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!