Business Law & Tax: August 2021

BUSINESS LAW &TAX

AUGUST 2021 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

When all for one backfires

Employees present when an •assault took place are dismissed Itayi Gwaunza & Claire Nolan ENSafrica

A

group of 50 striking employees confront their manager in his office. An altercation ensues, which culminates in the manager being violently assaulted. Only five of the striking employees are caught “red-handed”, having been identified as the perpetrators of the violent assault.

The rest are only identified as having been there when the assault took place.

Can the employer dismiss all of the striking employees who were present when the violent assault took place, including the 45 striking employees who happened to be there, but who did not themselves carry out the assault?

According to the doctrine of common purpose, a person who associates themselves with the acts of a criminal perpetrator is criminally liable.

This was considered in Numsa obo Aubrey Dhludhlu & Others and Marley Pipe Systems (SA) (Pty) Ltd. During the course of an unprotected strike, several Marley Pipe

Systems employees surrounded the head of human resources, Mr Steffens, pushed him out of a glass window, threw rocks at him and punched and kicked him while he lay on the ground.

He suffered injuries to his face, his right arm and body.

Marley Pipe Systems took disciplinary action against 148 employees. It had identified these employees from photographic and video evidence of events on the day, clock cards used in its payroll system which recorded the names of employees who had arrived and remained at work, job cards used at workstations and through the evidence of the employer’s witnesses. Using this evidence, 12 employees were identified as having participated in the assault of Steffens. The remaining employees were found to have acted with common purpose on the basis that they: ● Had associated themselves with the assault through their presence at the scene; ● Had encouraged those involved in the assault; ● Had failed to come to the assistance of Steffens, ● Had rejoiced in the assault; ● Had held placards demanding that Steffens be removed from his post.

WORKPLACE ETIQUETTE

/123RF — MTKANG Following a disciplinary inquiry, Marley Pipe Systems dismissed all 148 employees for participating in an unprotected strike and for the assault on Steffens.

The National Union of Metalworkers of SA (Numsa), acting on behalf of the 148 employees, pursued an unfair dismissal dispute in the Labour Court. Relying on the doctrine of common purpose,

the Labour Court found that the dismissal of all 148 employees was fair.

By the time the dispute reached the Labour Appeal Court, Numsa had, in effect, accepted that the dismissal of the 12 employees who were identified as having participated directly in the assault of Steffens was fair. It was also accepted that the dismissal of 95 employees, who had been

identified as having been present when the assault took place, and as having therefore associated themselves with the assault, was fair — this being based on the doctrine of common purpose.

However, Numsa contended there was no evidence that the remaining 41 employees had been at the scene of the assault, that they had been aware of the assault, that they had intended to make common cause with the 12 employees, or that they had performed an act of association with them.

Accordingly, Numsa pursued an appeal on behalf of only 41 of the 148 employees on the basis that Marley Pipe Systems had failed to prove the 41 were guilty of assault and their dismissal was fair based on the doctrine of common purpose.

The Labour Appeal Court referred to the remarks of the Constitutional Court in a previous matter (that did not directly deal with the doctrine of common purpose), the National Union of Metalworkers of South Africa obo Nganezi and Others v Dunlop Mixing and Technical Services (Pty) Limited and Others: “Evidence, direct or circumstantial, that individual employees in some form associated themselves with the violence before it commenced, or even after it ended, may be sufficient to estab-

lish complicity in the misconduct. Presence at the scene will not be required, but prior or subsequent knowledge of the violence and the necessary intention in relation thereto will still be required.”

According to the Labour Appeal Court:

THE DOCTRINE OF COMMON PURPOSE CAN BE AN EFFECTIVE TOOL IN JUSTIFYING THE FAIRNESS OF THE DISMISSAL “In Dunlop, the [Constitutional] Court stated that association with the misconduct before it commenced or after it ended may be sufficient to establish complicity in the workplace context, with it not required that an employee be present at the scene. However, prior or subsequent knowledge of the misconduct and the necessary intention in relation to it is still required.

This moves the requirements to prove common purpose in the workplace outside of the strict requirements set out in the case law from Mgedezi.

“It allows an employee to be held to account for collective misconduct where the employee associated with the CONTINUED ON PAGE 2

2

BusinessDay www.businessday.co.za August 2021

BUSINESS LAW & TAX LATERAL THINKING

Stopping global tax dodgers

Law & Tax Editor Evan Pickworth interviews Peter Dachs, tax executive at ENSafrica, on the •newBusiness regime for global corporate taxes and efforts by the SA Revenue Service (Sars) to improve its own collection capabilities, especially when confronted with tax dodgers

E

P: The OECD (Orfor ganisation Economic Cooperation and Development) says multinationals have deprived countries of $100bn to $240bn each year — 4% to 10% of global corporate income taxes — by taking advantage of gaps and mismatches between different countries’ tax systems. Do you think SA benefits in any way from the move to a 15% minimum corporate tax by the G20 (Group of 20 countries)?

PD: Since the G7 (Group of 7) meeting on June 5 when the G7 finance ministers announced a global corporation tax of at least 15%, there has been much written and spoken about the new proposed global minimum tax rate. Janet Yellen, the US treasury secretary, called the agreement a “historic day for economic diplomacy”. She stated that “for decades, the US has participated in a selfdefeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response”.

Based on this agreement, on July 1 the OECD issued a statement committing each of its countries to a two-pillar plan to reshape the global tax system. This includes all the nations in the G20 of the world’s biggest economies, including China, India, Brazil and Russia. The idea is first that large multinationals should pay tax in the jurisdictions where their revenue is earned and, second, they should pay tax at a minimum

rate of 15%. The SA corporate tax rate is now 28% so the proposed minimum tax rate should not affect SA. EP: What are the implications of this move by the G20 and OECD for us?

PD: The first proposal is that a portion of the relevant multinational’s residual profit should be taxed in the jurisdiction where its revenue is sourced. This applies to automated digital services businesses and consumer-facing business. This so-called Pillar One approach deals with profit allocation and nexus and will link taxing rights in respect of these businesses to their sources of revenue which do not depend on physical presence in the jurisdiction.

WE SEE A SIGNIFICANT NUMBER OF PEOPLE WHO APPROACH US WITH QUESTIONS RELATING TO EMIGRATION

The idea is therefore that a minimum tax rate of at least 15% will be levied in relation to all income derived by the relevant multinational companies. This tax should ideally be imposed in the jurisdictions where the profits are earned in terms of the Pillar One nexus rule.

This is positive for SA since SA will now be able to tax these businesses in respect of revenues derived from an SA source regardless of whether the businesses operate though a “bricks and mortar” office in SA. EP: So this should level the playing field against global tech giants, who have been paying low to no tax for some time, right?

PD: Over the past few years, various multinational groups, based mainly in the US and operating principally in the technology space, have paid little tax outside of their country of residence. The jurisdictions where these multinationals generate sales and earn profits have not been able to tax the companies since they do not operate through a physical presence (“bricks and mortar” offices) in those jurisdictions.

To the ire of the US, certain countries in which these multinationals derive their profits threatened to impose a digital services tax on these multinationals. This led to a standoff between the US and some OECD jurisdictions.

These multinationals include various of the USbased technology companies.

Tax as a percentage of profits for Facebook, Amazon, Netflix, Google, Microsoft and

Apple for 2010 to 2019 is only between 10% and 17%.

In addition, although Donald Trump attempted to roll back the tax-exempt status of US-based multinationals’ foreign profits, this has not been effective. In respect of USheadquartered companies, offshore profits up to a 10% of return on investments made abroad are exempt from US tax. Profits above this amount are effectively only subject to a 10.5% tax, so half of the 21% rate imposed by the US on domestic profits.

In terms of the new proposal, these multinationals will now be subject to tax at a minimum rate of 15%.

EP: Will corporate taxes in SA shift at all — they actually remain high by global standards?

PD: SA’s corporate tax rate is currently set at 28%. There is a general trend towards increasing tax rates as opposed to a few years ago when the trend was the opposite. Both the UK and the US have committed to increasing their corporate tax rates. SA’s tax rate is relative-

ly high by global standards and it is therefore unlikely to increase. We have not seen an increase in the SA corporate tax rate since 2012.

EP: Do you think SA digital taxes are keeping pace with these developments?

PD: In terms of international tax law, SA did not have the right to tax foreign multinationals which are based in jurisdictions with a double tax agreement with SA and which did not operate through “bricks and mortar” offices in SA. As mentioned above, in terms of the proposed global tax reforms this will change and SA will be allowed to tax these entities.

Our taxation on digital profits therefore largely depends on international tax law as opposed to our own domestic tax laws.

OVER THE PAST FEW YEARS, VARIOUS MULTINATIONAL GROUPS HAVE PAID LITTLE TAX OUTSIDE OF THEIR COUNTRY OF RESIDENCE EP: Are you already seeing a difference in taxpayers and what is your message for those trying to evade tax?

PD: Any taxpayers attempting to evade tax operate outside the ambit of our law and are therefore subject to criminal sanctions. As mentioned above, it is a question of capacity building and enforcement by Sars to bring these tax offenders to book.

EP: Do you expect the recent unrest in SA to lead to more requests for emigration and becoming nontax resident? If so, what are the main tax risks to be aware of?

PD: Unfortunately we see a significant number of people who approach us with questions relating to emigration.

Previously there were two separate processes — financial emigration which involved the Reserve Bank, and tax emigration which tested whether an individual lost their SA tax resident status.

These have now been streamlined into a single process and the concept of financial emigration has been brought into the ambit of the tax rules. Once a person becomes nonresident from a tax perspective, they will be considered to have nonresident status from an exchange control perspective too.

