Beware of what you post on social media

By Gertruida Grové

Social media are web-based and mobile technologies that turn communication into active dialogue. These social networking tools are used by individuals and companies for purposes of social communication, marketing, human resource communications, news briefings and others. For many, the question is not whether to use social media, but rather how to do so, and how to avoid potential pitfalls that may lead to legal difficulties. 

Social networking websites include Facebook, LinkedIn, MySpace; forums and comment spaces; video and photo sharing websites such as Flickr and YouTube; web blogs and other websites that allow users to use simple publishing tools.

What users do not always realise is that social media and networking are not only easy communication tools, but that every word that is communicated by means of a social medium is actually published in writing. Even communications that are later deleted from a social medium such as Facebook, might still be available to other or previous users and might again be distributed.

There are a number of legal issues involved when using social media. These include:

Firstly, social media users may disclose private and confidential information such as trade secrets, even unknowingly, on social media sites such as Facebook, Twitter, LinkedIn or chat rooms and blogs.

Secondly, unauthorised use of third party trademarks on a social media site may lead to legal liability for trademark infringement or unfair competition e.g. when a false impression of endorsement or sponsorship of a product is created.

In the third place, copyright-protected works such as videos, music, photographs and texts are often copied from other locations and used on social media websites without the required authorisation of the content owner which can lead to liability for copyright infringement. 

Fourthly, computer users should take care not to post impulsively on social media, since that might lead to unintended legal liability for example even anonymous statements published to a limited group of connections or friends that defame a third party may result in legal action against the poster.

In the fifth place, social media can lead to human resources issues. It is becoming more and more common for human resources departments of companies to view social media pages of both job candidates and current employees. 

Finally, our courts have begun to accept discoverable information in trials beyond e-mails and scanned documents. An interesting South African case which recently made the headlines was that of Experian South Africa (Pty) Ltd v Haynes (48711/2011) [2012] ZAGPJHC 105 (18 May 2012). In this case the employee’s previous employer sought to hold him to a restraint of trade agreement. In terms of this agreement, the employee was prohibited from taking up employment with a competitor for a period of 12 months after termination of his employment. The court had regard to meetings held with key clients, evidenced by the employee’s LinkedIn profile, and enforced the restraint of trade against him.  

Considering the millions of users worldwide who use social media on a daily basis, the legal pitfalls should be borne in mind as we create and manage our digital communications.

Marikana and the Doctrine of Common Purpose

On 16 August 2012 at Marikana in the North West province a confrontation occurred between a group of about 30 or more police and about 3 000 or more demonstrators (exact figures are not reliably available).  Many or all the police were armed with firearms.  Many or all the demonstrators were armed with blunt and/or sharp weapons, and some of them were armed with firearms.  During the confrontation police fired live ammunition, and several demonstrators were fatally wounded.  Police arrested about 270 of the demonstrators, and it has been reported that the arrestees will be charged, under the doctrine of common purpose, with the murder of the deceased demonstrators.

There has subsequently been a flurry of commentary on the doctrine of common purpose, much of it misinformed.

The doctrine emanates from a mid-nineteenth century English criminal case.  The doctrine is currently part of law in many countries with a historical link to England, including Australia, Canada, New Zealand, and the USA.  The doctrine was not originally part of South African law, and was introduced here early in the twentieth century following the English occupation of South African territories.  In 2003, in the case of the State vs Thebus, in which the accused was charged with murder, the Constitutional Court ruled that the doctrine of common purpose in murder is not inconsistent with the Constitution, and remains part of our law.

Common purpose requires two or more participants in some wrongdoing.  In terms of the doctrine, in a case of common purpose, as a matter of law, the act of one participant in causing the harm is imputed to all the participants.  

For instance, if a victim is beaten to death by four offenders, all hitting him with blunt weapons, it may well be impossible for the State to prove beyond reasonable doubt that a particular offender delivered the actual fatal blow that caused the death of the victim; and, absent the doctrine of common purpose, all four offenders would be acquitted of murder (and presumably found guilty of assault).  Such a result was perceived to offend the legal convictions of the community, and the doctrine was devised.  In this instance, as the four offenders acted with common purpose, as a matter of law, the act of the one who in fact delivered the actual fatal blow will be imputed to all four of them, and under the doctrine all four will be guilty of the murder.  

However, the doctrine, like so many other things, is susceptible to abuse and/or controversy.  It is at present unclear how the Marikana arrestees supposedly had a common purpose to harm fellow demonstrators.  This legal controversy is exacerbating an already untenable situation.

The New Dividends Tax and the effect on Investment Savings

by Andrew Duncan
Private Client Department

1.    With the increase of Dividends tax from 10% to 15% surprisingly little has been written on the fairly serious inroad that this will make on the average person’s investment savings over time.

