing on the operating income of multinational enterprises (MNEs), and impose a considerable

burden on the cash flow of an MNE as well as its individual subsidiaries.” If the history of international taxation has shown us anything, it’s that tax shifts substantially after a major world event. For example, the most important catalysts for the development of international taxation and its governing bodies were the two world wars. World War 1 was the predominant catalyst for the development of international taxation, while World War 2 was the catalyst for the creation of the OECD, which to a large extent impacts the manner in which double taxation agreements are concluded to this day. After the 2008 financial collapse, countries were forced to critically reconsider how cross-border transac-

tions are taxed. This led to the largest reaction to aggressive tax planning in history, and resulted in the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Sharing. Given the effect of Covid19 on economies, we are likely to see another shift in international taxation and transfer pricing over the coming months and years. The focus is turning to the expected long-term damage on economies and the enduring social effects of Covid-19, and the actions governments should take to mitigate these. After the 2008 global financial crisis, many MNEs suffered significant losses. Tax collections subsequently dropped and governments required significant interven-

TECHNOLOGY TO THE FORE

/123RF — RAWPIXEL tion to raise much needed revenue. This led to a focus on profitable MNEs, notably those involved in e-commerce and services. In 2012, the Group of 20 finance ministers commissioned the OECD project on base erosion and profit shifting to identify how to reduce the risks of MNEs not paying their fair share of tax in the various jurisdictions. This resulted in what have been considered the most significant developments in the

THE LIKELY FOCUS WILL BE ON THE COMPANIES THAT REBOUND FASTEST AND THOSE WITH GREATER LEVELS OF DIGITISATION

area of international tax. For the past two years, the OECD has focused on taxation of the digital economy and has been considering the implementation of an additional taxing right on companies with a digital presence in other countries. This is partly a response to unilateral measures taken by many countries to introduce their own taxation on companies operating digitally in their countries. The intention by the OECD has been to limit the proliferation of unilateral measures. Covid-19 has opened the eyes of the world to the ability to stream educational programmes, shift towards online purchases and run businesses (as far as possible) online, in ways never previously experienced. There is likely to be a distinction between companies

that can quickly become more digital and those that can’t. Countries that encourage and stimulate their service economy and, notably, those that foster the development of technology by companies in their countries will be at an advantage. Research by Graphene Economics has identified that countries with higher levels of services as a percentage of GDP have advantages: increased productivity, higher economic growth, less susceptibility to downturns, improved export growth potential and relatively low cost of deployment. As countries battle to plug holes in their balance sheet, the likely focus will be on the companies that rebound fastest and, in particular, those with greater levels of digitisation. We can expect greater buy-in to the OECD’s work on the taxation of the digital sector as more countries want a share of the pie. Jeffrey Owens, the former head of the OECD, recently recounted advice he once received from Trevor Manuel which is to “never waste a crisis”. Given the rapid increase in the awareness and appreciation of the use of technology, coupled with the benefits associated with the extent of the services economy, perhaps SA and other emerging economies would do well to focus on supporting business in the service and technology sectors.

VIEWPOINT AFRICA

Kenya’s Covid-19 tax breaks do not all add up

enya’s President Uhuru Kenyatta on March 25 2020 announced various farreaching measures aimed at alleviating the effect of the Covid-19 pandemic on the public and the economy. These provisions were enacted though a legal notice published by the cabinet secretary in charge of national treasury and the Kenya Tax Laws (Amendment) Act, 2020. Legal Notice 35, published in the Kenya Gazette Supplement No 30 of March 26 2020, approves the reduction of the VAT rate from 16% to 14% with effect from April 1 2020. The remainder of the provisions are contained in the Tax Laws (Amendment) Act, 2020, which was assented to by the president on April 25 2020 and generally applies with immediate effect. The corporate income tax rate for resident companies has been reduced from 30% to 25% with effect from the 2020 year of income. Interestingly enough, the rate applicable to permanent establishments or branches of foreign companies is to remain unchanged at 37.5%.