One of the main tax risks of becoming nonresident of SA is that there is a deemed disposal of all assets (excluding immovable property) at their market value. This triggers a “dry” tax, required to be paid even though no assets have been disposed of.

EP: Your advice on how corporates and individuals should act to mitigate tax risks now that the tax filing season is open?

PD: Take proper tax advice to ensure full compliance with SA’s complex tax laws. As mentioned, our prescription rules do not apply in circumstances where a taxpayer has not made all the necessary disclosures required in terms of SA’s tax law.

When all for one backfires: violence in the workplace CONTINUED FROM PAGE 1 actions of the group before or after the misconduct, even if not present on the scene; where the employee had prior or subsequent knowledge of the misconduct; and he or she held the necessary intention in relation to it.”

The Labour Appeal Court stated that, in determining whether common purpose was present, a court is required to consider the circumstantial evidence available to it and to select the inference which is the more plausible or natural one

from those that present themselves.

The Labour Appeal Court accepted the following to have been the proven facts: ● All employees had reported for duty, left their workstations and embarked on the strike; ● All employees, save for one employee, were on Marley Pipe Systems’ premises and away from their workstations at the time of the assault; ● The striking employees, all of whom were Numsa members, moved together towards Steffens’ office, hold-

ing placards and presenting written demands which sought his removal; ● All the employees sought out Steffens and remained present on the scene during the course of, and after, his assault, with none of the striking employees coming to his aid; and ● Apart from one employee, no employee took advantage of the opportunities availed to them, both prior to and during the disciplinary hearing, or before the Labour Court, to distance themselves from the events of the day.

Applying the doctrine of

common purpose, the Labour Appeal Court found that the most probable and plausible inference from the evidence and the proven facts was that all 41 employees had associated themselves with the actions of the 12 employees before, during or after the assault on Steffens. All 41

THE REMAINING EMPLOYEES HAD ENCOURAGED THOSE INVOLVED IN THE ASSAULT

employees had the requisite intention that an assault would result or saw the possibility of the assault on Steffens taking place; despite this, they actively associated themselves with the assault.

Accordingly, the Labour Appeal Court found that the Labour Court could not be faulted for finding that all employees had committed the misconduct for which they were dismissed and that, because the misconduct was serious, dismissal was the appropriate sanction.

This decision illustrates that an employee does not

need to be caught “red-handed” to be found guilty of acts of misconduct perpetrated by others. The doctrine of common purpose can be an effective tool in justifying the fairness of the dismissal of employees who, despite not being caught “red-handed”, are proven to have associated themselves with acts of misconduct before, during or after their commission, with the requisite intention that the acts or misconduct would result in, or where the employees must have foreseen the possibility of, the misconduct occurring.

4

BusinessDay www.businessday.co.za August 2021

BUSINESS LAW & TAX

New hoops for estate agents

requirements of •thePrincipal Property Practitioners Act Justine Krige Cliffe Dekker Hofmeyr

T

he Property Practitioners Act, No 22 of 2019, which the president has signed into law, will repeal the Estate Agency Affairs Act, No 112 of 1976 in its entirety.

Draft regulations were published for public comment in March 2020. However, as things stand, there is no firm indication as to when the Property Practitioners Act will come into force.

When it comes into force, the act will place a number of new obligations on property practitioners, not all of which are contained in the Estate Agency Affairs Act. So, what are the principal obligations of property practitioners under the Property Practitioners Act? ● A holder of a Fidelity Fund Certificate (FFC) must: (i) prominently display his, her or its FFC in every place of business where he, she or it conducts property trans-

actions, to enable consumers to easily inspect it; (ii) ensure that the prescribed sentence regarding holding a FFC is reproduced on any letterhead or marketing material; and (iii) in any agreement relating to property transactions, include a prescribed clause guaranteeing the validity of the certificate. a trust ● Maintaining account. Every property practitioner must: (i) open and keep one or more separate trust account/s; (ii) appoint an auditor; (iii) provide the Property Practitioners Regulatory Authority with all information as regards the trust account/s and auditor appointed; (iv) deposit all trust money in the relevant trust account; (v) keep separate accounting records in respect of the trust account/s and cause them to be audited. ● Duty to keep accounting records and other documents. Every property practitioner must for a period of five years retain: (i) all documents exchanged with the

authority; (ii) all agreements, mandates and mandatory disclosure forms relating to financing, sale, purchase or lease of property; and (iii) any advertising or marketing material relating to the carrying on of business as a property practitioner. ● A property practitioner is not entitled to remuneration in certain circumstances. A property practitioner is not entitled to any remuneration unless the property practitioner and, if a company, every director of such company, is in possession of an FFC. A conveyancer may not pay any remuneration or other money to a property practitioner unless the practitioner has provided the conveyancer with a certified copy of his, her or its FFC. ● Maintaining mandatory indemnity insurance. The minister may, for the purposes of providing redress in respect of the contravention of a code of conduct or other sanctionable conduct in terms of the Property Practitioners Act, prescribe indemnity insurance which a property practitioner must take out and maintain. ● Complying with a code of conduct. Every property

NEW OBLIGATIONS

/123RF — DONSKARPO practitioner must comply with the prescribed code of conduct (still to be published by the minister of human settlements). ● Complying with Property Sector Transformation Charter Code. Every property practitioner must comply with the Property Sector Transformation Charter Code (still to be published). ● Providing certain mandatory disclosures.

To achieve the object of being a consumer-focused piece of legislation designed to protect consumers in the property industry, the Property Practitioners Act obliges property

practitioners to deliver a “disclosure form” to a seller/ lessor before concluding a mandate, and to a purchaser/ lessee before making an offer. The disclosure form must be signed by all parties and attached to the sale or lease agreement. If no disclosure form is signed and attached, the act provides that the agreement must be interpreted as if no defects or deficiencies of the property were disclosed to the purchaser. A property practitioner cannot accept a mandate unless the seller or lessor has provided a fully completed and signed disclosure form.

● Limitation on relationships with other property market service providers.

Section 58(2) of the Property Practitioners Act outlaws any type of practice in which a practitioner provides a consumer with an incentive to use a particular conveyancer or service provider. This is probably one of the most debated sections of the act, with practical ramifications for the way property practitioners do business.

These obligations are clearly intended for the protection of consumers. Any property practitioner in contravention of the act will be required to repay any fees received for a property transaction and may be issued with a fine. Furthermore, any person convicted of an offence in terms of the act is liable to pay a fine, or to imprisonment for up to 10 years. Thus, even if property practitioners do not hold monies in trust, they will need to comply with the remaining obligations in terms of the act.

Property practitioners are advised to familiarise themselves with these requirements as they may shortly be brought into force and effect.

LABOUR PAINS

Can companies force workers to be vaccinated?

T

he much-anticipated department of employment & labour “direction” on Covid-19 vaccination was gazetted on June 11 2021. Mandatory vaccination is permissible — or is it?

Employers across the country are grappling with the decision of whether to make Covid-19 vaccination mandatory, ensuring compliance with the June 11 2021 Consolidated Direction on Occupational Health and Safety Measures in Certain Workplaces Gazette.

Annexure C of this gazette is entirely devoted to mandatory Covid-19 vaccination (“Guidelines if an Employer Makes Vaccination Mandatory”).

Helpful as it is, it does not address the question of dismissal in circumstances where an employee persists in their refusal to be vaccinated, if the employer has adopted a mandatory vaccination policy.

Getting the social partners to reach agreement on the question of workplace vaccination considerations can’t have been easy. In fairness, it is a complex, multifaceted challenge. On the one hand, the

TONY HEALY Occupational Health and Safety Act compels employers to promote and ensure workplace safety, health and hygiene, which suggests that workplace Covid-19 vaccination should routinely be mandatory.

Yet, on the other hand, our constitution provides for key human rights such as the right to equality, dignity, bodily and psychological integrity, freedom of religion, belief and opinion and fair labour practices, all of which lay the groundwork for the contesting of mandatory workplace Covid-19 policies.

So, there we have it.

Employers may establish mandatory vaccination policies, or is that may not?

Hence the current almost paralysis in employer ranks on the workplace vaccination policies being pondered throughout commerce and industry.

At face value, some

industry sectors will have a stronger argument for establishing blanket mandatory vaccination policies than others. For example, most health facilities, in all likelihood, will be able to justify a mandatory policy given the operational difficulty in applying strict social-distancing protocols.

The mining sector, too, should be able to justify a mandatory policy given the enclosed working environment in mines, other than open-cast mines.

It is even quite arguable that in the hospitality sector, such as kitchens and housekeeping, mandatory Covid-19 vaccination policies should be able to withstand scrutiny.

However, our observations over a wide cross-section of other industry sectors is that employers would, by and large, prefer mandatory vaccination policies, but are reluctant to do so for fear of being one of the first test cases on the question of mandatory vaccination policies.

Because, make no mistake, there will be a test case or, more likely, a slew of test cases, and no employer

is particularly enthusiastic about being a party in such a case.

There are three options when it comes to concluding a workplace vaccination policy: ● Vaccination is nonmandatory. ● Vaccination is mandatory. ● Vaccination is mandatory for some employees, but not others.

Section 4 of annexure C of the gazette highlights that when contemplating a mandatory vaccination policy, a “premium is placed on public health imperatives, the constitutional rights of employees and the efficient operation of the employer’s business”.

An employer’s risk assessment in accordance with sections 8 and 9 of the Occupational Health and Safety Act will largely influence employer decisions regarding mandatory, or non-mandatory workplace vaccination policies.

