Business Law & Tax (BD, September 2021)

BUSINESS LAW &TAX

SEPTEMBER 2021 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Managing long Covid is to go on waters as yet uncharted

IN IT FOR THE LONG HAUL

Employers have no obligation to provide extra sick •leave but fair treatment of staff needs to prevail Pareen Rogers & Naa’ilah Abader ENSafrica

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mong the challenges facing employers during the Covid-19 pandemic is the increasing prevalence of “long Covid”.

Although not much is known about it yet, there are proactive measures employers can take to identify and manage long Covid in the workplace.

At present, there is no official medical definition of long Covid. What we do know is some people experience Covid-19 symptoms for weeks or months after they have contracted it. Recent research has indicated that 10% to 30% of those individuals who have suffered from

acute Covid-19 will go on to suffer from long Covid.

There are almost 200 different symptoms associated with long Covid that may affect an employee’s ability to perform their duties.

To adequately deal with long Covid, employers will need to understand it and create appropriate levels of awareness of the condition in the workplace. Awareness campaigns utilising internal and possible external service

INFORMATIONSHARING SESSIONS WITH ALL EMPLOYEES AND GUIDELINE DOCUMENTS FOR MANAGERS ARE KEY

providers could provide a good basis.

Some issues to consider in relation to accommodating employees who suffer from long Covid in the workplace: ● Long Covid does not place an obligation on employers to provide employees with any additional sick leave and neither does it alter the current legal position relating to ill health/incapacity processes.

However, employers should review their sick leave and other applicable policies to ensure they cater for instances of long Covid, albeit in a general sense. A condition that differs from person to person can only be properly managed through flexible policies and procedures; ● Long Covid may also require from employers to carefully consider the rea-

/123RF — CITALLIANCE sonable accommodation of employees who have contracted the condition, particularly in the context of remote working where physical interaction with colleagues is limited and the workplace has become a nebulous concept. Employee wellness programmes will become increasingly important in this context; ● There may be instances of long Covid that persist for long periods of time and employers should therefore engage with their insurers or with any relevant pension/ provident fund to determine whether such cases may be considered a temporary or a permanent disability;

● From a legal perspective, it may be possible for certain instances of long Covid to be considered a disability for the purposes of the Employment Equity Act 1998 and the code of good practice on the employment of people with disabilities. This depends on whether the condition results in employees having a physical or mental impairment over the long term or that recurs and substantially limits their prospects of entry into, or advancement in, employment.

Employers would then need to consider the reasonable accommodation of these employees and to ensure that these employees are not unfairly discrimi-

nated against; ● While each case may be different, and therefore need differing approaches to the condition, it is important for employers to put general processes in place to ensure that they act fairly and objectively and to avoid the risk of unfair discrimination

PRACTICAL GUIDANCE FOR EMPLOYERS

The difficulty with managing instances of long Covid is that employers and employees may be unaware of this condition and/or not know how to deal with it. In our view, information-sharing sessions CONTINUED ON PAGE 2

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BusinessDay www.businessday.co.za September 2021

BUSINESS LAW & TAX LATERAL THINKING

How we are riding 4IR wave

Business Day Law & Tax editor Evan Pickworth speaks to Ashlin Perumall, partner in the corporate/MA •practice at Baker McKenzie in Johannesburg and fellow of the World Economic Forum’s Centre for the Fourth Industrial Revolution (C4IR)

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erumall speaks about his experiences at the C4IR, what he learnt during his time as a fellow at the centre in San Francisco what the fourth industrial revolution (4IR) means for the continent, the development of digital currencies in Africa, and how laws and policies are slowly evolving to adapt to rapid advances in digitisation.

EP: Can you tell me a bit about your experiences at C4IR? AP: This has been an exceptionally rewarding experience. I have met and networked with individuals. This includes country leaders, business CTOs [chief technology officers] and CEOs, and academic experts, whose visions of the future are both interesting and eye-opening.

It has also provided an insidelane experience with various fintech market role-players, who allow a glimpse into the cutting-edge developments.

This will have a long-lasting impact on my outlook, both as a professional as well as my perspective on worldwide 4IR developments.

EP: How did this fellowship come about?

AP: I am a transactional lawyer who focuses on technology acquisition and tech advisory work. Being close to emerging technology projects makes you keenly aware of how quickly new developments continue to impact the world, but most acutely in developing economies. When I read the World Economic Forum’s (WEF) 2018 paper on the impact in 4IR in SA, I realised there was a dire need for insight into the developing market ecosystem, and the fellowship at the C4IR offered just that opportunity. Baker McKenzie has partnered with the WEF for a number of years and works closely with the international organisations it co-ordinates to address global, regional and

industry issues — all in the spirit of global citizenship. As part of this, the firm is able to send a fellow to the C4IR in San Francisco every six months, and I decided to apply for this opportunity and was selected.

EP: Is your fellowship over or is it ongoing?

AP: I began working on projects remotely in October 2020 due to the Covid-19 lockdown, and began my onsite fellowship in January

MY AIM IS TO USE THIS KNOWLEDGE TO NAVIGATE THE FUTURE OF AFRICAN IMPLEMENTATION OF DIGITAL CURRENCIES 2021 in San Francisco. This came to an end in July this year. However, your fellowship never really ends, as even once your on-site involvement has completed, you remain a part of the fellow alumni and network. I am also still working on the papers I was a co-author of while at the forum, which I am due to complete this October.

EP: What did you do during your time there?

AP: I was part of the Digital Currency Governance Consortium (DCGC) at the WEF, which focused on assessing

the future of digital currencies. I specifically worked on consumer protection, regulatory gaps and privacy-related aspects surrounding (1) central bank digital currencies (CBDCs) and (2) price stabilised cryptocurrency (stablecoins). With China’s digital yuan, officially the Digital Currency Electronic Payment, pushing ahead, many governments and central banks are engaging in pilots to test the possibility, benefits and challenges around issuing digital currency directly from central banks. Simultaneously, the private sector has been experimenting with the notion of “stablecoins” in the wake of the cryptocurrency boom. Stablecoins enable the payments and financial service promise of decentralised money to be realised by “stabilising” the volatility of value, typically by using a reserve, algorithmic or other “peg” to a real world asset or currency, such as the US dollar. The benefit of stablecoins is far reaching, and they are quickly becoming the bedrock of a new movement known as decentralised finance (DeFi). This comes with substantial consequences and risks and my work is to identify these so as to assist governments and regulators understand and develop appropriate laws and regulations.

EP: What experiences and knowledge have you brought back with you?

AP: In respect of my work, it was a life-changing experience to be able to work with some of the world’s leading minds and regulators on these issues and receive an inside lane view of collaborative multinational thought leadership. My assessment of new technologies has expanded as a result, especially in how the WEF serves governments and policymakers to look beyond the hype of new technologies through to the core fundamentals. Outside of work, I

will never forget the view of the Bay Bridge during my morning runs or my trips to Silicon Valley!

EP: How will you apply this to the African context?

AP: My aim is to use this knowledge to navigate the future of African implementation of digital currencies, and how this will impact the rapidly developing financial technology industry. I operate both as a legal adviser and as an enthusiast in this space, and strongly believe Africa has had some amazing innovations in the fintech space.

EP: Is Africa ready for the 4IR? AP: Africa is in varying degrees of “nacent readiness” for the 4IR. Using the WEF’s Readiness Diagnostic Model Framework, readiness could be considered as “the ability to capitalise on future production opportunities, mitigate risk and challenges and be resilient and agile in responding to unknown future shocks”. The different levels, from best to worst, are leading, legacy, high-potential and nascent.

EP: What still needs to happen in Africa to ensure we can take full advantage of the opportunities the 4IR will provide?

AP: Key features that are needed in an economy to be able to move up this ladder are: (1) infrastructure for technology and innovation, including connected ICT infrastructure, so new innovations can be adopted, commercialised and developed; (2) human capital and the

ability to respond to shifts in production and labour in the near and long term; (3) connection in global trade and the ability to deploy capital in the production of knowledge and technology; (4) a reliable and effective government and institutional framework; (5) sustainable resources and (6) access to foreign and local demand for scaled production. Some African countries have some of these features, but almost all are far behind in most, if not all.

EP: Which countries in Africa are ahead of the pack?

AP: SA and Kenya certainly bear many of these features, and with the introduction of the AfCFTA, the necessary corridors for 4IR production may start to open up.

EP: How will the 4IR/digitalisation change things in Africa?

AP: One of the major shifts for me would be the shift into a knowledge economy. There is a good story here and a negative one. The good story is Africa is able to utilise 4IR technologies such as blockchain in trade or precision medicine to uplift its communities and bridge the wealth divide. The negative one is that tech advances only those with access and digital literacy, and increases the divide. A lot of money and

MONEY AND EFFORT IS NEEDED NOW …

TO DEVELOP A WORKFORCE OF THE FUTURE THAT CAN WITHSTAND THE LABOUR SHIFTS effort is needed now in education and skills development, particularly maths and science, to develop a workforce of the future that can withstand the labour shifts.

EP: You were focusing on the legal and policy consid-

erations surrounding CBDCs and stablecoins in Africa (regulatory gaps, consumer protection and privacy). Where does Africa stand in this respect?

AP: Countries such as Kenya, Ghana, Egypt, Morocco and SA have all announced plans to explore the feasibility of CBDCs, with some, such as SA, creating collaborative efforts between its regulators for a co-ordinated approach.

