Durban — South African companies that have a working relationship with the US-based multinational software giant Cloud Software Group are said to be at risk of losing their BEE points if the company loses its protracted battle with its local BEE partner, Techsoft.
The local 100% black-owned company had last year hauled the US giant to court after abruptly terminating its contract without notice.
This, according to Techsoft, was after it raised issues of tax evasion and fronting with the US company which responded by cutting ties without due processes with involved reasonable notice.
Among the SA companies that have partnerships or working relationships with the US company are Absa Bank, Nedbank, Telkom, First Rand Group, Momentum Metropolitan and others. The company is accused of making a mockery of SA tax and BEE laws, which is a highly punishable offence in any country.
“When South African companies purchased software and services from Cloud Software Group TIBCO they believed they were empowering and growing local black businesses. “This is not so as TIBCO, as far back as 2006, set up structures that allowed them to shift profits and evade South African taxes and deny their local partner of any real dividends from the business they did in South Africa,“ said a source.
“They put in special contracts signed internally among TIBCO employees, without disclosing this information to their BEE partner, that allowed TIBCO to shift 90% of the revenue out of the BEE joint venture TS Innovations and move most of the funds offshore without paying local taxes.”
The source said that in effect TIBCO was charging itself 90% for the software it owned in order to move money out of the country.
The source further said the directors of TIBCO were the same as those that served on the board for TS Innovations, and they controlled TS Innovations and the management of all finances.
TS Innovations was a BEE partner of the US company that it approached in order to secure business with Telkom.
The source said that in order for Telkom to fulfil its BEE objectives it mandated TIBCO to form a partnership with a local company and give up at least 25.1% as a start.
When TIBCO formed a BEE partnership with DynaTech, a local, 100% black-owned company called TS Innovations, it allegedly signed special contracts to shift 90% of Telkom revenue out of TS Innovations to TIBCO Inc without disclosing this to Telkom and the BEE partner.
Telkom at the time was of the view that the R40m spend would be shared with a local BEE partner, but this did not happen according to documents.
In 2015, at this stage, Telkom was said to have spent more than R400m but TS Innovations only received R10m in dividends which TS Innovations director viewed as blatant fronting and a disregard for South African BEE laws.
Techsoft’s group corporate affairs executive said when DynaTech found out the details of TIBCO activities, it sought an opinion from KPMG and alerted TIBCO to the fact that they were allegedly avoiding taxes.
Dynatech said it also found out that the US company did not disclose to SARS that it was paying offshore and to a connected party.
Furthermore, TIBCO was also not reflecting its sales of software as sales but was hiding those costs as management fees, knowing that they could not show the cost of sales to a connected party at 90%.
Dynatech said these allegations were ignored and made no difference and even TIBCO auditors Mazaars would not entertain the findings by an independent company as well as an opinion received from KPMG. This practice continued forcing their local partner to exit the BEE joint venture.
Should the US company lose its case, it was most likely the South African companies which have partnerships or working relationships with it might be caught in the crossfire, with serious consequences.
In response, Absa said it was not a customer of TIBCO (nor TechSoft) currently, though the company was a supplier of software to Absa in earlier years. Furthermore, Absa said its scorecard does not include preferential procurement spend nor supplier development credits through contracting with TIBCO, adding that it holds its suppliers contractually responsible to comply with prevailing laws and regulations.
Telkom said it was aware of the legal proceedings pending between Techsoft and Tibco, and was monitoring developments in that regard. It said any action taken by Telkom will be informed by the final outcome of the legal proceedings.
Momentum Metropolitan also said: “We are aware of the dispute between TechSoft and TIBCO. Since we are not involved at all, we are unclear on how the dispute will affect us at this point. We will monitor the developments in the legal proceedings to assess the impact on us, if any.”
Nedbank, too, confirmed that it was aware of the legal proceedings. However, since the court case was still pending, Nedbank was unable to speculate on the outcome of legal proceedings.
“Nedbank is committed to driving and enabling transformation through its policies and compliance to legislation that promotes economic inclusion and has a zero-tolerance policy on fronting,” said its media officer, Refilwe Boikanyo.
The lawfirm Thomson-Wilks had previously said it was not privy to the company’s internal information except for representing it in a litigation case against Techsoft, but said it has forwarded the questions and was awaiting a response.
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