If an employer risk assessment concludes the workplace is an inherently hazardous environment that is incapable of limiting the likelihood of workplace infection, a mandatory Covid-19 workplace policy

will be more justifiable than a workplace that can take steps to minimise the likelihood of infection.

This, of course, applies to both employees and any other third parties who may access the workplace.

On a practical level, the workplace risk assessment would focus on the ability to maintain social distancing, ventilation, sanitising protocols, the staggering of working hours and meal breaks, hygiene protocols and the like.

It is quite possible that an employer makes Covid-19 vaccination mandatory for some employees, but not for others.

For example, given the ergonomics of many workplaces, there may be a likelihood that infection will more likely effect the health of employees, or others, in one area of a workplace, more than another.

BECAUSE, MAKE NO MISTAKE, THERE WILL BE A TEST CASE OR, MORE LIKELY, A SLEW OF TEST CASES

Sooner or later, there will be dismissals for refusal to be vaccinated in workplaces with mandatory Covid-19 vaccination policies; it’s inevitable.

It’s clear from annexure C of the gazette that any predismissal procedure will need to include an employer evaluation of the employee’s grounds for refusal, and an assessment of whether it was possible to accommodate the employee in a position that does not require the employee to be vaccinated.

If not, dismissal on grounds of refusal to be vaccinated in a workplace with a mandatory workplace Covid-19 policy will likely amount to dismissal on grounds of either misconduct (refusal to obey a lawful and reasonable instruction) or potentially on grounds of incapacity, in that without being vaccinated, the employee does not have the capacity to meet their employment obligations in not agreeing to be vaccinated. ● Tony Healy is content director at the SA Labour Online Academy — www.saloa.co.za

5

BusinessDay www.businessday.co.za August 2021

BUSINESS LAW & TAX

Ruling clips advertising body’s wings

COMMERCIAL RIGHTS

High court judge says Advertising Regulatory •Board cannot have jurisdiction over nonmembers Gaelyn Scott ENSafrica

T

he SA high court judgment in the case of Bliss Brands v Advertising Regulatory Board (ARB) has real relevance for intellectual property (IP) owners.

The judgment deals with the issue of whether the ARB, the body that replaced the now defunct Advertising Standards Authority (ASA), has jurisdiction over companies that are not members of the body.

A thorny issue For years, brand owners have used the advertising regulation procedures to resolve trademark and copyrightrelated disputes. A particularly effective weapon available to brand owners is the so-called “ad alert”, a provision that allows the advertising regulation body to issue an instruction to its media company members not to accept an advert the body has ruled against.

The legality of such instructions was eventually challenged in the Herbex case. The Supreme Court of Appeal ruled the ASA had no jurisdiction over any non-

member and could not require a nonmember to participate in its processes, or issue any instructions, orders or rulings against it. This judgment contributed to the eventual demise of the ASA. The case of Bliss The ARB ruled against the packaging of a soap product offered by Bliss, after a complaint from Colgate. Colgate claimed Bliss was exploiting its advertising goodwill and imitating its packaging, issues that are dealt with in clauses 8 and 9 of the ARB Code.

This despite the fact that Bliss is not a member of the ARB. The ARB issued an ad alert instructing its members to refuse the advert. Bliss filed an appeal to the high court, where the case was heard by judge Denise Fisher.

The ad alert The judge said clause 3.3 of the ARB’s memorandum of incorporation (MOI) creates

THE JUDGE WENT ON TO SAY THAT ‘THE OPERATION OF THE AD ALERT HAS ALL THE FEATURES OF AN INDIRECT BOYCOTT’

ad alert power. What this means is that even though the ARB has no jurisdiction over nonmembers, it can issue an order requiring its own members not to accept an advert the ARB has ruled against.

The judge said the ad alert “has the effect that the rights of nonmembers are implicated in the ARB’s processes”.

This makes it an effective remedy. It also makes it a coercive remedy, resulting in two challenges. First, that the Ad Alert has no source in law.

Second, that the ad alert falls foul of Section 134 of the constitution.

Is the ad alert sourced in law?

No. As the judge said, membership of the ARB comprises “the whole of the print, digital and broadcast media in SA”, with members “obliged to follow the ARB’s prescripts”.

The judge went on to say that “the operation of the ad alert has all the features of an indirect boycott”.

Yet, said the judge, “the ARB has no truck with the law … its purpose is to enforce ‘standards’ which are determined and set by the membership”. She went on to say that a “private body that exercises public powers is not

/123RF — RAWPIXEL permitted to be … a law unto itself”.

Referring to the Herbex case, the judge said this is “authority for the proposition that the issuing of an ad alert against nonmembers is unlawful as a general rule”.

Does the ad alert contravene the constitution?

Section 134 of the constitution provides that “everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum”.

Yet, said the judge, the ARB adjudicates on complaints under clause 8 of the code (taking advantage of an advertising goodwill) and clause 9 (imitation), issues that fall within the realm of IP law. The judge went on to say that under the ARB procedure, the nonmember cannot defend itself in a court on the merits, the court’s jurisdiction is ousted, and “decisions on

legal causes of action akin to passing off, copyright and trademark infringement are made, in large part, by nonlawyers”.

The judge used some strong words. She spoke of “the usurpation of the court’s functions by the ARB” as well as “the tyranny of the ARB’s processes”.

The judge also spoke of lack of independence: “This funding model creates room for the perception of a lack of independence where the complainant is a funder and member and the respondent is a nonmember.”

What about the lawful limiting of rights, the application of section 36?

Section 36(1) of the constitution allows for the limiting of rights in certain circumstances. The ARB argued it is best placed to regulate the commercial rights of those seeking to sell and market products. Unsurprisingly, the judge disagreed — there are remedies under IP law and

various pieces of legislation relating to, inter alia, foodstuffs, medicines and tobacco products. There’s also the Consumer Protection Act, 2008.

Conclusion The judge declared the “public powers which are assumed by the ARB in relation to the regulation of the advertising of nonmembers” to be “unconstitutional” and “not sourced in law”.

The net effect: ● The ARB’s MOI and code are unconstitutional. ● Clause 3.3 of the MOI, which grants the ARB jurisdiction over nonmembers, is unconstitutional, void and unenforceable. ● The ARB has no jurisdiction over a nonmember of the ARB. ● The ARB may not issue rulings against or in relation to a nonmember or that member’s advertising.

This is a significant judgment, and we understand there will be an appeal.

How intellectual property ran the Games Duncan Potgieter & Leanne Mostert Webber Wentzel The Tokyo Olympics 2020 officially kicked off on July 23 (a year later than initially scheduled) and came to an end on August 8.

The multisport event quickly overwhelmed news feeds with interesting facts, figures and features. Less highlighted was is the key role played by intellectual property (IP).

The “elephant in the room” was a giant: the constant references on signage, apparel and merchandise to a year that was, well, not 2021. The simple reason was that, although the Olympics had to be postponed due to the devastating effects of the Covid-

19 pandemic, the Tokyo organising committee, with the International Olympic Committee (IOC), agreed to maintain the “Tokyo 2020” brand.

But why the decision not to rebrand?

To understand this, it is important to appreciate the magnitude of the decision to postpone the Games to a different calendar year. Since its inception in 1896, the modern Olympics was only postponed altogether in 1916, 1940 and 1944, due to world wars 1 and 2. Never before have the Olympics been postponed or cancelled due to a pandemic. Unprecedented circumstances had arisen for the IOC. According to an article by Carlos Castro, head of IP at the IOC, the IP journey of

/123RF — ISSEI KATO each edition of the Games starts about 10 years before the Olympic flame leaves Olympia in Greece and makes its way to the host city, where it lights the Olympic

Cauldron during the opening ceremony. It is common for cities interested in hosting an edition of the Olympics to register trademarks and domain names at an early

stage of the Olympic journey to preserve the IP ecosystem needed for a successful bid.

Once selected, a host city establishes a commercial plan with the IOC for the Olympics which, among other things, sets out the marketing plan and supports the operational planning and staging of the Games. From around bid stage until after the closing ceremony, IP such as literary and artistic works, relevant designs, logos, emblems or slogans are created, commissioned, acquired or otherwise secured.

This naturally includes the design of the official mascots and logo — a subject that has raised controversy recently, but which is perhaps a topic for another day.

Like any other commercial product, the IP rights associated with the Olympics protect the integrity and uniqueness of the brand. The IP protection is also crucial to ensure that the IOC continues to generate revenues from the most widely viewed sporting event in the world.

Since Tokyo 2020 was projected to lose about $800m in total revenue from ticket sales, there was a greater need to strategically use IP assets and branding on already commissioned medals and souvenirs at this year’s Games. This position ultimately prompted the commercial decision to maintain the “Tokyo 2020” brand established years before the coronavirus outbreak.

6

BusinessDay www.businessday.co.za August 2021

BUSINESS LAW & TAX

Losses in riots can lead to tax complexities

UP IN SMOKE

Insurance payments at replacement value that •exceed tax value means being taxed on recoupment Nina Keyser & Caroline Theodosiou Webber Wentzel

T

he destruction of an asset is a capital gains tax event. To put it in legal terms (drily, that is) “you are deemed to have disposed of your asset”.

If your office building, which some years ago cost R900,000 to build, burned down (whether due to “insurrection” or otherwise), and you receive an insurance payment of R2m, it is regarded as a capital gain of R1.1m. If you did not have insurance against this event, you have incurred a capital loss.

Unfortunately, a capital loss does not reduce taxable income. A capital loss can be used only to reduce another capital gain. That means you have to wait until you have another capital gain before you can use the capital loss.