The output has been slow but very positive and aligned with global trends in the policies adopted.

EP: Regarding the lack of oversight over cryptocurrencies in SA, which have led to significant losses in some cases following scams like Mirror Trading, how can we begin to close compliance gaps here and improve trust?

AP: Cryptocurrencies are risky and, to me, that has to be accepted and understood.

I feel regulators have made many pronouncements on this. For the crypto industry, as well as the stablecoin industry, we need better rules and requirements for the custodial holding of crypto assets, which are indeed on their way. Until such a time, this remains a risky space for investment.

EP: What legal advice are your clients looking for in this regard, and where are the opportunities?

AP: This has shifted over time. Right now, much of the African focus is on tax and exchange controls in the crypto space, and payment or settlement system licensing and rules in the stablecoin space. For obvious reasons, I decline any requests for investment advice, save to say there are a lot of innovations needed at a micro level in the African payments and remittances space, where there are already many exciting home-grown companies looking for capital. That is an area that is worth paying some attention to.

Managing long Covid is to go on waters as yet uncharted CONTINUED FROM PAGE 1 with all employees (in the form of “frequently asked questions” documents and the like) and guideline documents for managers are key

mechanisms to manage the process going forward, given that employers and employees are effectively navigating uncharted waters.

Creating an awareness that long Covid exists may

result in employees approaching their medical practitioners for assistance and being properly medically diagnosed. From an employer’s perspective, line managers, with guidance from the

human resources department, will be better placed to identify employees who are suffering from long Covid and to encourage them to obtain a proper medical diagnosis.

Advice can then be sought

from medical practitioners on treatment plans.

Employers will need to be agile and flexible in considering reasonable accommodation for employees and, ultimately, a phased return to

work. Where long Covid presents itself to be more permanent in nature, employers will need to utilise their incapacity processes and consider the possibility of medical boarding.

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BusinessDay www.businessday.co.za September 2021

BUSINESS LAW & TAX

IP action plan is needed to net VC funding

BUILD YOUR BRAND

Why a clear intellectual property strategy is •critical to securing venture capital funding Dina Biagio Spoor & Fisher

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ntellectual property (IP) is not an end in itself.

Nobody ever needed IP to make, market or sell a product or service and, in fact, many businesses compete in the market on the basis of price, service and quality without ever registering or enforcing any IP right.

That being said, there are significant benefits to be gained from having an IP portfolio, even during early start-up years. It’s no wonder then that venture capitalists will seek to understand not only what IP your business has but also if you know how to use it. A well-managed IP portfolio will likely add value to your business case and increase your prospects of obtaining venture capital (VC) funding.

To understand the importance of IP and how it can benefit your business, you must first understand these unassailable truths: ● Copying is not necessarily unlawful, but it is unlawful to infringe the IP right of another person or to compete unlawfully with them. Also, you can’t own “a technology”, but it is possible to own IP rights associated with that technology. The owner of those IP rights is entitled to prevent others from performing certain acts in relation to that technology. ● Different commercial mechanisms and strategies

are better suited to different types of IP.

LAWFUL AND UNLAWFUL COPYING

When it comes to copying, there is a fine line between lawful and unlawful competition. In the first place, the SA Copyright Act provides a “reverse engineering” exception or exemption from copyright infringement, if: (i) 3D articles according to an artistic work are already available to the public; (ii) the articles primarily have a utilitarian purpose; and (iii) the articles are made by an industrial process. A competitor will not infringe the copyright in that article by measuring i up and making its own identical 3D articles for use or sale.

So for example, if you sell a clever widget or softwareimplemented subscription service, which is easily reverse engineered or independently redeveloped once it enters the market, it may not be possible to prevent a competitor from making and selling the same widget or offering the same service under a different trademark.

In these instances, if you

THAT TRADEMARK BECOMES YOUR BRAND PROMISE; IT OFFERS A MEANS OF COMMUNICATING DIRECTLY WITH CUSTOMERS

are first to market, you may benefit from registered patent or design protection. You should also use a distinctive trademark to market and distribute your product. That trademark becomes your brand promise; it offers a means of communicating directly with customers on both an emotional and functional level.

Though it may be only one or two words, your trademark will create an expectation for your product in the minds of your customers against which all competition will be compared.

COMMERCIAL STRATEGY

Before investing in your business, a venture capitalist will want to see that your IP portfolio supports your commercial strategy. For example: ● If you plan to make your fortune as a passive licensor, you must have a protectable interest. If a licensee would lawfully be entitled to copy your product in the absence of the licence, then you don’t have licensable subject matter. If licensing is your strategy, you must have IP that would be infringed in the absence of the licence. ● It is possible to grant licences under copyright and know-how but these forms of IP don’t prevent independent redevelopment, so it might not be long before a licensee investigates the alternative of independently redeveloping source code, materials or information

/123RF — AAGGRAPHICS which he needs instead of paying a licence fee to use yours. If copyright works and know-how are not constantly evolved by the licensor, they are often useful to a licensee only as a “legup”. They will enable him to get to market more quickly and more cheaply but will not provide long-term licensing security. ● If your business provides a service then your expansion plans might involve franchising. Is your trademark so well known and your business get-up so appealing that a franchisee would want to use them to attract trade?

Are your business processes so evolved, documented and repeatable that you could teach someone else to do the same thing? ● If you sell a commodity product (such as a toy, foodstuffs or sports equipment) your trademark may be your

biggest asset. Is it distinctive?

Does your business plan allocate investment into brand building? ● If your business is to licence software for ongoing licence royalties, are you sure the open source you used in

IF YOU PLAN TO MAKE YOUR FORTUNE AS A PASSIVE LICENSOR, YOU MUST HAVE A PROTECTABLE INTEREST the development doesn’t oblige you to publish your modified code?

Even though the value of intellectual property rights (IPRs) is hard to quantify, a study recently published by the European Patent Office

showed there is a positive link between IPR ownership and economic performance, with revenue per employee being 55% higher for IPR owners than for nonowners.

The analysis further showed SMEs that own IPRs have a 68% higher revenue per employee than those that do not own IPRs at all and that SMEs which owned patents, registered designs or trademarks were more likely than other firms to achieve high growth in turnover in subsequent years.

If used and managed properly, an IP portfolio is undoubtedly valuable in creating or boosting a competitive advantage.

Venture capitalists won’t be fooled by the size of your IP portfolio — they will want to ensure you know how to use it properly. Unlike with most other things: it’s the “how”, not the “how much”.

How to cater for staff if a firm is destroyed Joon Chong & Nina Keyser Webber Wentzel The recent looting and damage to businesses in KwaZulu-Natal and Gauteng has had a devastating impact on many businesses, both small and large.

In some cases, the damage is so severe that the business cannot continue to produce or sell, and valuable data may have been lost, including employee and tax records.

If an employer’s premises are so severely damaged that employees cannot work and there is no work-from-home alternative, the “no work no pay” principle with no accrual of benefits is likely to apply, as the employer is not able to perform in terms of the employment contract due to supervening impossibility.

Where employers are severely cash constrained, they may not able to pay their employees at all. Ideally, the employer and employee

consult and agree to a temporary lay-off while the business is rebuilt. The employees may receive no or minimal remuneration during this period. In this case, employees would qualify to receive reduced work time (RWT) benefits from the Unemployment Insurance Fund (UIF).

The UIF recently enabled a bulk application process for Covid-affected employers to apply for RWT benefits for their employees. RWT benefits will be paid by the UIF

directly to the employees.

These payments are conditional on the employees being contributors to the UIF and having sufficient UIF

IDEALLY, THE EMPLOYER AND EMPLOYEE CONSULT AND AGREE TO A TEMPORARY LAY-OFF WHILE THE BUSINESS IS REBUILT

credits; and on employers being up to date with their UIF compliance obligations, including the submission of monthly reports to the UIF. There are industry discussions to provide for the normal RWT benefit to be calculated in the same manner as the RWT benefit is calculated in the Covid-19 Temporary Employer/ Employee Relief Scheme (Ters) directive. This is more beneficial as it provides for an employee to be paid the full

value calculated in terms of the formula in the Unemployment Insurance Act. Any amount paid by the employer to top up the payments will not reduce the benefit calculated in terms of the formula as long as, in total, employees do not receive more than their normal remuneration.

These discussions further hope to provide for an efficient process for employers with destroyed businesses to apply for relief for their employees as well.

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BusinessDay www.businessday.co.za September 2021

BUSINESS LAW & TAX

How to apply for new trade accreditation

NEW SET OF RULES

• Customs and duty rules have been tweaked Virusha Subban Baker McKenzie

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he rules under section 64E of the Customs and Excise Act that provided for accredited client status have been repealed and replaced by a new set of rules, which became effective on July 23 2021.

Section 64E deals with SA Revenue Service (Sars) client accreditation rules and is of interest to importers and exporters who wish to apply for accredited client status in SA. The concept of an accredited client or preferred trader is similar to the authorised economic operator concept found in other countries.

The new rules set out what the levels of accredited client status are, the application process, the validity of the person applying, the renewal of accredited client status, criteria for levels of accredited client status, the benefits of the two levels of accredited client status, as well as miscellaneous and transitional matters.

The amendments include plans to form an accreditation committee that will decide on matters falling within the customs and excise authority, including the consideration and approval or refusal of applications, and the cancellation or suspension of accredited client status.

