THE MODIFIED FLOW THROUGH PRINCIPLE ON OWNERSHIP IS NO LONGER AVAILABLE TO CERTAIN COMPANIES – WHAT ARE YOUR OPTIONS?
On 31 May 2019, the Minister of Trade and Industry published certain amendments to the Broad-Based Black Economic Empowerment (B-BBEE) Codes of Good Practice, in Government Gazette 42496. These amendments will have a 6-month phase-in period.
The amendments to the B-BBEE Codes of Good Practice state that any EME or QSE, that has the intention of utilising the enhanced B-BBEE recognition level status, must measure its effective level of black ownership by applying the "flow-through principle". This change now provides legislative clarity that the modified flow-through principle may no longer be applied when calculating levels of effective black ownership for any entity that wants to utilise an enhanced B-BBEE recognition level status.
If your business is an EME or a QSE and has an enhanced B-BBEE recognition level status, based on the modified flow-through principle, you will have to make some changes. The first thing to keep in mind is not to panic - you have until 1 December 2019 to implement the necessary changes.
Your options are as follows: -
- If you are an EME, you can do nothing, but will then lose your enhanced Level 1 or Level 2 B-BBEE status. In such an instance you will still retain an exempted Level 4 B-BBEE status; or
- If you are an EME or QSE you can amend your ownership structure in order to establish the requisite effective black ownership level percentages, based on the normal flow-through principle; or
- If you are an EME or QSE you can build a QSE B-BBEE scorecard towards the requisite amount of B-BBEE points that will equate to the required B-BBEE Level status.
The limitation on the scope of application of the modified flow-through principle is only applicable to those entities that intend to utilise the provisions for an enhanced B-BBEE recognition level status. Any company building a B-BBEE scorecard is still allowed to apply the modified flow-through principle to its ownership structure.
Whether you choose to build a B-BBEE scorecard or to amend your ownership structure from a modified flow-through structure to a normal flow-through structure, keep in mind that the road to compliance is fraught with technical nuances and pitfalls, which can trip you up if it is not adequately addressed. For expert advice or assistance with your process, contact us at Compliance Hub Consulting.
We have solutions for each of the elements to help you build a scorecard you should not see the scorecard as a hindrance to your desired BEE level.
Executive Consultant – Compliance Hub