CELIA BECKER At the same time, concessionary income tax rates for companies newly listed on the Nairobi Securities Exchange (ranging from 20% to 27%) and the companies operating a plastics recycling plant (15%) have been repealed. The corporate tax rates applicable to companies engaged in business under a special operating framework arrangement with the government will remain in force until expiry of such arrangements. In an attempt to increase short-term revenue collection, new withholding taxes have been introduced and a number of incentives and exemptions have been scrapped. Payments by a Kenyan resident or permanent establishment in respect of sales promotion, marketing and advertising services, as

well as the transportation of goods (excluding air and shipping transport services) and reinsurance premiums (excluding reinsurance premiums in respect of aircraft) are now subject to withholding tax at a rate of 20% on gross service fees and 5% on reinsurance premiums. The withholding tax rate for dividends paid to nonresidents has also been increased from 10% to 15%. The 30% additional deduction for electricity cost available as an incentive to manufacturers with effect from January 2019 has been scrapped. Dividends received by registered venture capital companies, special economic zone (SEZ) enterprises, developers and operators licensed under the Special Economic Zones Act, as well as dividends paid by SEZ enterprises, developers or operators to nonresidents are no longer exempt. The second schedule to the Income Tax has been replaced with a new schedule providing for capital allowances to be claimed over longer time periods. The most significant amendments are to affect the hotel, oil and gas,

manufacturing and agricultural industries. The 100% depreciation rate previously available to hotels, petroleum or gas storage facilities, farmworks and buildings and machinery used for manufacturing was replaced with an initial depreciation rate of 50%, with the residual value to be depreciated at a rate of 25% on the reducing balance method. To provide relief to individual taxpayers, the individual tax rate bands have been expanded and the minimum monthly taxable income increased to amounts exceeding KES24,000. The annual resident personal relief has also been increased from KES16,896 to KES28,800. Amendments to the turnover and presumptive tax systems are aimed at alleviating the pressure on cash flows experienced by small and medium enterprises. Turnover tax will now apply to resident businesses where the turnover is more than KES1m but does not exceed KES50m. The rate of turnover tax has been reduced from 3% to 1%, but

now also applies to firms. Persons liable for turnover tax are no longer required to pay presumptive tax. Though a VAT exemption has been introduced for personal protective equipment, a number of exemptions has been repealed. The transfer of a business as a going concern by a registered person to another registered person is now subject to VAT at the standard rate. Imports or purchases (excluding motor vehicles) used in the construction of a powergenerating plant or specified liquefied petroleum gas storage facilities or to be used for geothermal, oil or mining prospecting or exploration are also now VATable. Goods imported for the construction of liquefied petroleum gas storage facilities are also no longer exempt from the import

THE CORPORATE INCOME TAX RATE FOR RESIDENT COMPANIES HAS BEEN REDUCED FROM 30% TO 25%

declaration fee and railway development levy. In addition to the Tax Laws (Amendment) Act, 2020, the Finance Bill, 2020 was tabled for debate in the National Assembly on May 6 2020, introducing further changes to Kenya’s tax legislation. The bill proposes the introduction of a minimum tax at a rate of 1% of gross income, payable irrespective of whether a taxpayer is in a loss-making position. In addition, a digital service tax, to be levied at a rate of 1.5% of gross income deemed to be derived or accrued in Kenya through a digital market place, is being considered. Though the general relief provided by the reduced income tax and VAT rates are welcomed by taxpayers, the increase in withholding taxes and the scrapping of exemptions and other incentives to a large extent negate these benefits for affected industries and taxpayers. ● Celia Becker is an executive in ENSafrica’s Rwanda office (cbecker@ensafrica.com)

BusinessDay www.businessday.co.za June 2020

BUSINESS LAW & TAX

Big data delivers big rewards with the Protection •ofCompliance Personal Information Act is