HOLDERS OF ACCREDITED CLIENT STATUS MUST APPLY FOR RENEWAL NO LATER THAN 30 CALENDAR DAYS BEFORE EXPIRY The two levels of accredited client status referred to in the new rules are Level 1 — Authorised Economic Operator (Compliance) and Level 2 — Authorised Economic Operator (Security). A person who is registered for customs and excise activities in SA may apply for level 1 or 2 accredited client status.

According to the new rules, all customs activities

for which an applicant is registered or licensed under the provisions of the act will be taken into account when assessing applications for both levels of accredited client status.

Application for accredited client status must be made on form DA 186 and can be submitted at any customs and excise office where a client relationship manager is located, or emailed to the email address on the Sars website.

The application for accredited client status must include a customs accreditation self-evaluation questionnaire, a systems questionnaire, an accreditation agreement, an application to make a booking for the competency assessment and any other supporting documents necessary to proving compliance with the criteria.

Applicants have to establish sufficient knowledge of customs laws and must apply for a competency assessment on a booking form published on the Sars website. The competency assessment must be completed by the

/123RF — FEIYUWZHANGJIE applicant personally or by persons in the employ of the applicant, who have been nominated to administer accredited client requirements.

The Accreditation Competency Assessment Certificate is issued in the name of the person who took the assessment if a score of at least 70% is achieved during the assessment. The certificate is valid for five years from date of issue. However, the new rules state that if there are any significant changes to customs and excise legislation, the holder of the certificate may be required to take an additional assessment to prove knowledge of such changes.

INVESTIGATIONS

To verify any statements made by applicants, the new rules note that applicants must make available any books, accounts and other documents and any other information (for a period of up to five years) as required by the commissioner.

According to the new rules, approval of applications for accredited client status is subject to the following general conditions: ● The holder of the accredited client status must remain compliant with the criteria prescribed for the particular level of accredited client status. ● If they do not remain compliant, they must promptly notify the commissioner of the noncompliance or change, by submitting application form DA 186 and the required supporting documents. ● The holder of the accredited client status may not, without the prior permission of the commissioner, make any change in respect of his or her computer system. This includes any changes made to the system or changing to or from a third-party computer system, for example.

VALIDITY OF ACCREDITED CLIENT STATUS

The validity takes effect on

the date specified and remains valid for five years.

The application lapses if it is cancelled by the commissioner or if holders notify the commissioner that they no longer intend to retain the status.

Holders of accredited client status must apply for renewal no later than 30 calendar days before expiry of the status.

The rules state that any holder of accredited client status who wishes to benefit from the mutual recognition of accredited client status provided for by international agreements or arrangements should note that such benefits are to the extent provided for in memoranda of understanding between Sars and such agencies, and provided that consent to share information has been given by the holder.

TRANSITIONAL MATTERS

The section on transitional matters includes guidance on accredited client status that was applied for and granted before the new requirements.

The rules note that an application that had already commenced on the effective date of the new rules must be finalised in accordance with the repealed rules.

Further, accredited client status granted pursuant to such application must be regarded as a level 1 accredited client status. Any certificate issued before the effective date remains valid for purposes of these rules until its expiry date.

The new rules will allow a much more efficient and cost-effective movement of goods across SA’s borders.

Parties trading with SA are encouraged to apply for such status.

CONSUMER BILLS

What values does international sport espouse?

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need to declare at the outset that I act for Caster Semenya in challenging the World Athletics regulations that kept her out of the 2020 Olympic Games; but I invite you to consider these issues independently of her particular case.

You will find on Wikipedia a cartoon from the 1936 Olympics which imagines the year 2000 when spectators will have been replaced by television and radio, their cheers coming from loudspeakers. 2020 saw exactly that happening in sports events. Since most of us as consumers of sport get our viewing and therefore our exposure to values from televised events, it is worth examining what those values have come to.

The founder of the modern Olympics was impressed by the saying “a sound mind in a sound

PATRICK BRACHER body”. That is a fine sentiment except that it was based on what has been called “the ethos of the aristocracy as exemplified in the English public school”.

Although women started to compete in a small number of events in the second modern Olympics in 1900 (a far cry from the ancient Olympics where the penalty for women attending was death), 35 countries still fielded all-male delegations by 1992. The Olympics started as an amateur event but when US and Western European athletes were

disadvantaged on the medal table by Russian athletes who were nominally students, soldiers or working in a profession but paid by the state to train on a fulltime basis, professional athletes were allowed to compete from the 1990s.

That has exaggerated the fact that success at the Olympics is dominated by money, and genetic advantage often triumphs only to the extent that the money permits.

I am ignoring the fact that the 2020 Olympics cost about $15bn to host because we all gain from that, except perhaps the host nation. If you compare the Olympic medal count with economic advantage the point becomes obvious. The first 10 places are taken by the US (113 medals), China (88), Japan (58), Russian Olympic Committee (65), Great Britain

(71), Australia (46) and European nations (146). You will get to number 19 before you come across the first African nation, Kenya with 10 medals, and the next one at number 36 (Uganda) with four medals.

The question is: what does the money buy?

What it buys is a healthy set of medals for a wealthy country. You only have to listen to commentary on a sporting event where the commentators represent a particular competing nation to understand what chauvinism is behind the Games.

If Von Clausewitz said that war is politics by other means, it is equally true that international sport between countries has become politics by other means.

Everyone loves the sight of the genetically advantaged

Kenyans winning the long -distance races and Jamaicans winning the sprints. Newcomers are not so welcome.

When a young Namibian sprinter came second in the women’s 200m final, what was the reaction of the white male head of the world athletics body? Not a celebration of a medal for a young African person and young African nation. He sourly threatened to change the existing doubtful and scientifically unsupported regulations to prevent her running. Knowing, of course, that the young athlete does not have the millions needed to challenge any new discriminatory regulations.

WHAT IT BUYS IS A HEALTHY SET OF MEDALS FOR A WEALTHY COUNTRY

If you add to that the bigotry in the many worldwide remarks regarding the contribution of transgender athletes to modern sport, and indeed to modern anything, you can see how our values, and healthy minds, can be distorted by this kind of thinking if we are not vigilant. If, as is the case, many people in former colonised countries see sport as colonialism by other means then we have some re-evaluation to do.

We need to look at sporting bodies that are run from places such as Monaco and Switzerland (numbers 3 and 11 on the world’s GDP per capita list) to ask what they are doing to bring about real fairness in sport. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

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BusinessDay www.businessday.co.za September 2021

BUSINESS LAW & TAX

BEE after Burger King deal

Does competition regulator’s •stance spell doom for deals in

MERGER MINEFIELD

which black shareholding falls?

Heather Irvine Bowmans

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he Competition Commission recently decided to prohibit a proposed transaction in which Grand Parade Investments, one of SA’s prominent empowerment investment holding companies, attempted to sell its investment in Burger King (SA) and Grand Foods Meat Plant to two private equity funds, ECP Africa, ECP Africa Fund IV and ECP Africa Fund IV (ECP).

Although it has since reversed its decision, the commission’s defence of its stance on transactions that feature a reduction in ownership by black shareholders has caused local and foreign investors to wonder whether it will be possible to gain clearance for mergers of this kind in SA in future.

The commission initially prohibited the transaction because the shareholding by black individuals in the target companies would reduce from more than 68% to 0%. In doing so, the commission relied on a fairly recent amendment to section 12A(3) of the Competition Act, which requires that when determining whether a merger “can or cannot” be justified on substantial public interest grounds, the competition authorities must consider, along with various other public interest factors, the effect a merger will have on “the promotion of a greater spread of ownership, in particular to include the level of ownership by historically disadvantaged person by firms in the market” (section 12A(3)(e) of the act).

This, the commissioner was quoted as saying, means the commission must ensure that “in the end, the structural profile of the SA economy reflects the demographics of the country” (Sunday Times, August 1 2021).

However, as the Competition Appeal Court (CAC) recognised in the Wal-mart/ Massmart decision, the public interest assessment contemplated by section 12 of the Competition Act is a far more nuanced (and challenging) task.

Public interest concerns arise at the intersection of competition law and industrial policy, and so our competition authorities need to exercise “caution in respect of competition law being employed as a surro-

gate for a coherent industrial policy which by its very nature involves a series of polycentric decisions ill-suited to judicial interventions”.

The amendment to section 12A(1) of the act now requires that the commission assess whether a merger can “or cannot” be justified on “substantial” public interest grounds. This makes it clear that a merger which has adverse public interest consequences can be prohibited based on that alone.

There is also now an additional public interest factor to be taken into account, as a result of the addition of the “greater spread of ownership” criteria in section 12A(3)(e) of the act. However, these amendments have not

BEE INCENTIVISES AND REWARDS COMPANIES THAT UNDERTAKE MEASURES TO FOSTER EMPOWERMENT fundamentally changed the complex balancing act required by the act. Nor have they removed the need for our competition authorities to exercise caution when approaching this task.

As the Appeal Court pointed out, when attempting to formulate suitable conditions to address public interest concerns arising from the entry of Walmart into SA, “s 12 A (3) should not be seen as a substitute for or even a significant component of a comprehensive policy designed by the state”.