2.    The effect on an investor, being a natural person, is that a rate of tax not that much below estate duty (being the dreaded levy for Estate Planners) is paid upfront on each and every payment of monies returned on an investment. The critical difference between the previous regime of STC and Dividends Tax (ST) is if the dividend is received by an individual or a company. Previously STC was payable on the net amount of a dividend declared, i.e. to the extent that STC had already been paid on dividends received by a Company, STC at a rate of 10% would only be levied on the difference between the dividend already accrued and those declared. It therefore was irrelevant that the person receiving the dividend was a natural person rather than a Company. Now it makes all the difference.

3.    The key element therefore to investing is to do so from a platform of a corporate entity. To give an example, let us take, say, a 35 year old investor seeking to invest R5 million with an average dividend return of say, 4%. Take it that the sum of R5 million is on-lent interest free repayable on demand to a Trust which in turn on-lends it to Investco which invests those monies on the stock exchange. Investco would receive dividends of say R200 000 a year, and not distribute any dividends to the Trust, its sole shareholder, but use the dividends to repay the loan, which the Trust would in turn pay to the individual, tax free. Take it that this went on until the loan was repaid over 25 years. Over that period of time Investco would have received dividends of R5 million and have saved the individual at least R750, 000 in what would otherwise have been deducted as DT!

4.    The strange thing about the introduction of DT is that it took some four years after 2008 to be introduced. The reason for the delay was explained at intervals during this period as being caused by negotiations with Treaty Partners so as to provide for the withholding tax to be increased to 10%. Out of some 70 or so Double Tax Agreements many restricted the withholding tax by the state where the DT was payable, to a zero rate or at worst, 5%. Various treaties have now been amended or entered into providing for a new rate of 10%. The draft legislation introduced prior to the Budget provided for a rate of 10% but the Budget increased this, without notice to 15%. In the result, it means for instance that if you are an offshore investor in say, the UK there is a zero rate applicable and no CGT (except for an interest in property) so that the differential could amount to 25% or more! I imagine it is for this very reason that the Reserve Bank will be on the lookout for what are called “loop structures” in particular. Exactly how this can ever be policed however is beyond my imagination.

5.    Thus today’s savvy investor will use investment platforms based on an exemption from DT. From a CGT point of view, the critical element of Investco would be not to chop and change investments. If investment trading flexibility were needed, a further structuring could take place via a Trust on the basis that where CGT was payable, the capital gain would be distributed in terms of paragraph 80(2) to a resident beneficiary so as to obtain that individual’s marginal tax rate. Where a DT exemption is sought, the distribution of the dividend would be vested in a corporate beneficiary.

6.    These types of structures including the application of Section 42 of the Income Tax Act (assets for share exchange) will create, I believe, novel and cost saving ways to investing without tears!

Driving with Cell Phones

During one of our Thursday lunchtime discussions involving topical legal issues, heated debate took place on the constitutionality of impounding cell phones from offending drivers.

 On the one side, the “purists” felt that this was a penal provision imposed without due process of law and that it conflicted with the constitutional rights of dignity and privacy.

The “pragmatists” on the other hand believed it served the offenders right and was the only sensible way to deal with the problem in view of the failure of the fining system to prevent such usage. What do you think?

Exchange Control memo:

During October 2011 the Finance Minister announced that resident individuals will be able to take up to R5 million (i.e. an additional R1m) a year offshore as their “foreign investment allowance”. Nothing further was heard in regard to this announcement until the Exchange Control manual was amended last week to reflect that the single “discretionary allowance” of R1 million could also be taken out as part of the foreign investment allowance but subject to the normal requirements and in particular that a tax clearance first be obtained.

As the discretionary allowance covers a person’s offshore travelling costs, one cannot invest the additional R1 million offshore and at the same time spend up to that amount again on travelling costs. The limit is R1 million for both. It is a minor but welcome adjustment but in my view the continuation of any exchange control restrictions other than in the form of prudential regulation is off-putting to  foreign investors!

Andrew Duncan

www.walkers.co.za

School Attendance

With the new school year starting, all parents should keep in mind that by law, all children of compulsory school age (five to 15), must receive a suitable full-time education.  As a parent, you have a legal responsibility to make sure that this happens.

Once your child is registered at a school, you are legally responsible for making sure they attend regularly.  If your child fails to do so, you as a parent risk being prosecuted.

The South African Schools Act, 1996, provides that every parent of every child for whom they are responsible must ensure that the child is registered at a school, attends the school and stays in school until the age of 15 years or the ninth grade, whichever occurs first.  Should you as a parent fail to comply with this law, you could face a fine or imprisonment for a period not exceeding six months.

Looking at the school leaving compulsory age in other countries, it varied between 15 years – 17 years in Australia, 16 years to 18 years in United States and Canada, but in Germany it was 18 years of age and they all had a literacy rate of 99% (2003).  South Africa has a literacy rate of 86.4% (2003), showing that staying in school an extra year or two makes a difference.

A telling statistic however is that 99% of children complete primary school education but only 57.2% enrol in high schools in South Africa.

Obviously something more than legislation is needed.

Rossette Haynes
10 January 2012 http://www.walkers.co.za/

Closing The Net

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.

Andrew Duncan