If you have a short-term insurance policy covering your assets, you will probably be able to claim only if you have Sasria insurance. This is a separate policy which provides cover for special risks excluded by your short-term insurer. A Sasria policy covers losses arising from civil commotion, riot, strike, lockout, public disorder, rebellion, revolution and terrorism, but not war or war-related activities.

Cover will be provided in terms of the Sasria policy issued to you, which may not

match your underlying cover.

But cover is subject to the underlying policy being in place and premiums having been paid.

Sasria is a VAT vendor. If you are a VAT-registered business, you can claim back the VAT on your Sasria premiums from Sars, but you also have to pay VAT to Sars when you receive any indemnity payments from Sasria. In legal terms, “the indemnity payment is deemed to be consideration for a service”. Sars regularly checks whether VAT vendors who received indemnity pay-

COVER WILL BE PROVIDED IN TERMS OF THE SASRIA POLICY ISSUED TO YOU, WHICH MAY NOT MATCH YOUR UNDERLYING COVER ments declared the VAT due on those payments, since it is often overlooked.

VAT on indemnity payments must be paid if 1) The insured is registered for VAT; 2) The insured loss was incurred in carrying on an enterprise; and 3) The insurer made an indemnity payment.

If the insured assets are replaced, the VAT vendor can end up in a tax-neutral position. For example, if a machine insured for R150,000 is destroyed, and

the insurer pays out R150,000, the insured will become liable for output tax in the amount of R150,000 x (15/115) = R19,565. Assuming the insured business purchases a replacement machine for R150,000, the insured will then also become entitled to claim input tax of R150,000 x (15/115) = R19,565. As a result, the insured will end up in a tax neutral position, as long as the insured asset is replaced.

Timing is important.

Replacing the insured items in the same VAT period the indemnity payment is received will avoid the problem of having to pay output VAT in one period, while only being able to claim input tax in a later period, when the asset is replaced.

Indemnity payments could also have income tax consequences. If you have a form of business interruption cover, any insurance payout that is intended to cover your lost revenue will also be taxable. Insurance payments for the loss of depreciable assets may result in taxable recoupments. For example, if you purchased computers for R100,000 in the previous tax year, and claimed R33,333 as depreciation in your tax return, your computers have a tax value of R66,666. If you insured your computers at their tax value, you will receive R66,666 and no recoupment will arise. However, if you insured your computers at their replace-

/123RF — GEMENACOM ment value, and you receive an insurance payment which is more than the tax value of the computers, you will be taxed on a recoupment.

Using this example, if you receive an insurance payout of R100,000, you will have to pay tax on a recoupment of R33,333. If you receive an insurance payout of R120,000, you will have a recoupment of R33,333 and a capital gain of R20,000.

If you decide to take the money and run (legally, of course) you will have to pay the capital gains tax and the income tax on the recoupment. If, however, you decide to replace the computers, you can get roll-over relief (which means you only pay the capital gains tax when you dis-

pose of the replacement asset). To qualify for roll-over relief: ● You must “dispose of” the asset by way of theft or destruction; ● You must receive “proceeds” by way of compensation (ie an insurance payout); ● The proceeds must be equal to or exceed the base cost of the asset; ● The full proceeds must be

INSURANCE PAYMENTS FOR THE LOSS OF DEPRECIABLE ASSETS MAY RESULT IN TAXABLE RECOUPMENTS

used to acquire a replacement asset(s) in SA; ● The contracts for the acquisition of the replacement asset(s) must be concluded within 12 months; and ● The replacement assets must be brought into use within three years.

So, the tax consequences of riot damage and loss to a business can be surprisingly complex and must be carefully considered.

Ironically, even Sars may be out of pocket. Not everyone who receives an insurance payout will have to pay output VAT over to Sars, but Sasria is a VAT vendor and will be entitled to claim input VAT back from Sars on all of the indemnity payments made by it.

Violence and the employment relationship Johan Botes Baker McKenzie Businesses in SA have been seeking advice on how to deal with the impact of recent riots, unrest and looting.

Critical queries have included concerns regarding insurance cover, the ability to invoke force majeure clauses in commercial agreements, ensuring the health and safety of employees, assisting staff and their families who are stranded or unable to

procure food or essential items, and even dealing with employees who have been identified as having partaken in the looting.

Businesses are liaising closely with their brokers and lawyers in dealing with insurance companies on payment of claims relating to damage caused to property.

The destruction of infrastructure and risk to drivers have had a negative impact on companies that depend on the transport system. These

and other companies wish to understand whether they could escape damages claims by their clients as a result of the unforeseen events outside their control.

Employers have sought guidance on legal steps required to ensure the workplace safety of employees required to perform critical functions. Some employers have even arranged air transport into affected areas to either collect stranded staff or have food, water and other

essential items delivered to them and their families.

Employers have also been keen to understand their right to take action against employees who have been identified as looters or vandals on social media.

Footage has surfaced of drivers of luxury vehicles merrily taking part in the looting of retail stores. In a number of cases, the participants are identifiable through clear footage of their faces or vehicle registration numbers.

Employers may well be entitled to terminate the employment of such employees where their after-hours conduct has a negative impact on the employment relationship.

Where a retailer is a client of a professional services firm, for example, and a person identified as an employee of the professional services firm was shown on social media to have been involved in the looting of the same retail chain, the professional services firm would have

sound grounds to terminate the employment of the looting employee.

No client would feel comfortable to have service providers whose staff participated in the wanton destruction and pillaging of its stores.

The employer would be entitled to take disciplinary action against its employee for such nonwork-related conduct, where it can prove the link between the misconduct and the ongoing employment relationship.

7

BusinessDay www.businessday.co.za August 2021

BUSINESS LAW & TAX

Penalty for prurient assault

awards damages against employer, manager •forCourt sexual abuse of woman sitting alone in her office Jayson Kent ENSafrica

T

he plaintiff was alone in her office on Monday morning, November 16, when the second defendant entered.

“After greeting her, he walked directly to where she was sitting at her desk. As she looked up, he bent down with his head over hers and, putting his mouth over hers, attempted to force his tongue into her mouth. She clenched her teeth and tried unsuccessfully to push him away.

After a minute or so, he desisted.”

Plaintiff Ms E could have elected to use provisions of the Employment Equity Act, 1998 to seek redress against her employer. However, she chose another potential remedy: a claim for delictual damages in the High Court.

The trial in this matter was in two parts. The first dealt with whether the employer could be held liable for the actions of the manager who committed the assault described above. The court held the employer could be held vicariously liable.

The second part of the trial dealt with the question of what damages should be awarded to Ms E. Twelve years after the incident, took the high court, in PE v Beyers Naude Local Municipality and Another, awarded Ms E R4m in damages, payable by her former employer, the Dr Beyers Naude Local Municipality and the perpetrator of the assault (her then manager, Mr Jack) jointly.

This second part of the judgment should serve as a stern warning to employers in a number of respects: ● Employers are required to deal with sexual offences in the workplace in an appropriately serious and decisive manner to afford proper protection and support to the victim; ● SA courts are willing to hold the employer liable for the unlawful conduct of an employee, especially where that employee occupies a senior or managerial position; and ● An employee who is the victim of such conduct and decides to institute civil proceedings in the high court stands to be awarded damages that exceed the compensation awarded through the CCMA mechanisms provided for in the Employment Equity Act. The judge described the employer’s stance as “an illustration of how not to

manage a sexual assault in the workplace”. What did the municipality get so wrong in handling this matter?

Failure to manage the situation appropriately Ms E was placed on special leave and was required, as a first step, to tell Mr Jack — who had assaulted her only two days earlier — that she was going to be absent from work. He then interrogated her on the validity of the reasons for her absence.

Although Ms E was temporarily removed from the workplace, Mr Jack was never suspended.

Mr Jack was subjected to a disciplinary hearing and found guilty, but he was not dismissed for reasons the judge described as “mindboggling”.

Because Mr Jack was not dismissed, Ms E was, every week, “revictimised” when Mr Jack attended at the office.

The municipality had undertaken to forewarn Ms E whenever Mr Jack was going to be at the office, but it frequently failed to do so. So Ms E would encounter Mr Jack at work unprepared and began trembling and crying every

ITS APPROACH OF WASHING ITS HANDS OF THE MATTER, A LA PONTIUS PILATE, FELL WOEFULLY SHORT time she saw or even heard him. She could not sleep and was diagnosed with posttraumatic stress disorder, for which she was prescribed medication.

Eventually, when Ms E could no longer endure having to face Mr Jack at work, she resigned from the municipality after enduring “horrific circumstances” for almost a year.

Condemning the municipality’s conduct the judge remarked: “Its approach of washing its hands of the matter, a la Pontius Pilate, fell woefully short of what was required of an employer in the circumstances.

The municipality abdicated its responsibilities to protect [Ms E] and adopted a supine approach of bovine resignation” and “[Ms E] was thereafter left to fend for herself. The municipality took no steps to support or empower her.

“She was offered no counselling or any other assistance. Rather, if anything, the

message was that victims of sexual assault who were brave enough to come forward would not receive redress. The unrepentant perpetrator, Jack, was allowed to roam free in the workplace with unfettered access to [Ms E].

“Although she no longer reported to Jack, he still exercised a degree of control over her. [Ms E] stated that on one occasion when she applied for leave after the assault, the municipality took the stance that it was Jack who had the authority to approve her leave.”

The court referred to an earlier judgment of the Labour Court, which had held that an employer had effectively supported the harasser by not sanctioning him and was unimpressed by the municipality’s “disturbing lack of appreciation” of its obligation to provide Ms E with a safe working environment.