SA has such a policy framework, in the form of its broad-based BEE (BBBEE) legislation. This incentivises and rewards companies that undertake measures to foster empowerment but does not make it mandatory for all firms trading in SA to be partly black-owned, or focus exclusively on ownership as the main criteria for empowerment. Rather, this legislation recognises ownership alongside various other potential commitments to empowerment, such as enterprise development, management control, skills and socioeconomic development. Against this backdrop, it would be inappropriate for the commission to focus solely on black ownership when it regulates mergers.

Requiring companies that

/123RF — ROBWILSON39 merge to implement different empowerment commitments — which are limited to black ownership — would force these firms to make more costly and burdensome commitments than their competitors. This is a fundamentally inappropriate way to enforce industrial policy.

A fixed rule that any merger that leads to a reduction in ownership by historically disadvantaged persons or workers should be prohibited would thus be open to challenge on a number of grounds. The amended section 12 does not create a positive obligation on all merging parties to retain (or indeed to introduce) black shareholders. It simply requires the commission to consider whether a proposed transaction “promotes” a greater spread of ownership, or not.

Moreover, this particular factor is not identified by the legislation as the most important

THIS LEGISLATION RECOGNISES OWNERSHIP ALONGSIDE OTHER POTENTIAL COMMITMENTS TO EMPOWERMENT consideration, and so it has to be investigated by the commission, but must ultimately be weighed against the other public interest factors. This would include, for example, the impact of a proposed merger on employment.

If a proposed merger preserves or creates employment, this has to be balanced against the reduction in black ownership in the target firm.

Subsection (c) also requires the authorities to consider whether a proposed merger will impact on the ability of firms owned and controlled by historically disadvantaged persons to enter and participate in markets.

The commission thus also has to consider the broader negative public interest consequences of making it more difficult or expensive for black shareholders to sell their shares, and the need for BBEEE investors to exit their investments at an appropriate time in order to remain competitive.

A sweeping prohibition of deals simply because they lead to a reduction in black shareholding might impact negatively on the ability of black investors to participate in the private equity and venture capital markets. The likely impact on local and foreign investment into these markets is thus also relevant to the assessment required under subsection (a), which requires an evaluation of whether a proposed transaction will impact on a particular sector or region, and subsection (d), which refers to the ability of national industries to compete in international markets.

The amendments to section 12A(3) have also not fundamentally changed the analysis which is the commission is required to undertake in terms of section 12A(1), which

is to evaluate whether a merger can or cannot be justified on “substantial” public interest grounds. To warrant a prohibition, a transaction must be likely to have a “substantial” negative effect on the public interest. There might conceivably be cases where a reduction in black ownership is likely to result in a substantial public interest effect in

PUBLIC INTEREST CONCERNS ARISE AT THE INTERSECTION OF COMPETITION LAW AND INDUSTRIAL POLICY and of itself — for example, in markets in which the target accounts for a substantial proportion of the overall empowerment in a whole industry or sector, or is a very large supplier or customer. In most cases, however, it is hard to see how a reduction in black ownership in a single target firm would have “substantial” effect “levels of ownership” by historically disadvantaged persons in SA. However, merging parties need to recognise that the preamble to the act makes specific reference to the fact that it will play a role in the “transfer of economic ownership in keeping with the public interest”. The commission accordingly has to investigate the impact of any proposed transaction on all of the public interest factors in list-

ed in section 12 of the act factors, and deal with these impacts. Once the commission has identified prima facie concerns, including about a reduction in black ownership, it is up to the merging parties to address these concerns.

This might involve presenting additional evidence about the nature and circumstances of their proposed sale — for example, a proposed transaction may allow existing historically disadvantaged shareholders in the target firm to exit and realise value; or it may salvage a distressed firm in a sector of the economy which is not currently attractive to local investors.

Alternatively, it might require that merging parties present a package of public interest conditions which positively address the various different factors contemplated by section 12, in a way that overall, offsets a reduction in the spread of ownership.

Merging parties should accordingly consider the potential impact of their transactions at an early stage of planning their transaction, and if necessary, engage proactively with the commission and other stakeholders like trade unions and the department of trade, industry & competition to address any potential concerns.

Proactive and creative commitments may be required to achieve public interest outcomes which foster the effective participation of historically disadvantaged persons, as well as small and medium businesses.

7

BusinessDay www.businessday.co.za September 2021

BUSINESS LAW & TAX

Liability when uploading others’ videos

PLENTY OF PLATFORMS

Two Court of Justice of the European Union cases •provide guidance for copyright infringements Delene Bertasso ENSafrica

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he liability of online platforms when infringing intellectual property (IP) material appears on their platforms is an interesting topic. Who is liable — the person who posts the material or the online platform?

This was recently considered by the Court of Justice of the European Union in two separate cases.

Copyright news in SA these days is scant. There tends to be few court judgments in the area and, as for legislation, well, there is interminable stasis. This relates to the proposed amendments that introduce fair use exceptions to replace the existing fair dealing exceptions that have always formed part of SA law.

So, a judgment that pertains to an issue that almost everyone can relate to, given that we all spend a significant

amount of time visiting online platforms, is welcome.

THE PARTIES TO THE CASES

The Court of Justice of the Union cases European involved YouTube and Cyando, which is the company behind the Uploaded platform. The cases arose from complaints of unauthorised music uploads on YouTube and unauthorised textbook uploads (which had been produced by publisher Elsevier) on Uploaded.

The court acknowledged the important role online platforms play in modern society. The court also recognised that the material is

THE COURT ACKNOWLEDGED THE IMPORTANT ROLE ONLINE PLATFORMS PLAY IN MODERN SOCIETY

uploaded by users acting independently, who decide whether or not the content should be available to others.

It is therefore the user who effectively communicates the material to third parties.

LIABILITY FOR ONLINE PLATFORMS

The court held that online platforms are generally not responsible for infringing content that users have uploaded. In the words of the court, the platform operators have not themselves made a “communication to the public” of the copyright protected material. The mere fact that the operator may be aware that protected content is available on its platform is not enough to hold it liable.

Yet, there may be situations where the platform operator is liable for infringing material that appears on its platform. In deciding this, the following factors need to be considered: ● Does the platform operator implement the sort of tech-

/123RF — RVLSOFT nological protection measures that could be reasonably expected of a diligent operator? ● Does the operator, through its business model, encourage the illegal sharing of material protected by copyright? ● Does the operator provide tools that enable or facilitate illegal sharing? ● Does the operator actually participate in the selection of copyright protected material for illegal communication to the public?

The protection the platform operator enjoys may fall away when it does more than simply make the platform available — when it adopts a financial model that encourages the illegal communication of protected material, provides the tools that facilitate illegal sharing or when it

participates in the selection of the protected material that is communicated to the public.

The protection the platform operator enjoys may also fall away by default — when the platform operator fails to expeditiously delete the infringing material, or where the platform operator fails to install appropriate technological measures, the sort of copyright protection measures that could be expected from a reasonably diligent platform operator.

SPECIFICITY

The court made the point that the platform operator will not incur liability when it has no more than a general sense that infringements are taking place. Nor will it incur liability when there is nothing more specific than the claim that the platform operator aims to

make a profit.

SAFE HARBOUR

The court also dealt with the safe harbour exemption created by the e-commerce directive.

This directive provides that a platform operator is exempt from liability if it has no actual knowledge of illegal conduct taking place on its platform. The Court of Justice of the European Union made the point that general or nonspecific knowledge about infringing material on the platform does not invalidate this defence.

Court of Justice of the European Union judgments tend to be persuasive in SA. This judgment, which deals with a current and significant issue, is likely to be relevant to SA and may be followed by our courts.

Business rescue can be good for all parties Dr Eric Levenstein Werksmans Continued pressure on business and world economies due to the battle with the Covid-19 pandemic continues into the second half of 2021 and looks set to continue into 2022. With recent unrest in parts of the country, many businesses had to shut down, and many of them failed to reopen.

Creditors and suppliers of goods and services to companies in distress or on the cusp of insolvency have difficult decisions to make.

Defaulting companies may already be struggling to pay existing debt and without lines of credit be unable to continue trading.

Management and credit controllers will need to keep a careful watch on customers and establish whether there are any warning signals of looming insolvency. Chapter 6 of the Companies Act No. 73

of 2008 introduced mechanisms to rescue those companies trading in financial distress and by way of the business rescue process.

Suppliers and creditors that do not understand chapter 6 of the act and the intricacies of the business rescue mechanism, place themselves under severe risk in the event that one of their major customers (debtors) files for the business rescue process and where the rescue legislation intervenes and complicates ongoing business and trading relationships.

In SA, 2021 has seen several companies going out of business and with many turning to the business rescue process.

South African creditors should realise that business rescue (as a restructuring tool for severely distressed companies) generally provides a “better” outcome than liquidation, and thus should seri-

ously consider supporting the process. Unsecured suppliers/creditors facing the liquidation of its customer would in all likelihood receive a zero (or negligible) dividend after all secured and preferent creditors have been paid in liquidation. Generally, business rescue dividends should result in a higher return for creditors than would result in a liquidation.

It has, however, been recently reported that certain suppliers/creditors are becoming increasingly unhappy with the level of pay-outs/dividends that are generally being made available in the formal business rescue process.

An example of this is the recent court action instituted by 10 Edgars suppliers in order to improve their low pay out and further to obtain clarity as to why the clothing retailer collapsed.