UNDER THE MICROSCOPE

key when managing information Carla Collett

Webber Wentzel

hanges in the way customers expect to engage with the financial services sector and increasing pressure from regulators is compelling financial services companies to come up with innovative ways to manage their data. Financial services businesses view information/data as a significant corporate asset. They are successfully mining data from customer interactions and a wider pool of digitally available information to create more relevant and sophisticated product offerings. “Big data” is a term that describes the collection, organisation, processing and analysis of large volumes of structured and unstructured data, in real time, to create real value for businesses. Big data can be described by the following key characteristics: ● Volume. This refers to the quantity of data generated from a variety of sources, including business transactions, social media and infor-

mation from sensor or machine-to-machine data. This type of data cannot be reviewed by conventional software and is generally difficult to store. ● Variety. The data ranges from structured, numeric data in traditional databases to unstructured text documents, e-mails, videos, audios and financial transactions. ● Velocity. The data is created and updated frequently and can be analysed in real time. The use of big data will become more entrenched as the amount of data generated in the financial services sector and the ability of businesses to glean useful insights from that data increases. In 2015, IBM reported that the world creates 2.5 quintillion bytes of data every day. It is also esti-

THE REAL STRATEGIC VALUE OF BIG DATA LIES IN THE INSIGHTS IT PROVIDES ABOUT THE BEHAVIOUR OF CUSTOMERS

/123RF — YMGERMAN mated that worldwide revenues for big data and analytics will exceed $203bn in 2020. It is difficult to overestimate the effect of big data on the financial services sector, as it is probably the most data-intensive sector in the global economy. The real strategic value of big data lies in the insights it provides about the behaviour of customers and competitors’ customers when developing, fine-tuning and pricing new products, which represents an opportunity to gain competitive advantage. To unlock the value of the big-data revolution, financial

services businesses will need to partner with big-data software specialists to properly analyse the right data faster and at lower costs. In the longer term, and as big data continues to inundate financial services businesses, IT infrastructure will need to be overhauled to maintain those businesses’ ability to process high-volume, high-velocity and high-variety data in real time to add value. To properly leverage big data and continue to innovate in the financial services sector, financial services businesses must consider a number of legal and commercial

considerations. Financial services businesses globally have already been criticised for their use and commercialisation of big data and the effect this has had on privacy and data security. Since a large amount of the big data generated in the financial services sector contains personal information (of individual customers and businesses), it is essential for SA financial services businesses to ensure that the information/data collected, processed, transferred and/ or stored will meet the thresholds prescribed by the Protection of Personal Information Act 4 of 2013. It is also important for financial services businesses to take account of the considerations that apply to licensing software from third parties for the purposes of organising and analysing big data. When licensing this software, it is essential that the licence clearly sets out who will hold the licence to use and analyse the data and what the purpose of the licence is. In addition, it is important that the licence sets out an implementation schedule detailing the various milestones and acceptance criteria, which should be linked to the payment terms. To take advantage of the assortment of big data created, it is not unusual for financial services businesses

to combine their own data with data owned by third parties. In this event, the third-party data must be properly licensed to the financial services businesses, taking into account the intended purpose of the data and whether it is necessary for that data to be sublicensed to a third-party software licensor. It is also essential for all data licences to properly govern the ownership and use of the intellectual property rights in any new data that is created as a result of the data analysis process. Moreover, licences should contain specific warranties related to ownership and use where third-party intellectual property rights have been used in the creation of new data. To successfully compete in this consumer-centric environment, businesses must leverage their information/data assets in a lawful manner to gain a comprehensive understanding of markets, customers, products, competitors, employees and regulations. Businesses that master this, and get a firm hold on all the legal and regulatory compliance requirements, will set the trend in customer services, increase profitability and will be geared to adapt more efficiently to the everchanging regulatory and competitive demands of the financial services industry.

CONSUMER BILLS

Covid-19 rules discourage open, public debate

hile we are all understandably obsessed about the way in which the disaster regulations affect us individually and as a country, it is helpful to understand the basic principles by which the regulations should be enacted and enforced. Like most of our interactions with government, the regulations have to be tested against the principles of administrative law. Our constitution guarantees the right to fair administrative justice which includes the right to be subject to regulations that are lawful, reasonable, procedurally fair and subject to review by a court. Of importance in the present context is that, according to national legislation, the regulations must be rationally connected to the purpose for which the law was made. When a court decides whether to set aside a law it does not decide whether the lawmaker was