Vicarious liability In determining whether the municipality and/or Mr Jack were liable to pay damages to Ms E, the judge was required to determine whether the municipality should be held vicariously liable for Mr Jack’s conduct.

The court held that “there has been, in recent years, a growing realisation and appreciation of the prevalence and the devastating effects of sexual harassment in the workplace” and referred to several SA and foreign judgments on the issue, including a minority judgment of the US Supreme Court, in which the late Ginsberg J held that the appropriate question was whether the employer has “given the alleged harasser authority to take tangible employment actions or to control the conditions under which subordinates do their daily work. If the answer to either enquiry is yes, vicarious liability is in order, for the superior-subordinate working arrangement facilitating the harassment is of the employer’s making.”

The judge then determined that, although Mr Jack was acting solely for his purposes when he assaulted Ms E, the incident occurred while he was purporting to render service to the municipality, and it took place in the workplace.

The judge also took into consideration that Mr Jack held a position of authority over Ms E. The nature of the employment relationship presented Mr Jack with the opportunity to abuse his

COMPANY ACTIONS SPEAK LOUDER

/123RF — BORIS15 authority over Ms E. It was the municipality that had placed Mr Jack in the position to do so. The judge held that if an employer puts an employee in a special position of trust, the employer must ensure the employee is worthy of that trust. The munici-

SA COURTS ARE WILLING TO HOLD THE EMPLOYER LIABLE FOR THE UNLAWFUL CONDUCT OF AN EMPLOYEE pality was thus held vicariously liable for Mr Jack’s “prurient” actions.

Damages award In this case, Ms E elected to rely on the common law claim for delictual damages and recover the full losses she had suffered. But could she have achieved the same objective by using the statutory remedies provided in the Labour Relations Act, 1995 and the Employment Equity Act, 1998 (EEA)?

For example, she could have claimed the employer’s

conduct constituted unfair discrimination and instituted a claim in the Labour Court on this basis as well. If a finding of unfair discrimination was made, the Labour Court could order the payment of compensation as well as damages provided that the total amount to be paid was “just and equitable in the circumstances”.

The EEA also provides other important remedies.

For example, the court could order the employer to prevent the same unfair discrimination or similar practice from occurring in the future.

It may also make an order directing the employer to comply with the affirmative action provisions found in chapter 3 of the EEA. In circumstances where the employee may refer an unfair discrimination dispute (such as a case involving an allegation of sexual harassment) to the Commission for Conciliation, Mediation and Arbitration, the commissioner may make “any appropriate arbitration award that gives effect to a provision of the EEA”. It is also given the power to order compensation or damages to an employee. Still, the order for

damages may not exceed the amount referred to in section 6 of the Basic Conditions of Employment Act, 1997, ie R211,596.30.

As such, EEA provides potential remedies to an employee who has been subjected to unfair discrimination equal to, or perhaps more far-reaching, than those provided by common law delictual claims. However, this must be qualified in one crucial respect, the order must be “just and equitable” and, concerning an arbitration award, “appropriate”.

SA courts have often interpreted the term “just and equitable” to effectively limit the compensation and/or damages granted to the employee.

Reviewed by Peter le Roux, executive in the Employment department.

EMPLOYERS ARE REQUIRED TO DEAL WITH SEXUAL OFFENCES … IN AN APPROPRIATELY SERIOUS AND DECISIVE MANNER

8

BusinessDay www.businessday.co.za August 2021

BUSINESS LAW & TAX

Popia pops up in broad BEE watchdogging

KEEP IT CONFIDENTIAL

An enterprise must have a lawful basis for •processing personal information of its beneficiaries Wendy Tembedza & Leigh Lambrechts Webber Wentzel

U

nder the Codes of Good Practice for Broad-Based BEE (BBBEE), issued in terms of the Broad-Based Black Economic Empowerment Act 53 of 2003, an enterprise must maintain a scorecard showing, inter alia, how it is achieving black ownership targets.

The measured entity can earn BBBEE points on the scorecard, as part of the ownership element, for some collective investment ownership structures. These structures include employee share ownership schemes (Esops) and broad-based ownership schemes (BBOS).

In these collective investment structures, there is an interplay between the ultimate shareholders of the entity seeking a BBBEE rating (the measured entity), which may include an Esop and/or a BBOS, and the investee company, as the measured entity.

The main players involved in the verification of black ownership in this case are the measured entity, Esop or BBOS and BBBEE verification agent.

The codes require that for the measured entity to be awarded full points for an Esop or a BBOS, the beneficiaries of the structure, which is usually a trust, must be defined and identified. This can be done by defining the beneficiaries as a class of nat-

ural persons collectively (such as the local community of a certain area, learners at schools or colleges in a particular area) or specifically identifying them in a written record containing their details, including name, age, race group and address.

In both cases, a register has to be maintained with the relevant information of the beneficiaries and it must be produced to enable them to be identified for information and verification purposes.

The measured entity must obtain the requisite information from the trust, as it has to provide the details of the specific beneficiaries to achieve

CHILDREN’S SPECIAL PERSONAL INFORMATION AND PERSONAL INFORMATION NEED ADDITIONAL CONTROLS an annual rating by a BBBEE verification agency or audit firm.

The Protection of Personal Information Act (Popia), which came into force on July 1, has potential implications for measured entities with collective investment ownership vehicles that contribute to their black ownership.

Many trusts were established more than a decade ago, before there was a legal requirement to retain and process the personal infor-

mation of their beneficiaries.

In some cases, the beneficiaries may number only a few hundred people, but for some of the older and larger BBOS or Esops, the number may run into thousands.

Under Popia, an enterprise, and any related trust, must have a lawful basis for processing the personal information of its beneficiaries. The act also requires beneficiaries be notified of any sharing of their personal information. The trust or measured entity must ensure beneficiaries are notified that their personal information will be shared with a third party, namely the verification agency and/or their auditors or advisers and, potentially, the measured entity.

In turn, the verification agency is required to comply with Popia in processing beneficiaries’ personal information.

For example, a decade-old trust may have been formed to make sustainable investments and will use the dividends to fund thousands, or tens of thousands, of beneficiaries such as community members or schools. Its investments may stretch across 20 different companies, each of which has to submit itself to BBBEE verification annually. The trust must now ensure it has a lawful basis, as contemplated in Popia, to share these beneficiaries’ personal information with the measured entity and the BBBEE verification agent from time to time.

Different types of infor-

/123RF — 12SUPAKSORN mation are subject to different controls. Popia regulates “personal information” and “special personal information”. “Special personal information” includes information about the health or disability of a data subject. If the information pertains to minors, Popia has additional processing requirements. Children’s special personal information and personal information need additional controls.

We have discussed some of the practical examples that large trusts will face in complying with Popia. Popia does provide guidelines on obtaining exemptions from the act, but the threshold is high (for matters such as public interest) and seeking it may not be a practical option.

Under Popia, the responsible party must determine, first, what the justification is for collecting the information.

Has the trust made it clear to the beneficiaries their information is being collected and held? Is there an agreement

in place with the verification agencies on the processing of this information?

Normally, there would not be a direct relationship between the BBBEE verification agency and the trust. The

UNDER POPIA, THE RESPONSIBLE PARTY MUST DETERMINE, FIRST, WHAT THE JUSTIFICATION IS FOR COLLECTING THE INFORMATION relationship is between the measured entity that has to complete the BBBEE scorecard and the verification agency, with the measured entity being responsible for providing the agency with the information it requires.

Popia also provides that information may not be kept for longer than it is needed, unless justified. BBBEE verifi-

cation is annual, so the verification agency should not need to keep the personal information of data subjects after the audit has been completed. However, there may be legal grounds to justify continued retention under Popia. All parties to the BBBEE verification should ensure they retain records of personal information in a manner that complies with the act.

In future, it will be necessary to include a standard Popia clause in all agreements between measured entities and their ultimate shareholders, who may be collective schemes such as BBOS or Esops, and between the measured entities and their BBBEE verification agencies.

Employees or other beneficiaries of these schemes should sign an agreement consenting to the use of their personal details for verification purposes, if this clause is not already in place.

Outside-of-work misconduct can get you fired Jonathan Goldberg & Grant Wilkinson Global Business Solutions It is well known, and litigated on, that outside-of-work conduct can affect your employment relationship.

If the outside-of-work conduct links back to the employment relationship, the employer is entitled to act against the employee.

This disciplinary action

could include dismissal.

A number of other cases have revolved on social media posts that have brought the company’s name or reputation into disrepute.

Most of this would have taken place outside of work.

This is illustrated in Sedick & another v Krisray (Pty) Ltd [2011] 8 BALR 879 (CCMA) where two employees were fairly dismissed after they had made derogatory com-

ments about their employer on their Facebook page. The dismissal was upheld because the employees had not restricted access to their Facebook platforms.

Another case of social media abuse, and the consequences thereof, in the workplace is Lucas Dysel Crouse Incorporated v Commission for Conciliation, Mediation and Arbitration and Others (C784/2018) [2021] ZALCCT

3 (February 19 2021).

At the forefront, the criminal system needs to prosecute these cases with all these employees. Beyond that there is an employment relationship also in play and one needs to keep the basic rules and discipline in place.

A lot of the conduct we witnessed could result in imprisonment.

If we are bringing law and order back to SA, not only

should the criminal justice system now work effectively to prosecute all these individuals, but all employers (including municipal employers) need to take decisive disciplinary action which — in most cases — would include dismissal to keep the basic rules and regulations in place at the workplace.