Suppliers are unhappy with the business rescue div-

idend currently on offer and where they are owed a collective R109m and where the plan offers about R7m to them as a pay-out. Secured creditors such as landlords and banks will receive a business rescue dividend of 19 cents in the rand, whereas clothing and product suppliers receive a pay-out of six cents in the rand.

The company and its business rescue practitioners have defended their position and where they reiterate that the business rescue plan was approved by 80% of creditors voting in accordance with the value of their claims as far

THE SOUTH AFRICAN BUSINESS RESCUE PROCESS IS ROBUST AND EFFECTIVE AND CAN RESULT IN POSITIVE OUTCOMES

back as June 2020. As this litigation has just commenced, one will have to follow the outcome in due course.

Overall, the South African business rescue process is robust and effective and can result in positive outcomes for all stakeholders. In 2021/22, we expect to see continued support on the part of suppliers and creditors for the business rescue process and which should continue to see companies being rescued and where there is a sustainable business model for ongoing trading.

Ultimately, a company which is rescued provides an ongoing source of revenue for those suppliers that have supported a rescue process and which results in the survival of its trading partner into the future.

Examples of successful business rescues include Pearl Valley Golf Estate, Advanced Technologies and Engineering Company (ATE),

Meltz Success, Moyo Restaurants, South Gold Exploration, Ellerines, South African Calcium Carbide, Edcon, Group 5, Basil Read, Consolidated Group, New House of Busby, SAA and Comair.

These rescue processes have all contributed to a renewed vigour in the business rescue space and in renewed confidence in the possibility of successful outcomes.

Many of these companies have exited from the business rescue process with new owners and the opportunity to continue trading.

It appears that, generally, South Africans have accepted business rescue is a viable alternative to liquidation and one which supports job preservation and the ability to bring distressed companies back from the brink of liquidation, and to a position where such companies can continue to contribute to the SA economy.

8

BusinessDay www.businessday.co.za September 2021

BUSINESS LAW & TAX

When your bitcoin gets a nasty tax bite

COINING IT

Sars is closing in on cryptocurrencies — here’s •a guide to when you might have to fork out Joon Chong & Lumen Moolman Webber Wentzel

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The SA Revenue Service (Sars) is tightening tax collection on cryptocurrency transactions, which makes it important to distinguish between events that will trigger income tax rates or capital gains tax (CGT) rates.

Have you (i) sold your cryptocurrencies (crypto); (ii) exchanged one crypto for another crypto; (ii) purchased goods and services using crypto; (iii) mined or forked for crypto; (iv) received staking rewards in crypto; (v) then sold your staking rewards; (vi) received airdrops of crypto; or (vii) used crypto as collateral for loans?

If you answered yes to any of these questions, remember your taxes!

Sars is increasingly auditing taxpayers’ crypto holdings and trading activities. It has also requested information from certain SA crypto exchanges, including Luno, about users on the platform and their transactions.

Sars has not issued an interpretation note on the tax

implications of crypto assets.

Crypto is defined as a “financial instrument” in the Income Tax Act 58 of 1962 (ITA), as opposed to “currency” that would have excluded crypto gains from the ambit of CGT. This means the intention of the taxpayer, supported by objective factors such as length of holding and frequency of trades, would determine whether the crypto gains are revenue (taxed at a maximum of 45%) or capital in nature (taxed at a maximum of 18%).

DISPOSAL OF CRYPTO

The disposal of crypto as a financial instrument is a taxable event. It may, however, be hard for taxpayers to prove their crypto investment gains fall within the CGT net, as there are no capital deeming rules in the ITA for crypto, such as the three-

IN DETERMINING THE INTENTION OF THE DISPOSAL, SARS MAY BE GUIDED BY CASES INVOLVING THE DISPOSAL OF KRUGERRANDS

year rule for equity shares.

In determining the intention of the disposal, Sars may be guided by cases involving the disposal of Krugerrands.

In ITC 1525, the taxpayer held Krugerrands for 12 years and the purchase was made with the intention to provide funds for a rainy day. The Krugerrands were sold to inject capital into a new business. In ITC 1526, the taxpayer held Krugerrands from eight months to nine years.

They were purchased to provide a store of wealth for the taxpayer’s children and protection from inflation.

They were sold for various reasons, including to make improvements on and purchase properties. The tax court held in both these cases that the Krugerrands were held on revenue account and subject to income tax rates.

It may thus be practical to use different wallets for trading cryptos and holding cryptos for long-term gains.

BARTER TRANSACTIONS

The gain when one crypto (A) is exchanged for another (B) is the difference between the market value of B and the acquisition cost of A. If A was held or acquired on revenue

/123RF — MEHANIQ account, the difference will be taxed as income (45%).

Otherwise, if held on capital account, the difference will be subject to CGT (18%).

It can be difficult to determine the market value and acquisition cost of crypto in rand. We suggest the spot rate should be used for the transactions. Schedules of rates and transactions should be compiled on the calculated gains or losses on the tax return.

The same principles would apply where the taxpayer has purchased goods or services with crypto. The difference between the market value of the goods or services and the acquisition cost of the crypto would be subject to income tax (45%) or CGT (18%), depending on whether the crypto was held on revenue or capital account.

Assessed losses from trading in crypto may be ring-fenced. It might not be possible to offset these losses against any other income of the taxpayer if the taxable income and losses of that taxpayer (adding back assessed losses from the current and

prior year) are more than R1,577,300 for the 2021 tax year. There are, however, exceptions to this rule (Section 20A (2)(b)(ix)).

STAKING/MINING/ FORKING/ AIRDROPS

If a taxpayer derived crypto from mining or forking, then the gains would be subject to income tax (45%), since they are derived from conducting a trade. If the taxpayer’s intention was to hold the crypto as a long-term investment, then they will be subject to CGT (18%) on any gains.

Staking rewards are also taxed at income tax rates, and are, for now, unlikely to meet the definition of “interest” in the ITA. This means the annual interest exemption for individuals cannot be set off against staking rewards.

Further complexities arise when staking rewards are sold. For example, assume a taxpayer received staking rewards with a market value of 80 at the time of receipt.

That 80 would be subject to income tax as it is akin to interest (without the annual interest exemption). Assume

next that the staking reward is sold for 450 after five years.

The difference between 450 and 80 is the gain on the disposal. This gain may be taxed at CGT rates (18%), not income tax rates (45%), again depending on the intention of the taxpayer at disposal.

If the taxpayer receives new crypto through airdrops on existing crypto held, this is akin to a distribution of new financial instruments based on existing financial instruments held. Once again, the taxpayer’s intention in holding the existing crypto, frequency of trading, how long they were held and so on would be taken into account to determine whether the new airdropped crypto would be held on revenue or capital account.

If held on revenue account, the market value of the new airdropped crypto would be subject to income tax (45%), and if on capital account, CGT (18%). It is irrelevant that the value of the crypto airdropped was not converted to rand. Income is subject to tax when received or accrued, and there is accrual when there is an unconditional entitlement to the crypto/income.

CRYPTO AS COLLATERAL

In our view, when crypto is used as collateral for a loan, there is no disposal of the crypto and no taxing event.

Where the taxpayer is the lender and receives interest in crypto, then the market value of the crypto would be subject to income tax (45%).

In this situation, we would argue that the annual interest exemption should apply.

We recommend taxpayers seek advice to ensure their crypto gains are reported correctly in their tax returns. The volatility and high-risk nature of this asset class should not be compounded by an unexpected tax bill.

IPPs’ eyes fixed on water licence process Laura Wilson CDH The misalignment between timing of environmental permit processing and project development has created challenges for independent power producers (IPPs) and the projects they develop, especially in attempting to meet bid criteria and the prescribed deadlines for financial close and commercial close.

In particular, water use licence (WUL) applications have been associated with extensive processing periods and unanticipated delays, largely attributable to the capacity constraints synonymous with the department of water & sanitation. For companies bidding as IPPs in

power procurement programmes such as the ongoing bid window 5 (BW5) of the Renewable Energy IPP Procurement Programme (REIPPPP), these timing concerns risk projects not meeting the bidding criteria.

The risk is exacerbated by the moratorium the department has placed on processing WUL applications until preferred bidder status is awarded, which, together with timing delays, prolongs the wait for WULs to be granted. What this may encourage, however, is project developers’ initiation of WUL application processes through the department’s online application portal, EWulaas, and pre-application meetings well in advance of bid submission deadlines.

The importance of doing so is now reflected in the REIPPPP BW5 request for proposals which requires that, as at bid submission date, the bidder must have proof that an integrated WUL application or WUL application has been made.

Together, early application submissions and the department’s reduction of the WUL application process to 90 days from the previous 300day period may alleviate the timing constraints characteristic of WUL applications. It is understood that the expedited process was applicable to applications as of April. However, formal amendments to the regulations dealing with applications have not been finalised as yet.

The finalisation of WUL

applications within this shortened time period is subject to the department being provided with all the requisite administrative and technical information needed to enable the necessary screening and assessment of the application. This is part of a threestep process that is now catered for on the E-Wulaas portal, specifically: (i) a preapplication engagement meeting between the applicant and the department, following the compilation of a technical report by the appli-

THESE STEPS ARE VITAL IN ENCOURAGING INFRASTRUCTURE DEVELOPMENT

cant’s specialist; (ii) the screening of the technical report by the department and the acceptance or rejection thereof; and (iii) the department’s assessment of an accepted technical report.

