The end of the year is upon us seemingly in a flash yet again. May I wish our many and very loyal clients a restful and happy festive season and all that is good for the New Year. As can be seen from our newsletter we have had an interesting year, notwithstanding the apparent depressed property market. We have witnessed many legislative changes, perhaps more so than any other year, with new Acts such as the Companies Act and the Consumer Protection Act creating whole new legal scenarios. Likewise but little known are the dramatic new powers rights and obligations which will be brought about by the Tax Administration Bill when it becomes an Act and which creates a whole new range of weaponry for SARS.
Mergers: an avoidable Ouch!
by Roxanne Ker
For eleven years many firms ignored the Competition Act’s requirement to secure competition’s approval for a merger. Although the Tribunal did impose penalties – one, in 2008, as high as R500 000 – again and again merging parties continued to implement mergers without approval.
In November 2010 the Commission toughened up. The Act had been in operation for more than a decade and firms were continuing to claim that their non-compliance was a bona fide error. Saying that this was unacceptable, the Commission levied a million-rand penalty on an acquiring firm and R100 000 on the target firm.
Aside from its we-mean-business numerals, this ruling jolted the tendency for target firms to assume that notification is not their job. Under the Act all parties to a merger are obliged to notify the Commission of the proposed merger. Therefore, said the Commission, the parties should be held jointly liable for the offence.
Whichever side of a merger you are on, best have your attorneys make sure your transaction is properly notified.
Closing the net
by By Andrew Duncan
Treasury announced with evident satisfaction last month that South Africa had joined 12 other countries in signing a Convention on Mutual Administrative Assistance in Tax Matters at the G20 Summit in Cannes, France. The Convention, said the Minister, seeks to promote international co-operation between revenue administrations “in the assessment and collection of taxes” and in “combating tax avoidance and evasion”.
What is actually going on is that trillions of dollars are being hidden away in offshore financial centres, and the major economies are not getting the benefit of tax.
Initially, the campaign against offshore centres was partly based on money-laundering being a tool of terrorism. However, the sophistication has now worn through and the true gist of what is intended emerges in the announcement: “… the G20 has placed specific emphasis on the importance for better international co-operation amongst revenue authorities as cross border tax avoidance and evasion have become easier with the liberalization of financial markets. The international response to the global financial crisis that began in 2008 and the sharp decline in revenue in many countries, including South Africa, has been to secure the integrity of financial systems through common, high standards…”
That is my underlining on the giveaway phrase “sharp decline in revenue”. Put simply, the announcement is saying: we need to collect more tax! The convention was signed with Argentina, Australia, Brazil, Canada, China, Germany, India, Indonesia, Japan, the Russian Federation, Saudi Arabia and Turkey. It is clearly part of a determined strategy, with the VDP Programme that ended in October, to track down the family silver.
Double-edged Consumer Protection
by Amien Hoosain
Some lawyers argue that the Consumer Protection Act cannot apply to lease agreements, as that would be absurd. Well, it is certainly true that applying the Act to leases is absurd, but the intention of the legislature is clear from the language of the Act: it applies to leases.
For example, the Act stipulates that a consumer (read tenant) may cancel a fixed term consumer agreement (read lease) at any time on 20 business days’ notice to the supplier (read landlord), subject to a “reasonable” cancellation penalty. Furthermore, a fixed term consumer agreement may not exceed the prescribed maximum period of 24 months.
In many large rental operations, such as shopping centres or business parks, the landlord’s primary focus is on an assured income stream. This is partly achieved by fixed term leases, usually for more than 24 months.
In both respects – limiting the lease period and letting the tenant cancel the lease at will – the Act makes inroads on the certainty the landlord seeks.
Landlords will no doubt look at mitigating the potential losses. An option that springs to mind is to avoid lease agreements with tenants who qualify as consumers. Another is to substantially – some might say “massively” -- increase deposits.
These measures spell bad news for the small to medium enterprises that government is in all other respects trying to encourage. While much of the effect of the Act is yet to be felt, it might just achieve the direct opposite of what the legislature wanted.
