Dear valued client,
The BEE Commission has recently released two practice guides. Practice Guide One covers the issue of recognition of Third Party Procurement, and Practice Note Two (hyper link above 02) addresses certificates for EME’s and black-owned QSE’s.
Recognition of Third Party Procurement
The recognition of third-party procurement is dependent on how the service provider recognizes that revenue in their books. The example given by the BEE Commission was as follows:
Entity A (a car rental company) ⇒ Entity B (a travel agent) ⇒ Entity C (the measured entity).
Entity B facilitates car hire from Entity A for Entity C, for R15,000. Entity C (the measured entity) pays R15,000 to Entity B, who passes R10,000 on to Entity A (the car rental company). Entity B retains R5,000 for this service.
In this instance, it is required for the travel agent to provide the breakdown of their actual costs, and the commission received, so that the measured entity can correctly reflect the purchase. The measured entity would only be able to recognize R5,000 based on the travel agents BEE rating, and the balance of R10,000 would be based on the car rental companies BEE status. The only time the full R15,000 can be recognized against Entity B (the travel agent) is if this full amount is recognized as income in Entity B’s financial statements.
The problem here is that if the measured entity recognizes the full R15,000 as expenditure through the travel agent, this may affect the travel agent’s classification as an EME, QSE or large entity. The measured entity may recognize the travel agent as a large entity (based on the full expenditure), but the travel agent may only see themselves as an EME or a QSE, as they only recognize the commission percentage. This could therefore result in the travel agent misrepresenting their BEE status, which could be seen as an offense in terms of the Act.
It is therefore imperative that the travel agent (in this instance) provides a breakdown between the cost actually incurred by them and the commission earned, so that the measured entity can correctly recognize their spend for BEE purposes.
BEE certificates for EMEs and black-owned QSEs
There has been significant discussions around the issuing of BEE certificates for EMEs and black-owned QSEs. National Treasury has issued a directive to all organs of state advising them not to require a BEE certificate for EMEs. In addition, accounting officers are not allowed to issue BEE certificates as was the case under the 2007 Codes. The BEE Commission has made it clear that only affidavits, or a certificate from the CIPC, are acceptable. The Practice Guide adds that should a Verification Professional continue to issue certificates to EMEs and QSEs contrary to the B-BBEE Act, the BEE Commission will ensure the matter is pursued to the extent of having the accreditation of the verification professional withdrawn or cancelled. Therefore, as much as we would like to service the requirements of clients and issue EME or black-owned QSE certificates, the BEE Commission has made it quite clear that this is not permissible. If any entity does not accept the affidavit, you are invited to bring this to the attention of the BEE Commission, who will interact directly with the entity to ensure they understand the requirement to accept only an affidavit.