From communications from the department it is understood that, together with the initiation of expedited processing timeframes, additional officials will be recruited to fast-track applications to address the historical capacity constraints of the department. These steps are vital in encouraging infrastructure development, and particularly for ensuring a level of alignment with the time frames associated with the development of energy generation projects. Although it is still the case that WUL

applications will not be processed by the department until projects are awarded preferred bidder status, the expediated timeframe will nonetheless assist in BW5 of REIPPPP, and future IPP procurement programmes, as pending WUL applications will be less likely to impact on commercial close, financial close or implementation of the projects.

With the BW5 REIPPPP bid submission date having passed on August 16, it will be telling whether the department abides by the 90-day limit in processing the WUL applications of preferred bidders. The risk remains on the bidders to ensure material consents such as a WUL are in place by commercial close and financial close.

9

BusinessDay www.businessday.co.za September 2021

BUSINESS LAW & TAX

Getting health and safety right

environment is fraught with red •tapeTheandregulatory cumbersome proposed amendments Jonathan Goldberg & John Botha Global Business Solutions

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o-one would argue against the principle of prioritising the health and safety of workers in the workplace.

This is reflected in the numerous laws and regulations addressing occupational health and safety (OHS), including the Occupational Health and Safety Act (OHSA), the Compensation for Occupational Injuries and Diseases Act (Coida) and the Mine Health and Safety Act. The department of employment & labour commissioned research into the profile of OHS in SA and the findings recommend some significant changes to this landscape, including: ● Developing a national OHS policy and strategy; and ● Prioritising and fast-tracking the legislative review, which includes current onerous amendments to the OHSA under negotiation.

From a cost benefit, service delivery and prioritisation point of view, it is becoming a hot topic between the social partners, especially when business contemplates the effect on their already-fatigued operations. Three of the largest concerns are briefly set out.

First, there is a tsunami of current and pending legislative amendments and new statutes that will have to be addressed by businesses that have — in many instances — barely survived Covid-19.

These include the Protection of Personal Information Act (Popia), the amendments to the Coida and the assessment rates, the pending amendments to the Employment Equity Act, the pending

POOR SERVICE DELIVERY AND DELAYS IN IMPLEMENTATION OF OTHER STATUTES AND STRUCTURES DO NOT BODE WELL

amendments to the Promotion of Equality and Prevention of Unfair Discrimination Act (Pepuda) and, of course, the Aarto Act, which will be phased in between now and July 1 2022. Adding the comprehensive review of the OHS legislation to this might create the perfect storm.

Second, the poor service delivery and delays in implementation of other statutes and structures do not bode well for amendments to the OHS landscape.

The Aarto Act was unable to be implemented as a result of various factors including unpreparedness of stakeholders, suspension of staff and alleged irregular expenditure. Popia has had a lessthan-favourable start with regard to various extensions of timeframes, including the information officer registration portal, which is still experiencing technical “glitches”. There are large areas of poor compliance and enforcement in SA’s economy, thereby creating different participants in the economy (compliant and

CAUSE FOR CONCERN

/123RF — AIHUMNOI noncompliant).

Third, and more specifically, the substantive amendments contained in the proposed amendments to the OHSA are enough to keep businesses awake at night: ● Prescriptive workplacespecific risk assessments replace the general obligation for the business to maintain a

healthy and safe work environment. ● The fact that these risk assessments must be performed by people who are competent to pronounce on all risks, which means there will probably be additional certifications required. ● The removal of the phrase that businesses need to take

steps that are “reasonably practicable” to ensure health and safety and replacing this with “ensuring that” this is achieved. ● The requirement that the CEO develops, implements and continuously reviews the health and safety management system, though this can be delegated downward on one occasion. ● The requirement to establish an OHS committee if there is more than one representative (used to be two or more). ● Additional statistical reporting obligations by businesses, even in respect of their contractors. ● Administrative fines, penalties and criminal liability in specified instances.

If one adds the comprehensive and complex review of OHS policy, legislation and structures to the above at this juncture, it could be seriously prejudicial to the muchneeded growth required to claw back to pre-Covid-19 levels of economic and employment. OHS is a big priority and if it is to be fasttracked some other legislative amendments, which are onerous, need to be scrapped or slowed down.

LABOUR PAINS

E-misconduct is a growing blight for workplaces

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he explosion of social media platforms, and their usage, has unsurprisingly spawned a fast-growing plethora of workplace social media “e-misconduct” cases.

Put simply, this primarily involves cases in which employees insult and/or offend their employer and/or its management on social media platforms such as Facebook, Twitter, LinkedIn and WhatsApp groups. This clearly has reputational consequences for employers, which is linked to the universal right to dignity.

The employment law cases which have thus far dealt with the apparent, at face value, conflict between the right to freedom of expression and the right to protection of one’s reputation and dignity have trended in favour of curbing the right of freedom of expression when it undermines reputational rights.

Key to the right of employers to take disciplinary steps against employees in such cases is the fact that after-hours employee conduct does indeed fall within the ambit of an employer’s disciplinary code if such after hours,

TONY HEALY off-duty misconduct is work related.

In Radebe v JD Group (Pty) Ltd [GAJB12297-14], the employee was dismissed for having posted insulting statements on his Facebook page after having been confronted by management regarding his poor time keeping and tardiness.

The commissioner noted that “the applicant had submitted no formal grievance, against anyone, for the company to deal with but chose to vent himself on the social media”, and that “the employee constituted the face and voice of the company and his conduct on social media showed no regard for possible risks he exposed the company to with his comments”.

The dismissal of the employee was upheld.

Similarly, in Motloung v The Market Theatre Foundation [GAJB4458-11],

the employee had been dismissed for what the commissioner described as “a hate speech statement on Facebook” which “impacted negatively on the employer”.

As far as the employee’s purported right to freedom of speech was concerned, the commissioner noted “I do not accept the argument that the employee’s constitutional right to free speech entitled him to act as he did”.

Numerous Commission for Conciliation, Mediation and Arbitration (CCMA) and bargaining council arbitration awards and labour court judgments concur that employees may not slander their employees on social media and that if they do so, they commit a dismissible act of misconduct.

In the Motor Industry Bargaining Council arbitration case of Arthur Leach v Suzuki Johannesburg South [MIBCO DRC 44570D], it was held that “the DRC accepts that the CCMA had held in recent cases that employees may be dismissed for having posted false derogatory remarks about their employers or even the employer’s clients on Facebook, Twitter and other social networks or

blogs, as these posts may have had the effect of harming the ongoing employment relationship, or have brought the employer’s name into disrepute”.

The arbitration award added that “in aforesaid regard, there had been recent cases where employees had been dismissed for social media misconduct. Cases such as Sedick & another/Krisray (Pty) Ltd (2011) 8 BALR 879 (CCMA); Fredericks /Jo Barkett Fashions (2012) 1 BALR 28 (CCMA) and Media Workers Association of SA obo Mvemve v Kathorus Community Radio (2010) 31 ILJ 2217 (CCMA) are examples where the cause of dismissal/disciplinary sanction had been related to social media misconduct”.

Of importance in such cases is whether or not the employees had restricted their Facebook privacy settings, as this talks to the right of employers to access employee Facebook pages.

In a recent KZN CCMA arbitration award in BEMAWU obo Thulani Msimang (KNDB 14983-16), it was held that “in two cases heard at the CCMA where the employees had not

restricted their Facebook privacy settings (Sedick and another v Krisray (Pty) Ltd (2011) 8 BALR 879 (CCMA) and Fredericks v Jo Barkett Fashions [2011] JOL 27923 (CCMA), the commission took the view that the employer was entitled to intercept the posts in terms of the Regulation of Interception of Communications and Provision of Communication-related Information Act 70 of 2002.”

In a recent UK social media related case, it was held that the employee “was aware of the [social media] policy and one assumes she read it, she must have been aware what was and what was not allowed .... it may be seen as harsh but the [employers] taking into account of the [employee’s] long service and clean record nevertheless dismissed for a clear breach of the policy and

WHAT IS BECOMING ABUNDANTLY CLEAR IS EMPLOYERS WOULD DO WELL TO ESTABLISH SOCIAL MEDIA POLICIES

that would fall within the range of reasonable responses open to an employer”.

WHAT CAN WE LEARN?

What is becoming abundantly clear is employers would do well to establish social media policies, designating it an offence to post content which brings the good name and reputation of the employer into disrepute, and to supplement this with reference to such misconduct in the employer’s disciplinary code.

What’s more, this policy should be a key component of an employer’s induction process.

Employer social media policies should include a reminder not to rely on Facebook’s privacy settings, as comments can be copied and forwarded on to others without permission.

Employees would do well to exert considerable care when tempted to slag off their employer on social media. ● Tony Healy is content director at the SA Labour Online Academy — www.saloa.co.za

10

BusinessDay www.businessday.co.za September 2021

BUSINESS LAW & TAX

Tokyo Games not quite so green after all

RINGING IN THE CHANGES

needed to consider the global as well •asOrganisers local effects and consequences of their actions Lloyd Christie & Njabulo Mchunu ENSafrica

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he Tokyo Olympic Games have been called the greenest Games to date.

Despite some criticism levelled against the claims of their eco-friendly nature, it is notable that the Tokyo Olympics Organising Committee has made significant strides to minimise the Games’ carbon footprint.