PATRICK BRACHER right or wrong but whether the law is rational and reasonable in relation to its purpose. That principle is easily illustrated. There are clearly different sides to the debate on prohibiting the sale of alcohol. As long as the government shows that it took into account the relevant facts in making the decision it did to control the spread of the virus, the court will not set aside that law because it thinks a different decision was the right one. On the other hand, the recent regulations on the sale of clothing, footwear and bedding represent the most irrational and ridiculous things I have ever read in a

government gazette. What the sale of open-toed shoes, underwear and T-shirts has to do with controlling the spread of the Covid-19 virus is anybody’s guess. Nothing. The other important principle is how you interpret legislation. Our courts have long ago abandoned the idea that you simply look at the words on paper and decide what the dictionary meaning is. Every law, where the meaning is not certain, has to be interpreted in relation to its context and purpose. The context of the disaster regulations is the pandemic and the purpose is to flatten the curve or, as it was put less euphemistically from the desk of the president, our foremost priority remains to save lives. Start with a simple example: do you have to wear your mask while driving your private car on a public road with your windows closed? Are you, in the words of the regulation,

“in a public place”? Looked at against the context and purpose of preventing the spread of the virus, clearly not. That is why the regulations draw a distinction between public transport and private transport relating to what happens inside the vehicle and not outside the vehicle. But there are bigger issues here. If the purpose is to save lives then you need to bring into the public debate and the headlines both the number of people who are dying from the virus and the number of people who are dying in poverty. The highest value in our constitution is individual human dignity. The Constitutional Court has emphasised many times that the indignity of poverty is the worst indignity of all because it is life-threatening to people who have no means to exercise their rights. The overwhelming emphasis has been on Covid-19 risks. Criticism of the

regulations is discouraged by the chilling threat of jail for publishing a statement with “the intention to deceive any other person about any measure taken by the government to address Covid-19”. That leaves little hope of an open public debate on the nature and extent of the limitations and whether there are less restrictive means to achieve the purpose of saving as many lives as possible. Overregulation, like overtaxation, leads to cynicism and to people finding ways to avoid or evade the consequences of the law. The even greater danger was highlighted by chief justice Mogoeng Mogoeng in the

REGULATIONS MUST BE RATIONALLY CONNECTED TO THE PURPOSE FOR WHICH THE LAW WAS MADE

2019 Nelson Mandela annual lecture: “Our people have reached a level of desperation. By our people I mean everybody who is poor; now desperate people resort to desperate measures and poverty is an instrument for the entrenchment of indignity.” There will be people who see the threat of starvation as far greater than the threat of dying from the virus (as some sensible actuaries have suggested is the case for most of our people) and have no choice but to break the law. We need to deal with this issue urgently, rationally and purposefully. The final constitutional principle I want to deal with is easiest to state: under no circumstances can state actors resort to force to police any regulation except in a situation of absolute necessity. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

BusinessDay www.businessday.co.za June 2020

BUSINESS LAW & TAX

Your trademarks and Brexit

What to do to ensure that your •ownership rights are protected Shamin Raghunandan & Mpho Dzhivhuwo

Spoor & Fisher

rexit will change the landscape of UK and European Union (EU) trademark portfolios, but not immediately. The UK became the first country to leave the EU on January 31 2020, Brexit Day, and we are now in the 11month transition period from February 1 to December 31 2020, during which the UK and EU will negotiate their future relationship. The post-Brexit regime begins officially on January 1 2021, unless the UK requests an extension by June 30 2020. The maximum extension would be two years, under the terms of the withdrawal agreement. During the transition, the UK will remain part of the EU Single Market and Customs Union and, unless otherwise provided, EU law will continue to apply to the UK. But the UK will no longer be entitled to participate in the elections, decision making, and governance of EU entities. What’s more, the trademark system will continue as is until December 31 2020.

THE EUROPEAN UNION TRADEMARK (EUTM) Trademark rights are territorial, so protection is in force only in the country where the trademark is registered. An EUTM registration is a single trademark that results in its being valid in all current and future EU member states. In comparison, national trade-

MAKE THE RIGHT MOVES

mark registrations are protected only in the countries where they are registered. An EUTM offers trademark owners a unified system of protection throughout the EU, and significantly facilitates administrative matters, because only one office needs to be contacted in respect of any assignment, licence or renewal of the trademark.