We cannot have employees on national TV looting,

destroying property and using the property of the organisations to be involved in the most serious criminal conduct.

The time to act is now and what is in the employer realm is that they have employees who abide by the rule of law when it relates to serious criminal activities.

Most of the conduct we have witnessed is serious criminal conduct.

9

BusinessDay www.businessday.co.za August 2021

BUSINESS LAW & TAX

Beware the long arm of our tax law

PAY UP OR PAY DEARLY

Three-year Sars prescription rule does not apply in •cases of taxpayers failing to disclose material facts Peter Dachs ENSafrica

W

hen commentators refer to billions of rand a year being lost to base erosion and profit shifting, they are generally talking about taxpayers who operate outside the ambit of the law.

However, SA tax law caters for this group. For example, anyone who deliberately fails to disclose material facts that should have been disclosed to Sars commits a criminal offence.

Prescription rules prevent Sars from issuing further assessments more than three years after the original assessments. However, these rules do not apply in circumstances where the taxpayer has, for example, not disclosed material facts, resulting in the full amount of tax not being imposed in terms of the original assessment. This means such taxpayers may

be pursued by Sars for the relevant taxes at any time in the future.

In terms of our tax legislative process, unlike the UK where tax rules can be amended with no advance warning or consultation, SA follows a transparent process. This generally starts with the annual budget speech in February, when proposed tax amendments for the year are outlined.

Then, round about June, draft legislation setting out the proposed amendments is published for public comment. After a detailed consultation process, the final legislation is passed towards the end of that year.

SOUTH AFRICAN TAX LEGISLATION IS MORE THAN ADEQUATE WHEN COMPARED WITH THAT OF OTHER JURISDICTIONS

Stamping out tax mischief However, if some tax mischief is discovered during the year the tax authorities have the power to amend the law with immediate effect. We also have a functional advance tax ruling unit that gives rulings on difficult areas of tax law as well as on most large, public transactions.

This provides certainty to taxpayers in respect of proposed transactions.

Any South African corporate not paying its required share of tax will be subject to the sanctions set out above.

South African tax legislation is more than adequate when compared with that of many other jurisdictions around the world. What is missing is the capacity to enforce and police this system to ensure tax laws are followed, to expedite tax disputes and ensure tax cheats are subject to the relevant criminal sanctions.

This capacity building is urgent and requires people with tax expertise in a range

/123RF — IQONCEPT of specialised tax areas.

However, once this capacity has been rebuilt our tax legislation provides many of the tools required to increase SA’s tax collections.

It has been announced recently that Sars is significantly enhancing its high net worth unit.

When the Sars Large Business Centre was reestablished in 2018, one of its objectives was to focus on high net worth individuals as a “target segment”. To Sars, these are individuals whose gross income exceeds R7m a year and/or whose gross wealth exceeds R75m.

Spotlight on the wealthy and large businesses Sars has recently started issuing letters to high net worth individuals, typically

based on information collected from various offshore jurisdictions. These letters typically cover a number of tax years. Aspects that are of interest to Sars may include information from the taxpayer regarding confirmation of their offshore holdings, where the relevant funds are held, details of who facilitated the investments for the taxpayer, the source of funds used to acquire these assets and income derived from the assets.

In addition, Sars may be interested in information regarding compliance with the relevant tax obligations of the taxpayer in relation to such investments or structures.

While prescription means that Sars cannot issue addi-

tional assessments more than three years after the original assessment, this does not apply if there has been any fraud, misrepresentation or nondisclosure of material facts by the taxpayer. In those circumstances, Sars can go back beyond the three-year period.

On another front, as of March 1 2020, the foreign employment income exemption was capped at R1.25m of an expat’s total package. I am not sure if this move will raise significant tax revenue.

Instead it operates as a disincentive for individuals to travel and work outside of SA. It is important to note this applies only to South African tax residents. People who have emigrated from SA and are not tax resident in the country are not affected by this cap.

Is it more difficult for those wanting to return to SA after working abroad to get their tax affairs in order?

In this regard, there are two categories of individuals.

The first are those who are no longer considered resident in SA for tax purposes. There is a fair amount of compliance in respect of their tax position when they come back to SA and again become tax resident here. For example, all of their assets will be valued for capital gains tax purposes and they will only pay capital gains tax in respect of any increase in value from the date that they become a resident of SA. The second category are those who went overseas and are returning, but never lost their South African tax residence. There should not be any complexity in respect of these individuals from a tax compliance perspective.

Tax court ruling clarifies capital gains issue Megan Landers AJM Tax The tax court recently handed down its judgment electronically in the matter of Mr A (the appellant/taxpayer) vs the Commissioner for the South African Revenue Service (the respondent/Sars).

The matter concerned an appeal by the taxpayer against the revised assessment for the 2009 year of assessment reflecting a capital gain of R10.6m regarding the disposal of a business interest the taxpayer purportedly omitted to disclose to Sars.

In January 2009, the taxpayer disposed of his shares held in BCD (Pty) Ltd (BCD SA), making him liable for capital gains tax (CGT). The issue in this appeal is the proceeds from the sale of the shares and the base cost of those shares.

In terms of the sale of shares agreement, the tax-

payer disposed of all his BCD SA shares (being 53.1% thereof at the time) to the Sail Group for an amount of R66m, and which the tax court accepted as the proceeds that had accrued to the taxpayer in respect of that sale. In terms of the same sale of shares agreement, the taxpayer also disposed of his 53.1% shareholding interest in BCD Corporation, a company incorporated in the British Virgin Islands, for R10m, which according to the taxpayer “should have been looked at and considered as part and parcel of one and indivisible disposal of an asset” by the taxpayer.

However, Sars disagrees with the taxpayer’s contention “that the disposal of the BCD SA shares and the BCD Corporation shares should be treated, for purposes of capital gains tax or capital losses tax, as the acquisition and disposal of one asset”.

Sars contends the base cost of the BCD SA shares is simply R531, being the subscription price for which the taxpayer originally acquired the BCD SA shares on September 1 2004. However, the taxpayer argues the base cost of the BCD SA shares should be based on the valuation accepted by the Reserve Bank.

In 2003, the taxpayer — a South African nontax resident at the time — by application for amnesty of the Exchange Control Amnesty and Amendment Taxation Laws Act (12 of 2003), commenced the process of repatriating his wealth and assets accumulated and earned abroad. To that end, the taxpayer disclosed that he owned an 82% interest in the BCD Group of Companies, consisting at that stage only of BCD Corporation valued at R95m, which equates to R61.8m for his 53.1% shareholding.

The tax court accepted the taxpayer’s approach that the BCD SA shares and BCD Corporation shares should be treated as one “asset” being disposed of by the taxpayer; that is to say the shareholder should be treated as if he holds shares in one company, as the two companies are a group.

The tax court, rightfully so, alluded thereto that for capital gains tax purposes, when the taxpayer became a South African tax resident in 2003, he is deemed to have disposed of and reacquired (at market value) his worldwide assets with the exception of

IT CONCERNED AN APPEAL BY THE TAXPAYER AGAINST THE REVISED ASSESSMENT FOR THE 2009 YEAR OF ASSESSMENT

certain assets. The market value established at that time should then be treated as the base cost (tax value) of the assets to determine any capital gains tax exposure in the future, effectively, resulting in a step-up in the base cost of the BCD Corporation shares from its subscription price to the market value thereof as at February 28 2003.

In the end, the calculation translates to R66m (proceeds for the BCD SA shares) plus R10m (proceeds for the BCD Corporation shares) minus R61.8m (base cost for both the BCD SA and BCD Corporation shares which equates to a capital gain of R14.6m, less R16,000 (annual exclusion which is ultimately included in the taxpayer’s taxable income at an inclusion rate of 25%.

What to remember from this judgment?

When a person (who was a tax resident of another country) commences being a resi-

dent of SA for tax purposes, they are deemed to have disposed of and reacquire their worldwide assets at market value – except South African immovable property — on the day they become South African tax resident.

The market value established will then be treated as the base cost (tax value) of the assets to determine any capital gains tax exposure in the future.

Upon subsequent disposal of their assets, the capital gain or capital loss will be an amount equal to the proceeds on the disposal less the base cost of the assets (being the market value established when becoming a South African tax resident plus any further allowable expenditure incurred on or after the date of becoming a South African tax resident).

There may be rules that limit the base cost so arrived at to prevent capital losses in the future.

10

BusinessDay www.businessday.co.za August 2021

BUSINESS LAW & TAX

Guide to due diligence probe

Providing the correct documents and ensuring a •paper trail will make a company’s life much easier Justine Krige Cliffe Dekker Hofmeyr

I

nvestor funding can be the lifeblood of a startup.

However, most investors will want to conduct a due diligence investigation on a business before investing any funds or taking up an equity share.

What does this mean for your business if you are looking for funding? These tips should assist.

What is a due diligence? A due diligence investigation examines the structure and operations of the target company, its assets and liabilities, as well as any potential risks it faces in the market. In short, are there any skeletons in the closet, or risks around the corner?

The scope of a due diligence investigation will vary from case to case. Generally, the more significant the investment, the more detailed and probing the due diligence investigation.

Due diligence investigations typically comprise a legal, financial and tax review. This is done by performing a comprehensive analysis of the target company often including commercial, banking and finance, litigation, employment, environmental, insurance, tax, intellectual property and real estate law aspects.

The assets and liabilities of the target company and how the business functions are scrutinised. Often various legal, financial and tax teams will work in tandem. Due diligence investigations take the proverbial “pulse” of a company to measure its legal, financial and tax health.

How is a due diligence investigation undertaken?