However, the long-term sustainability of the Games, as well as the possibility of sustaining, duplicating or improving on the eco-friendly efforts of the organising committee of the 2021 Games, remains to be seen.

Tokyo has committed itself to promoting energy savings and the use of renewable energy as much as possible. According to the organisers, the number of carbon credits purchased to offset the Games’ greenhouse gas emissions actually rendered the Olympics “carbon negative”.

Electricity used in competition venues and the athletes’ village was 100% renewable.

Transportation with lower environmental load was promoted by utilising public transport and fuel cell vehi-

cles. During the Games, the organisers, delivery partners and everyone attending was required to aim for “zero waste” through the three “Rs”: reduce, reuse and recycle.

Interestingly, a 3D-printed podium made of recycled, donated plastic waste was used.

Organisers said sustainable materials were used in the building of stadiums, accommodation and the medals to be awarded.

These sustainable materials were made from raw

HYDROGEN, WHICH EMITS NO CARBON DIOXIDE WHEN BURNED, WAS USED AS FUEL FOR THE OLYMPIC TORCHES AND CAULDRONS materials harvested from “urban mines”, such as cellphones. The Olympic medals are made from recycled metals and the trays used to hold them were made from recyclable thermoplastic polymer.

The athletes slept on cardboard beds, which were recycled after the event. The mattresses were also fully

recyclable. Hydrogen, which emits no carbon dioxide when burned, was used as fuel for the Olympic torches and cauldrons.

The event organisers also devised a sustainable sourcing code for products (such as timber, paper, fish and palm oil) and services to be procured for the Games.

Sustainability of the Games Although the eco-friendly efforts of the organisers of the Games are truly commendable, it does bring into question the issue of the sustainability of the Games.

This has drawn mixed reactions. Some environmental groups applaud the efforts undertaken by the organisers to lighten the impact that such an enormous event would have on the planet.

However, other groups are of the view that the organisers of the Games are simply greenwashing the true impact the Games have had on the environment.

A recent study on Olympic sustainability conducted by a researcher from the University of Lausanne in Switzerland shows that sustainability in all dimensions has been decreasing over time from 1992 to 2020, despite the fact that environ-

/123RF — YUICHI YAMAZAKI mentalism and sustainability are some of the core pillars of the Olympic movement. The study suggests the concerns over sustainability often take second preference to corporate profits and the desire to consistently put on bigger and more impressive Olympic spectacles.

Despite the efforts made by the organisers, the Games will inevitably produce some harmful gas emissions.

Flying out thousands of athletes from various parts of the world and sourcing seafood to feed athletes will certainly contribute to the Games’ carbon footprint and the ecological degradation of marine wildlife and the marine environment.

Although the organisers have gone to great lengths to purchase carbon credits to offset the Games’ carbon emissions, some critics argue this is insufficient. This is

because, despite the purchase of carbon credits, harmful carbon gas is still being emitted into the atmosphere and tree-planting somewhere else on the globe will not necessarily eliminate

THE STUDY SUGGESTS THE CONCERNS OVER SUSTAINABILITY OFTEN TAKE SECOND PREFERENCE TO CORPORATE PROFITS the emissions that have already been produced.

To this end, an environmental group named the Rainforest Action Network has said it traced tropical plywood from the construction of an Olympic stadium in Tokyo to Indonesian forests,

where deforestation has been a rampant issue. As such, the argument is that even though the Games considered their sustainability from the perspective of Japan, they failed to consider their global sustainability with respect to other parts of the world, where some of the material was sourced.

Despite this, we can agree the issue of sustainability is a difficult subject. The organisers of the Games are doing many things right, but there are certainly areas that can be improved on. Ultimately, the sustainability of the 2020 Games, and indeed all other Olympic Games to come, is one that remains to be seen.

In the end, the most sustainable Games will be those that consider not only the domestic effects of their actions, but also the global effects and consequences of their actions.

Companies hit by looting can seek Sars relief Joon Chong & Nina Keyser Webber Wentzel The employer’s EMP 201 for a month and payroll taxes are usually due by the seventh of the following month.

Late payments of payroll taxes after the due dates result in a 10% late payment penalty and interest calculated from the first of the following month at the current rate of 7% per annum.

In President Cyril Ramaphosa’s address to the nation on July 25, he announced the deferral of “PAYE taxes” for three months to provide businesses with additional cash

flow, and an automatic deferral of 35% of “PAYE liabilities” for employers with revenue below R100m.

The employment tax incentive (ETI) would also be expanded to include any employees earning below R6,500 and the incentive amount would be increased by up to R750 a month.

National Treasury in the media briefing on July 28 confirmed that the deferral of the PAYE liabilities and ETI amendments will be from August 1 2021 for four months. A more detailed note on all the tax relief will be published.

Employers that are still unable to meet their payment

obligations after the four months of relief should apply to the SA Revenue Service (Sars) for deferral of these obligations or a compromise/ waiver of tax debts, to avoid collection measures. Those collection measures could include debiting the taxpayer’s bank account for the amounts due. The Sars website contains email addresses for the various regions which taxpayers can approach to apply for deferral of payment obligations.

Where the 10% late payment penalty has been triggered, it may be possible for the employer to justify the late payment on the basis of exceptional circumstances.

The Tax Administration Act provides for Sars to remit the late payment penalty if it is satisfied that one of the following exceptional circumstances prevented the taxpayer from complying with its payment obligations: ● Human-made disaster;

EMPLOYERS STILL UNABLE TO MEET THEIR PAYMENT OBLIGATIONS AFTER THE FOUR MONTHS OF RELIEF SHOULD APPLY TO SARS FOR DEFERRAL

● Civil disturbance or disruption in services; ● Serious emotional or mental distress; ● Serious financial hardship in the case of a business, which is an immediate danger that the continuity of business operations and the continued employment of its employees are jeopardised; ● Any other circumstance of similar severity.

In our view, the violence, looting and destruction of an employer’s business should fall within one of the exceptional circumstances above.

In applying for the deferral or write-off of tax obligations, the employer should submit supporting documents such

as photos, insurance or police reports, and bank statements to Sars demonstrating the direct link between these circumstances and the late payment.

Interest can be remitted on the basis of circumstances beyond the taxpayer’s control, which are limited to: ● A natural or human-made disaster; ● A civil disturbance or disruption in services; or ● A serious illness or accident.

Sars is likely to adopt a case-by-case consideration of whether to remit the penalties and interest and we hope that it will adopt a sympathetic approach.

11

BusinessDay www.businessday.co.za September 2021

BUSINESS LAW & TAX

The ultimate crossover

• The potential of what the metaverse could create could be an end-game for the internet Ashlin Perumall Baker McKenzie

T

he world has come a long way since 1983. On January 1 that year, the US military switched on the packet switching TCP/IP protocol in its Advanced Research Projects Agency Network (Arpanet) and the internet received a birth date.

Co-creator of the protocol, Vint Cerf, has been quoted as saying there was no fanfare or celebration, not even a photograph, to commemorate the event.

Forward almost 40 years, and the picture is vastly different. From technology scholars to venture capital firms, it sometimes seems we are eternally at the precipice of the next big thing, where celebration and media bustle precedes concrete use cases or even generally accurate understanding.

THE INTERNET IS CURRENTLY NOT TRULY SYNCHRONOUS, BUT CREATED VIA SERVER-TO-SERVER COMMUNICATIONS You may be forgiven then if, when Facebook CEO Mark Zuckerberg announced his organisation’s plans to build a “metaverse”, the techyattractiveness of the title alone elicited a sigh, followed by a quick browser search for “what on earth is a metaverse?”. But this time it’s worth paying closer attention.

Let me explain.

The science fiction concept of the metaverse is something many of us will have come to appreciate intuitively by now. From pop culture references to alternate virtual realities such as The Matrix, Tron and Ready Player One, to the much earlier cyberpunk movement of William Gibson’s 1984 novel Neuromancer, the notion of a persistent virtual reality has achieved a level of ubiquity.

The term “metaverse” is actually lifted from Neal Stephenson’s book Snow Crash, considered by many to be satire of the cyberpunk movement. In Stephenson’s book, this term is meant to describe a convergence of an augmented physical reality and a physically persistent virtual space — a virtual world accessible through special technology. One may therefore assume this is all

that the metaverse is, yet another promise of a 3D virtual or augmented reality, reserved for the realm of gamers and early adopters of smart eyewear. But when seen as an evolutionary convergence of current technologies, rather than a predetermined destination, its promise is much clearer.

First, there are those who claim it to be the successor of the internet. This is immediately confusing. You are required to make the mental leap between the user experience of the internet of today to the experience of virtual reality, which for anyone who has used a VR headset in 2021 is not yet an enticing prediction.

Then there are those who liken it to the digital theme parks of the 2000s such as SecondLife, or another VR game or chatroom space, which is hardly worth writing home about.

This is much like asking a person using the Arpanet in 1983 to predict the emergence of social media, the gig economy or the latest videosharing platforms. Rather, it is better to think of the metaverse in terms of its converging properties, for which we thankfully have the guidance of Matthew Ball’s Metaverse Primer, which sets out criteria for what will likely be the features of a metaverse.

Persistence: Meaning that a metaverse will never end or be reset. It is a persistent and no instantaneous virtual environment.

Synchronous and live: The internet is currently not truly synchronous, but created via server-to-server communications, as and when required (such as when you log on to a website). The metaverse’s existence will be more like always-on multiplayer games or video chats, where the experience continues whether or not you are logged in, and which were not created as instances of individual experience but a synchronous experience of many users.

