Who is the B-BBEE Commission?
We are a regulatory body established as an entity within the administration of the Department of Trade and Industry (“the dti”) by the Broad-Based Black Economic Empowerment Act 53 of 2003, as amended by Act 46 of 2013 (“the B-BBEE Act”), to oversee the implementation of the B-BBEE Act and investigate violation.
Jurisdiction of the B-BBEE Commission
We operate within the dti with jurisdiction throughout the Republic, and be impartial and perform its functions without fear, favour or prejudice, across all provinces.
In terms of section 13F (1) (a) of the B-BBEE Act, we are mandated to oversee, supervise and promote adherence with the B-BBEE Act in the interest of the public. In so doing, we must increase knowledge on the nature and dynamics and promote guidance to the public on the interpretation of the B-BBEE Act and Codes of Good Practice, and clarifications form part of our advisory services.
Nature of clarification provided
We have a mandate to provide clarification on all aspects of the B-BBEE, which includes the generic codes of good practice and the various sector codes. These are some of the issues that have been raised with us.
Enterprise and Supplier Development
According to Para 5.12 Code Series 400 intra-group procurement is included in calculating the TMPS.
51% black owned EMEs and QSEs or 51% black women owned EMEs and QSEs.
Enterprise Development (ED) is targeting entities outside the supply chain od the measured entity whereas Supplier Development (SD) focuses on entities within supply chain irrespective of whether they are active or not. Therefore, an ED beneficiary cannot be an SD beneficiary.
The Codes were amended and the recognition of early payment was capped. This means that if payment is at least made within the first fifteen (15) days from the date of invoice by the qualifying supplier, then the amount that can be claimed is a percentage of the invoice amount which is equal to 15 minus the number of days from invoice to payment date.
For example: If invoice is R100 and paid in 5 days it means:
R100 x (15-5) % = R100 x 10% = R10
Therefore, the contribution claimed will be limited to 15% of the 10 points allocated.
There are four (4) types of loans recognised under the matrix, which are recognisable at a certain percentage. However, what is important to note, is that during a verification process, the full loan amount cannot be recognised for B-BBEE points where the recipient still owes a portion of the loan. What it means is that, where there is an outstanding loan amount, the measured entity will only claim B-BBEE points for the average period during which the loan amount has been outstanding and not the full outstanding loan amount.
A measured entity’s financial year-end is 31 December 2017 and they also measure their B-BBEE scorecard as at that date. If the measured entity provided an interest free loan of R10,000 to a supplier or enterprise development beneficiary on 30 June 2017, the formula to be used in determining the supplier or enterprise development points for the measured entity is as follow:
Supplier/Enterprise Development points = R10,000 (loan amount outstanding) x 70% or 50% (the benefit factor percentage set in the matrix depending on the type of loan) x 6/12 (the average period during which the loan amount has been outstanding) = RX
The measured entity will therefore only claim RX amount of the R10,000 outstanding loan, irrespective of whether an interest rate is attached or not. But if the loan was provided at the beginning of the year, being 1 January 2017, the measured entity would be able to claim the full R10,000 at the end of the financial year because the average duration the loan was outstanding was twelve (12) months.
It must further be noted that a measured entity will be able to claim supplier or enterprise development points for the duration of the period that those amounts remain outstanding. For instance, in the above example, if the same loan amount of R10,000 is still outstanding on 31 December 2018, then the measured entity would be able to claim the full R10,000 (R10,000 x 12/12) as supplier or enterprise development.
Important to note that, the term of the loan agreement does not mean that the measured entity will be able to claim the full outstanding loan amount, because B-BBEE compliance is measured over a particular period and only the amount that was outstanding during that measurement period will be claimed. This means that if a loan was only outstanding for two (2) months during a measurement period, only the average duration the loan was outstanding, which is 2/12 will be claimable.
However, if the loan amount is fully repaid by 31 December 2017, the measured entity will not recognise the particular spend by applying the outstanding loan amount formula, but through application of the standard formula provided in Annexure 400 (B), provided the contribution is aligned to the principles of Code Series 400
In terms of Code Series 100, an entity may apply the modified-flow principle to determine the black ownership, where in the chain of ownership structure black people have a flow-through level of participation of at least 51%, then only once in that entire ownership structure of the entity such black participation may be treated as though it were 100%.
The Codes have defined a 51% black owned entity as an entity where a) black people hold at least 51% of the exercisable voting rights as determined under Code Series 100; b) black people hold at least 51% of the economic interest as determined under Code Series 100; and c) has earned all the points for Net Value under Code Series 100.
The Department of Trade and Industry as the custodian of the B-BBEE Policy in its efforts to reduce the cost of compliance on micro and qualifying small businesses in South Africa has relieved black owned and controlled EME and QSE from B-BBEE verification. Such entities are only required to obtain a sworn affidavit on an annual basis or a CIPC certificate in the case of an EME proving their B-BBEE Status.
Thus the introduction of this intervention brought about an exception to the extent to which entities can rely on the modified flow through principle. The intention of the drafter was to limit the calculation of 51% and 100% black ownership for EMEs and QSEs only through the application of the flow through principle, and a different interpretation would be contrary to the spirit and purpose of this intervention, and would require that such entities be subjected to verification to determine compliance with the 40% sub-minimum on Net Value.
Bonus points do not form part of compliance with the 40% sub-minimum on priority elements.
The following imported goods or components for value- added production in South Africa provided that:
(a) there is no existing local production of such capital goods or components and,
(b) importing those capital goods or components promotes further value-added production within South Africa
50% jobs created: means new jobs created and not maintaining or filling existing vacancies. For example, if an entity operates with 100 jobs, for purpose of satisfying this requirement, the measured entity must first maintain the same staff complement, and 50% of newly created jobs must be for black. Simple maintenance of the 100 jobs would not qualify
The measured entity may facilitate the skills transfer directly or indirectly through professional services irrespective of how many beneficiary entities are trained per day
The Codes are silent on a definition of a service industry, and we recommend that you engage the Services Sectoral Training Authority which is amongst others responsible for the management of a list of entities within the services sector.
This means procuring from entities that are 51% owned by the following “Black Designated Group” as defined in the Codes:
(a) unemployed black people not attending and not required by law to attend an educational institution and not awaiting admission to an educational institution;
(b) Black people who are youth as defined in the National Youth Commission Act of 1996;
(c) Black people who are persons with disabilities as defined in the Code of Good Practice on employment of people with disabilities issued under the Employment Equity Act;
(d) Black people living in rural and underdeveloped areas;
(e) Black military veterans who qualify to be called a military veteran in terms of the Military Veteran Act 18 of 2011