Christmas job from the Minister
As the proprietors, partners, directors and trustees of the millions of companies, trusts, and close corporations across South Africa already know, your benevolent State has lately thought up an extraordinary quantity of new practices, procedures and policies for you to follow.
Hidden quietly among these is a little extra Christmas present that has so far been widely ignored. The Promotion of Access to Information Act, PAIA, requires you to compile an information manual for, in essence, every private trading entity in existence.
The Minister of Justice and Constitutional Development has already granted an extension of the deadline applying to many of these enterprises. The extension expires on 31 December 2011.
You will be impressed to know of the thoroughness with which this task is being undertaken. A separate manual must be submitted for each separate entity, including a trust set up to own a piece of land or indeed “a natural person who carries or has carried on any trade, business or profession”.
Might you be affected? If you’ve only ever worked for an employer all your life, presumably not. Otherwise… better contact Roxanne Ker on (021) 464 1400 or at
And in case you get a hint of a suspicion of the feeling “hey, this is enough now”, bear in mind that onerous as some of the new measures may be they are pointing to a world of greatly less fraud than the world we grew up in.
The Cape’s newest, tallest, building
By John Lee
Many years have passed since Walkers were involved in our client’s development of Safmarine House, the last skyscraper constructed in Cape Town’s Central Business District. Thereafter, our efforts and expertise were directed at the rejuvenation of East City Precinct where we were involved in the conversion of Cartwright’s Corner as well as the art deco jewel, Mutual Heights.
Both buildings are now residential sectional title schemes. Now a dramatic change to the Cape’s skyline is in store.
Construction on the City’s tallest building, Portside, has begun on the Foreshore.
A joint development between Old Mutual and FirstRand, our brief called for an innovative property solution for the development of this prime site.
A sectional title scheme has accordingly been specially tailored for the project which will result in each of the developers being able to own outright its respective portion of the iconic building, and to take advantage of urban development zone tax incentives.
The Tax Administration Bill
by Andrew Duncan
- The purpose of the Tax Administration Bill (TAB) is to bring together all the administrative powers, rights and obligations of SARS and at the same time specify the protections available to individual taxpayers. In the fullness of time it is intended that each taxpayer will have one tax number only in respect of all taxes across the board, i.e. PAYE, VAT, customs duty or whatever.
- Provision is made for a tax ombud but unfortunately the office is not vested with any enforcement powers as against SARS. SARS’ information gathering powers are substantially extended to the extent that SARS can search and seize documents without a warrant provided a senior SARS official is satisfied that it is justified. There is a specified audit selection basis which will either be on a risk assessment or a random basis. Taxpayers will be entitled to an ‘audit findings letter’ as to the status of the audit.
- Taxpayers will be happy to know that in conducting searches SARS must have strict regard to “decency and order”. The taxpayer may also claim for unjustified physical damage caused during a search! There are new confidentiality provisions providing for a taxpayer’s right to privacy but specifically providing that SARS may disclose personal information to counter false allegations made in the media! There are various dispute resolution provisions plus SARS’ collection powers have been strengthened by an entitlement to repatriate off-shore assets to satisfy tax debts.
- A whole new penalty system has been introduced to provide for an administrative non-compliance penalty and an understatement penalty which targets serious non-compliance and tax evasions. A permanent voluntary disclosure program is introduced to enable taxpayers to regularise their tax affairs without payment of any penalties but subject to payment of the tax that would have been payable together with interest. This is certainly a welcome step. The message is clearly to get your Returns in early and accurately!
A New Dividend Tax Regime As from 1st April 2012 there will be a whole new system of taxation of dividends. In essence individual shareholders not being corporate entities will be subject to a 10% dividend tax which will be withheld by the company paying the dividend. The 10% tax will be calculated on the dividend paid and not, as is the case under STC, as a tax on the dividend after deduction of the STC. Foreign dividends will be subject to tax if the South African resident holds less than 10% at a rate of 25% of the marginal rate, i.e. up to 10%. If the holding is more than 10% then there is no tax. That tax is only payable as a provisional tax payment and is therefore an advantage over local dividends where tax is deducted upfront!