Uncapped users with presence: There will be no limit to those who can enter the metaverse, and each person has a representation or persistent identity.

Incorporate a robust economy: It will possibly incorporate the future iterations of the distributed ledger rails already built for recognising fungible cryptocurrencies (or other forms of digital currency) and nonfungible tokens or digital assets, and the ability to earn from providing goods or services, governed by smart contracts.

SORTING THE FICTION FROM THE REALITY

/123RF — KATIS Operate across virtual and digital worlds: The metaverse will seamlessly integrate experiences across open and closed platforms and real-world and virtual spaces.

Be incredibly interoperable: This is important. In the real world, your car does not cease to exist when you cross state borders. You still look the same, possess the same features and have the same identity in different physical spaces. On the internet, this picture is very different. The internet, for example, still lacks a basic interoperable identity layer in its technology stack. Your data is hardly portable from platform to platform, let alone digital assets such as your flowerbox in Animal Crossing.

THE INTERNET, FOR EXAMPLE, STILL LACKS A BASIC INTEROPERABLE IDENTITY LAYER IN ITS TECHNOLOGY STACK The metaverse promises a fully interoperable virtual world, where between platforms there is freedom of movement. This has already started, to lesser degree, with the multiplatform enabled gaming universes.

Arguably, it is this last fea-

ture that unlocks the concept most clearly. The first websites created a “walled garden” of the internet, where content and experience existed in an enclosed and limited environment. These walls are still coming down — your user experience still varies across web platforms, mobile apps, games and streaming services, from your identity management (how long is your list of account and password details?) to your digital assets or content.

Since the creation of bitcoin, digital currency is one key area where we are starting to experience the genesis of freedom in a decentralised and persistent digital experience. Another is the gaming industry, which has cottoned on to a convergence of the features mentioned above.

Many gaming platforms are seeking cross-platform interoperability (for example, in various “battle-royale” titles). Multiplayer spaces are synchronous and live, and (to a lesser degree) persistent.

Without going too far into the esoteric, consider what these features could achieve when applied to nongaming environments such as social spaces, working environments or public spaces, and what this could be when integrated in an augmented way with the real world.

Due to the pandemic, we are already primed for what this could mean — where

digital reality and connections start to become the base reality of experience. Importantly this may be wholly independent of 3D virtual reality technologies, fully accessible via mobile phones,

NEW ETHICAL QUESTIONS MUST ALSO BE ASKED IN THE CONTEXT OF EQUALITY, DIVERSITY AND INCLUSION PCs and other non-VR/AR “onramps”, and could be a space that can be accessed, experienced and interacted with in different ways.

This is still far from becoming a reality — we are only at the dawn of the metaverse. However, significant multinational technology firms are already placing some weight behind this, and it is worth keeping an eye on these developments. Many issues, ranging from the remaining inequality in data speeds, the environmental impact of distributed ledger technology, to the sheer work needed to achieve true interoperability, still have to be overcome.

New ethical questions must also be asked in the context of equality, diversity and inclusion and how creating such digital spaces may

be coming too soon before we have solved basic issues such as digital inclusion and digital literacy.

Realistically, we’re still waiting for a minimum viable product here, and there will be some time before it arrives and policy and legal issues can be reliably unpacked. Just like the internet, this convergence could result in microbenefits along the way, and ubiquitous interoperability is the one that stands out.

Different content producers and existing platforms may need to start finding legally sound and commercially viable ways to share data and IP to enable these environments. Much like what is occurring in the open banking industry, new APIs, protocols and technical standards will be needed to cross-wire and bridge the islands of the internet. We may finally be forced to solve the problem of digital identity in a collective way.

The metaverse is essentially the “ultimate crossover”, and the potential of what that could create could be an endgame for the internet.

THE SCIENCE FICTION CONCEPT OF THE METAVERSE IS SOMETHING MANY OF US WILL HAVE COME TO APPRECIATE

12

BusinessDay www.businessday.co.za September 2021

BUSINESS LAW & TAX

Patents: inventors can be inhuman

NEW WORLD INVENTIONS

SA patent is a world first, while an Australian •court allows AI to be listed as the inventor Hugo Biermann ENSafrica

W

e are both created and create. Why cannot our own creations also create?”

First we heard an SA patent for an invention that lists artificial intelligence (AI) as its inventor had been issued — a world first. Then we heard an Australian court had handed down a judgment allowing AI to be listed as the inventor of a corresponding patent in Australia.

The Australian judgment, Stephen Thaler and Commissioner of Patents, delivered

by Judge Beach, is technical yet very readable.

The applicant for the patent is Dr Stephen Thaler.

The inventor, however, is listed as an AI system described as “a device for the autonomous bootstrapping of unified sentience (DABUS).”

Dr Thaler owns the copyright in the source code for DABUS and the computer on which DABUS operates.

THE LEGAL QUESTION

Can an “inventor” be an AI system in terms of the Australian patent legislation, the Patents Act 1990?

The judge felt he should explain AI: “AI systems may incorporate, or be constituted by, artificial neural networks … artificial neural networks are a subfield of machine learning … artificial neural networks are based on mathematical modelling designed to mimic natural neural networks”.

DABUS

The judge said “DABUS is a form of neurocomputing that allows a machine to generate new concepts which are encoded as chained associative memories with the artificial neural networks”.

He went on to say DABUS “generates novel patterns of information rather than simply associating patterns … it is capable of adapting to new scenarios without additional human input … it is not just a human-generated software program that then generates a spectrum of possible solutions to a problem with a

THERE IS NOTHING IN THE LEGISLATION THAT EXCLUDES AN INVENTOR FROM BEING A NONHUMAN AI DEVICE OR SYSTEM

filtering algorithm to optimise the outcome … [it] in one sense can be said to mimic aspects of human brain functions”.

OWNERS AND INVENTORS

The judge made the point that ownership of a patent is limited to the inventor or the person who derives title from the inventor. But the term “inventor” is not defined in the legislation. There is nothing in the legislation that excludes an inventor from being a nonhuman AI device or system. There’s nothing in the Patent Co-operation Treaty either.

AI CAN BE AN INVENTOR

The judge felt that the Deputy Commissioner of Patents had been wrong to fixate on the dictionary meanings of the word “inventor”, which stress that an inventor is a human.

The judge said the word “inventor” is an “agent noun”, where the suffix “or” or “er” “indicates the noun describes the agent that does the act referred to by the verb to which the suffix is attached”.

Examples include computer controller, regulator and dishwasher.

The judge went on to say: “The agent can be a person or thing that invents. According-

Thaler is a person who derives title from the inventor DABUS by reason of his possession of DABUS, his ownership of the copyright in DABUS’s source code, and his ownership and possession of the computer on which it resides.”

The judge concluded by saying that “an inventor as recognised under the act can be an artificial intelligence system or service.

“But such a nonhuman inventor can neither be an applicant for a patent nor a grantee of a patent.”

MORE TO COME

/123RF — SDECORET ly if an AI system is the agent which invents, it can be described as an ‘inventor’.”

PATENT LAW NEEDS TO EVOLVE

The judge suggested “a widening conception of ‘manner of manufacture’ is a necessary feature of the development of patent law in the 20th and 21st centuries as scientific discoveries inspire new technologies … I see no reason why the concept of ‘inventor’ should not also be seen in an analogously flexible and evolutionary way.”

He went on to say this: “In my view it is consistent with the object of the act to construe the term ‘inventor’ in a manner that promotes technological innovation … by rewarding it, irrespective of whether the innovation is made by a human or not”.

According to the judge, “machines have been autonomously or semiautonomously generating patentable results for some time now. So … you are simply recognising the reality by according artificial intelligence the label of ‘inventor’.”

The judge said “recognis-

ing computer inventions and patents on computational inventions could promote disclosure and commercialisation … without the ability to obtain patent protection, owners of creative computers might choose to protect patentable inventions as trade secrets without any public disclosure”.

The judge made the point that the law is only really

OWNERSHIP OF A PATENT IS LIMITED TO THE INVENTOR OR THE PERSON WHO DERIVES TITLE FROM THE INVENTOR concerned with the inventive step: “The focus of the act is not really on the inventor at all.”

The judge said the applicant, Thaler, “as the owner and controller of DABUS would own any inventions made by DABUS when they came into his possession”.

He went on to say that “Dr

This is fascinating stuff. But we don’t think we’ve heard the final word.

In SA, it should be noted that the DABUS patent application was not subjected to substantive examination by the SA Patent Office and we doubt the Patent Office critically considered the issue of whether a nonhuman can be named as the inventor before granting the SA patent.

Ultimately, there will be some uncertainty in SA until a court is called on to make a judicial determination. As in Australia, neither the SA Patents Act nor the Patent Regulations stipulate an inventor must be a human.

SA LAW

However, in terms of SA law, ownership of a patent cannot be “derived” from the inventor as under Australian law.

Instead, only the inventor or a person “acquiring” the right from the inventor may apply for a patent. In our view, this requirement may well make it more difficult to convince a SA court that a valid patent can be obtained for an invention created by an AI system.

What is abundantly clear is patent laws need to evolve to stay relevant and meet the objective of rewarding innovation. ● Reviewed by Rowan Forster, an executive in ENSafrica’s IP department.