REGISTERED EUTMS An EUTM registration will remain protected and enforceable in the UK until December 31 2020. From January 1 2021, EUTMs will no longer protect trademarks in the UK. Under the Withdrawal Agreement, on January 1 2021, the UK Intellectual Property Office (UKIPO) will automatically create a free comparable or cloned UK trademark,

AN EUTM OFFERS TRADEMARK OWNERS A UNIFIED SYSTEM OF PROTECTION THROUGHOUT THE EUROPEAN UNION recorded on the UK register, for all rights holders. The UKIPO will convert almost 1.4-million registered EUTMs to comparable UK rights at the end of the transition period. No action is required on the part of such rights holders. No fees are payable and the new UK right will be provided with mini-

/123RF — PIXELBLISS mal administrative burden. It is important to note that an EUTM takes four to five months to proceed to registration, assuming no objections or oppositions. As such, if considering applying for protection in both the EU and the UK, it is worth taking advantage of the transition period by applying for an EUTM promptly to have it registered before the end of the transition period. This will avoid the payment of the fees for a separate UK registration.

OPTING OUT Owners may opt out of acquiring a comparable trademark if, for example, this would be in breach of an agreement, but is likely to incur an official fee. The option will only be available as long as the trademark

owner has not made use of its comparable trademark in the UK. Opt-out requests can only be submitted after January 1 2021. Therefore, if no detriment will be caused, it may be more cost-effective to simply allow comparable UK trademarks to lapse on renewal.

PENDING EUTMS EUTMs already filed will most likely proceed to registration (barring opposition) before the end of the transition period and thus benefit from a free automatic UK comparable trademark. However, no comparable UK right will be created at the end of the transition period for pending applications. Owners of pending EUTM applications will be able to apply to register a comparable UK trademark using the

normal application process in the UK. For nine months from the end of the transition, the UKIPO will recognise the earlier filing date of the pending EUTM as well as claims to earlier priority and UK seniority recorded on the corresponding EU application, and examine it under UK law. The EUTM application will move forward covering 27 member states. Owners pursuing this option will be required to meet the cost of refiling the application, in accordance with the UK application fee structure. No automatic notifications will be issued by the UKIPO or European Union Intellectual Property Office (EUIPO) of the expiry of the ninemonth period and potential loss of rights in the UK, so this will need to be monitored by EUTM rights holders or their representatives.

RENEWING TRADEMARKS Once a comparable UK trademark is created, a separate renewal fee will apply for each comparable UK trademark and the existing EUTM, payable separately to the UKIPO and EUIPO. For the purposes of future renewal, the comparable UK right will retain the existing renewal date of the corresponding EUTM. Where the renewal date of the EUTM falls on or before December 31 2020, presuming it has been renewed, the UK comparable right will not need to be renewed until the next renewal of EUTM. Conversely, where the renewal date of the EUTM falls after January 1 2021, a renewal fee must be paid to maintain the comparable UK trademark, whether or not

the EUTM has been renewed before January 1 2021. Where the renewal date of the comparable UK trademark falls between January 1 and June 30 2021, a renewal reminder will be sent by UKIPO. Rights holders will get an additional six months from the date of the reminder to renew the comparable UK trademark without payment of any late renewal fee. This will need to be taken into account when clearance searches are being carried out in the UK during 2021. In a nutshell, nothing will change until the end of the transition period on December 31 2020. There will be no need to refile registered EUTMS as new UK national applications and dual trademark filings (UK and EU) are not necessary now unless there are reasons to do so. These might include potential EU oppositions or the need for a swift UK registration. IP owners should review their trademark portfolios to assess whether or not comparable UK rights will be beneficial to them. Commercial agreements such as coexistence agreements covering the EU should be reviewed and housekeeping issues dealt with. This will help avoid inconsistencies being carried over to UKcomparable registrations at the end of the transition. Existing UK legal representatives should confirm they have measures in place to act before EUIPO as of January 1 2021. This article does not intend to cover every intellectual property-related issue that Brexit generates. More guidance will be given as we continue to monitor UKIPO and EUIPO announcements.