The company under investigation will typically be required to make documentation available to the reviewers via a virtual or a physical data room.

THE DUE DILIGENCE REPORT IS TYPICALLY PIVOTAL IN AN INVESTOR’S ULTIMATE DECISION (AND ON WHAT TERMS) TO INVEST The nature of the documents and information required will have been set out in an information request.

These documents will depend on the specific purpose of the review, but are usually a mixture of company secretarial documents, constitutional documents, client and supplier agreements, employment agreements and human resource policies,

payroll schedules, business licences, trading terms and conditions, business plans, financial statements and tax filings, among others.

What are reviewers looking out for? Generally, reviewers are looking out for any potential risks faced by the target company, such as existing debt obligations in the form of unpaid tax or potential administrative fines as a result of statutory noncompliance, as well as any restrictive or unusual clauses in agreements, particularly those that trigger adverse consequences in the event of a change of control of the target company (for example, if an investor takes up a majority stake).

Depending on the particular sector in which the business operates, there may be a specific focus on certain aspects of the target company’s operations (for example, an emphasis on evidence of environmental legal compliance in respect of a waste management company).

How is a due diligence investigation ultimately relevant? Ultimately, the reviewers will compile a due diligence report that will give a full picture of the target company. This report will enable the investor to gauge the commercial viability and performance of the target company and make an informed

GETTING THE FULL PICTURE

decision as regards the investment.

It will also inform the nature and extent of the warranties and indemnities the investor may want to include in the investment agreement

GENERALLY, THE MORE SIGNIFICANT THE INVESTMENT, THE MORE DETAILED AND PROBING THE DUE DILIGENCE INVESTIGATION

so that any risks identified are adequately mitigated. The due diligence report is typically pivotal in an investor’s ultimate decision (and on what terms) to invest.

How can the target company assist? Statutory compliance (or noncompliance) is a key consideration. Review your basic company secretarial and other statutory records, founding documents, employment contracts and human resource policies, supplier and customer arrangements, trading terms and conditions, busi-

ness licences and tax filings and, to the extent that these do not comply with legal requirements, correct these as soon as possible.

Ensure the company keeps a comprehensive paper trail and, to the extent possible, as the business concludes key contracts, carefully consider whether they would be attractive to a potential investor. Businesses that are structured correctly from the outset, and which keep up-to-date records, are more likely to lend themselves to investment.

CONSUMER BILLS

Put the brakes on costly, lengthy court action

T

he Consumer Protection Act establishes a legal framework for a fair market for the benefit of consumers generally and in particular to reduce any disadvantages experienced in accessing the supply of goods by consumers who are lowincome people.

We can only wonder what the National Consumer Tribunal would have made of a claim recently heard in the UK court of appeal that related to the sale of a 1962 Ferrari 250 GTO that was sold for $44m.

According to the evidence, only 36 such cars were manufactured by Ferrari between1962 and 1964. At the time they cost $18,000, with each owner having to be personally approved by Enzo Ferrari.

The purchaser was a company that gave the impression in the heading to

PATRICK BRACHER the sale agreement that it was acting for someone else.

The purchaser could easily have been an individual and, if so, the Consumer Protection Act would apply locally to such a R640m deal.

It subsequently appeared that the company purchasing the vehicles was acting for itself with a view to reselling the vehicle at a profit, which probably irked the seller.

All sorts of disputes arose from the fact that, at the time of sale, the original gearbox was not in the car and was in the possession of a third party. The seller agreed to get possession of the gearbox

and to deliver it to the purchaser and he would get another $500,000 for doing so.

The purchaser did not want to pay the $500,000 until the gearbox had been identified as the original gearbox and wanted it inspected in Italy for authenticity. That suggestion was rejected by the court.

The purchaser suggested the gearbox had to be delivered to the purchaser in London rather than California because the contract said the gearbox had to be “turned over” to the buyer. That argument was also rejected.

According to the SA Consumer Protection Act, where the agreement does not expressly provide a delivery address for goods sold, the supplier of the goods must deliver them on the agreed date and at the agreed time, if any, or within a reasonable time after

concluding the transaction. In the absence of different agreed terms, delivery is at the supplier’s cost and delivery takes place at the supplier’s place of business (or residence if there is no place of business). The goods remain at the supplier’s risk until the consumer accepts delivery.

In the Ferrari case, the parties had entered into what one of them said afterwards was a “poorly drawn” contract. Even a poorly drawn contract is better than none because in SA the Consumer Protection Act does not permit patently unfair terms.

The disputes over the Ferrari resulted in court proceedings in California to prevent the possessor of the gearbox parting with possession, and the dispute over the $500,000 and other issues was heard in the London Commercial Court

followed by an appeal to the UK Court of Appeal. Though the seller eventually got his $500,000, the various proceedings must have cost a considerable sum besides the delay — the issues took from October 2017 until May 2021 to resolve.

The judges of the court of appeal said it was regrettable that what had begun as a relatively simple dispute between the parties, who had done business together in the past and who shared a love of classic cars, should have mushroomed.

The judge remarked that if the parties were unable to

THE JUDGE REMARKED THE PARTIES SHOULD HAVE ENGAGED A SKILLED MEDIATOR AT AN EARLY STAGE

resolve the matter themselves they should have engaged a skilled mediator at an early stage. Mediation was again urged on them when they applied for leave to appeal, but the parties did nothing about it. The court called this “highly unsatisfactory”.

There is a lesson to be learnt from this case.

Whether you are a lowincome or high-income consumer, formal disputes in front of courts and tribunals are slow, uncertain and expensive. Consumer issues are often relatively simple, and embarking on good-faith mediation can save a lot of time and money no matter how much you think you have of both, and no matter how many principles you think you are fighting for. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

11

BusinessDay www.businessday.co.za August 2021

BUSINESS LAW & TAX

Dope can help us to cope with Covid-19

PLAN OF ACTION

developments point to a growing attempt •toLegal exploit cannabis’ potential amid adequate control Darryl Bernstein Baker McKenzie

T

he production of cannabis for medical and adult use can provide new sources of taxable revenue for countries seeking to recover financially in the aftermath of the Covid-19 pandemic.

Recent legal developments in SA point to a growing attempt to harness the plant’s potential and ensure adequate control of the cultivation and sale of cannabis products.

In April 2021, the government proposed a draft national master plan with the aim of loosening regulations in the industry to boost economic development.

The plan looks at the prospect of creating an export market for cannabis producers and how current legislation can be amended to remove constraints on the commercial cannabis market. The plan also involves increasing investment in cannabis industry research.

Other suggestions in the plan are support for farmers and indigenous dagga growers in the cannabis value chain, as well as support for manufacturing and product development. One of the priorities in the plan is signing of the Cannabis for Private Purposes Bill into law by 2023.

SMALL PRODUCERS

Countries that want to make a success of their cannabis production industries are now looking at ways to reduce the barriers for small farmers to help steer the legal

cannabis market in a more equitable and sustainable direction.

The current legislative frameworks for cannabis production tend to push out the smaller cannabis producers. Legislators are looking at ways to give small farmers preferential access to subsidies and financial assistance, special licences and quotas.

In this regard, there is a need for consultation with small producers and experts in the health care, life sciences, and legal sectors to ensure the right legislative framework is in place to support all elements of the market.

THE STRINGENT QUALITY CONTROL MEASURES ARE NECESSARY TO ENSURE THE PRODUCT IS SAFE FOR MEDICAL USE This will also help to ensure the rapid development of the cannabis market is in line with the UN sustainable development goals, especially the the notion that no one gets left behind.

CANNABIS LAW IN SA

In SA, requirements for permits and licences to produce and sell cannabis are onerous and legal advice is a necessity to participate in this sector.

SA permits the cultivation of medical cannabis. A licence can be obtained, but the processes are stringent.

The Medicines and Related Substances Act of 1965 his-

torically mandated the then Medicines Control Council, now the A Health Products Regulatory Authority (Sahpra), to regulate the availability of quality medicines that are safe and efficacious for their intended use.

Among other things, this mandate requires Sahpra to apply standards for the manufacture, distribution, selling and marketing of medicines, medical devices and scheduled substances, including cannabis.

In terms of the medicines act, medical practitioners are permitted to apply to Sahpra for permission to access and prescribe unregistered medicines when intended to treat their patients, which may include cannabis.

Accordingly, Sahpra acknowledges and permits cannabis products, intended for medicinal purposes, to be made available in exceptional circumstances, to specific patients under medical supervision.

Potential cannabis growers and producers should note that, under the medicines act and in line with the UN Single Convention, the cultivation, production, manufacturing and use of medicinal cannabis products may only occur through a licence issued by Sahpra and a permit issued by the department of health.

Applicants can apply to Sahpra for a licence to cultivate or grow and produce cannabis and cannabis resin, extract and test cannabis, cannabis resin and/or cannabinoids, and to manufacture medicines containing cannabinoids.

/123RF — JENYAOLYA In the licensing process, Sahpra will inspect the plans for the facility and the qualitycontrol procedures, among other things. In addition, applicants would be required to apply to the directorgeneral of health for a permit to acquire, possess, manufacture, use or supply cannabis.

The stringent quality control measures are necessary to ensure the product is safe for medical use. Although no limit is placed on the amount of cannabis that can be grown, as part of the application process, Sahpra will allocate a permitted quantity.

Recent legal developments include the reassigning of cannabidiol (CBD), which is a component of the cannabis plant, from schedule 7 of the medicines act (highly regulated substances) to schedule 4 (substances that can be sold with a prescription). In addition, some products with delta-9-tetrahydrocannabinol (THC) levels of less than 0.001% and less than 0.0075% of CBD were excluded from the list altogether, which means they can be purchased without a prescription.

For licensed cannabis producers in SA this has now opened a range of potential new markets for their product. That being said, CBD products which do not fall under the exemption — namely those CBD products and products with THC levels of more than 0.001% and more than 0.0075% of CBD — continue to require a pre-

scription by a medical practitioner to be sold.

PERSONAL USE

The laws around personal use of cannabis point to its increasing acceptance under certain circumstances. In 2018, the Constitutional Court legalised the private use of cannabis, upholding the Western Cape High Court’s 2017 ruling, which found that the criminalisation of the private use of cannabis was unconstitutional.

The Constitutional Court found that banning private cannabis use was an infringement of a person’s right to privacy and “unconstitutional and invalid”. The court also ordered parliament to draft new laws within 24 months (the deadline was September 2020) to reflect the order.

In September 2020, the government published the Cannabis for Private Purposes Bill which stipulates that people who deal in cannabis or sell it to a minor are likely to face 15 years of jail time.

The regulations also state that anyone who is found guilty of smoking the substance in public or too close to a nonconsenting adult can face up to two years in jail, while a jail sentence of up to four years is to be expected for those who smoke close to children.

For those living alone, the rules state they can have unlimited seeds, but a maximum of four flowering plants, grown for personal use only.

INTERNATIONAL CONVENTIONS

SA is a signatory to the three UN conventions that regulate the international trade in narcotic substances and the country is in regular contact with the International Narcotics Control Board.

The three UN conventions are the Single Convention on Narcotic Drugs, 1961 (as amended by the 1972 protocol); the Convention on Psychotropic Substances, 1971; and the Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988. The purpose of these conventions is to establish international control measures for psychoactive substances so they can be made be available for medical and scientific purposes, while preventing their illegal use.

RISKS

Countries have different levels of legislation for cannabis and there is a high risk of breaking laws in some jurisdictions for those transacting across borders in the cannabis industry.

In light of these discrepancies in approach to cannabis regulation between countries worldwide, and in particular the extraterritorial application of anti-money-laundering legislation, financial institutions should consider whether the cross-border elements of a proposed financing are likely to trip up the cannabis laws to which they are subject.

Lenders, investors and underwriters in particular should query whether the borrower has subsidiaries, assets or operations in other jurisdictions that have not legalised their cannabisrelated business activities, and whether the activity in question would be considered illegal in the jurisdiction in which the lender or underwriter operates.

Lenders, underwriters and other capital providers should consider their own internal risk appetite, including the legal, regulatory, credit and reputational risks of transacting across borders in the cannabis sector.

Despite these risks, recent legal developments in SA highlight the many opportunities to capitalise on the demand for cannabis products as a way to recover from the effects of the pandemic.

Countries use laws such as Fatca to tail fat cats Peter Dachs ENSafrica One of the historic difficulties for Sars has been to identify high net worth individuals and ascertain all relevant details of their assets and structures. But in recent years the tax-disclosure landscape changed radically.

One of the game changers

has been the Common Reporting Standards. This is an OECD initiative that introduced a standardised model for the automatic exchange of information to allow participating jurisdictions to exchange information about their tax residents. SA agreed to exchange information in terms of this initiative in 2017.

The US equivalent of the

Common Reporting Standards is the Foreign Account Tax Compliance Act (Fatca).

In addition, in terms of the Tax Administration Act, 2011, Sars may request or provide information to foreign governments under double tax agreements or other multilateral or bilateral information exchange agreements.

The automatic exchange of

information (AEOI) forms part of this information exchange. AEOI involves the systematic and periodic transmission of taxpayer information between countries for various categories of income. Information about the acquisition of significant assets may be used to evaluate the net worth of an individual. As a result, the tax

authority of a taxpayer’s country of residence can check its tax records to verify that taxpayers have accurately reported their foreignsourced income or assets.

Sars receives information from 87 jurisdictions in terms of the AEOI regarding South African taxpayers.

The individual tax return also requires information

from taxpayers regarding their foreign investments and structures, such as offshore trusts. For example, the tax return requires a taxpayer to provide information regarding capital contributions or loans used to fund offshore trusts as well as information regarding distributions from such trusts to South African resident taxpayers.

12

BusinessDay www.businessday.co.za August 2021

BUSINESS LAW & TAX

Deal-makers target tech firms in Africa

AN INTERCONNECTED WORLD

While inbound investment rose in the first half of •2021, the unrest in SA threatens this trajectory Wildu du Plessis & Marc Yudaken Baker McKenzie

B

aker McKenzie’s latest analysis of Refinitiv data shows that the value of mergers and acquisitions (M&A) in the first half of 2021 (H1 2021) soared in SA, and that deal value also increased in Nigeria in the first six months of 2021, but Kenya experienced a slight decrease in both deal value and volume in H1 2021.

The value of M&A transactions in SA in H1 2021 amounted to $52bn, with 169 deals announced. Compared to the first half of 2020, transactions volumes fell 8% but deal value increased 958% in the first half of 2021.

Refinitiv data shows the volume of domestic transactions increased slightly to 80 deals, a 10% increase year on year. Domestic transactions in SA in H1 21 were worth $46.7bn, a dramatic 2,148% increase year on year. Further, cross-border transactions increased 17% year on year to 89 deals, with deal value surging 251% to $5.4bn.

Despite the excellent start to 2021, the unrest in SA threatens to affect the positive strides made in terms of foreign investment into the

country in the first six months of this year. For the sake of SA’s post-pandemic recovery, the turmoil has to be ended before investors are forced to seek less risky alternatives.

Foreign investors will only ramp up their investments if they are confident their assets are safe. They need political and economic certainty and must have confidence there is rule of law in the countries in which they invest.

High-technology companies were the primary targets for inbound deals in SA, with 12 transactions, representing 200% in deal volume year on year and a deal value of $160m, an increase of 1,997% when compared to the same period last year.

It’s no secret African consumers have shown a growing reliance on technology across multiple platforms, even well before the pandemic struck. The growth of the digital economy across

AFRICAN CONSUMERS HAVE SHOWN A GROWING RELIANCE ON TECHNOLOGY ACROSS MULTIPLE PLATFORMS

the continent has naturally been accelerated by the pandemic and this unabated demand for technology has caused extensive crosssector disruption, with the financial, energy, transport, retail, health and agricultural sectors all seeking opportunities to expand their tech infrastructure.

Fintech is also a popular tech sector for investment across Africa, and specifically in SA, Kenya and Nigeria, with health tech, mobility and agritech also attracting growing interest.

TECH SECTOR

It looks like SA is leading the way in terms of highvalue deals in the tech sector, and we expect this tech M&A trend to continue as the continent gears up to operate in the post-pandemic new normal.

The US was the primary investor for SA companies, with 16 deals (an increase of 60% year on year) valued at $496m (an increase of 340% year on year).

This was helped by TPG Capital LP’s $200m acquisition of Airtel Africa PlcMobile (telecommunications), announced in March 2021.

The largest inbound deal in H1 2021 was Temasek Holdings (Pte) Ltd’s (Singa-

/123RF — SEMISATCH pore) $500m acquisition of Leapfrog Investments (financials), also announced in March 2021.

Twenty-eight deals were recorded in Nigeria in the first half of 2021, and deal value amounted to $1bn.

Compared to the first half of 2020, transaction volume rose 17% and deal value soared 267%.

Refinitiv data reveals domestic transactions decreased 15% to 11 deals, but deal value increased 342% year on year to $726m.

Cross-border transactions increased 13% year on year to 17 deals, with deal value rising 8% to $296m.

Financial companies were the prime targets for inbound deals, with four transactions showing a 100% increase year on year and deal value of $10m, a 327% increase year on year.

Once again, the US served as the primary investor for Nigerian companies, with four deals worth $13m. The largest inbound deal into Nigeria in H1 2021 was Mwendo Holdings BV’s (SA) $182m acquisition of Blue Lake Ventures Ltd (Media and Entertainment), announced in June 2021.

While US investors have shown interest in Africa for some time, under President Joe Biden the general consensus is that US engagement with African countries is focusing on strengthening relationships in a strategic, co-operative way.

It has been noted that Biden will continue with successful bipartisan programmes implemented by his predecessors, as well as further encouraging US trade and investment in the continent.

TWENTY-EIGHT DEALS WERE RECORDED IN NIGERIA IN THE FIRST HALF OF 2021, AND DEAL VALUE AMOUNTED TO $1BN Considering US companies were the top investors in two of Africa’s largest economies in the first half of 2021, deal-makers are clearly comfortable with Biden’s approach to Africa.

In H1 2021, deal-making in Kenya decreased 14%, with 18

deals in the period, and deal value decreased 96% to $11m.

Financial companies were the prime targets for inbound deals, with five transactions, representing a 150% increase year on year, with deals valued at $11m, a 78% decrease year on year.

KENYA INVESTMENT

Nigeria served as the primary investor for Kenyan companies, with three deals. The largest inbound deal into Kenya in H1 2021 was Liberty Holdings Ltd’s (SA) $8m acquisition of Liberty Kenya Holdings Plc (insurance), announced in March 2021.

The decrease in M&A volume and value in Kenya in H1 2021 is expected to be temporary as the country continues to implement pandemic recovery policies, including a vaccine rollout strategy for the adult population with a planned completion date of mid-2022.

The country’s reputation as an East African investment hub, in addition to its strong technology capabilities, means it is just a matter of time before Kenya takes up its rightful place as one of the top target countries for technology transactions in Africa.