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BMW South Africa (pty) ltd v. The Commissioner for the South African revenue service - (06 Sep 2019)

Payment by employer to tax consultants to render assistance to expatriate employees is taxable ‘benefit or advantage’ as contemplated in the definition of ‘gross income’

Direct Taxation

The Appellant, BMW South Africa (Pty) Ltd (BMWSA), is part of the BMW Group (the Group) that manufactures and markets BMW vehicles and conducts worldwide operations. It has a presence in numerous countries throughout the world. The question at the centre of this appeal is whether payments totalling R6 795 540 made by BMWSA to tax consulting firms KPMG, Price Waterhouse Coopers and Raffray Tax Consultants CC (the firms) in relation to services rendered to expatriate employees in respect of their domestic tax obligations, constitute a taxable benefit and consequently forms part of gross income in respect of which the employees are liable to taxation. Simply put, the question is whether the payments to the firms fall within the ambit of the definition of ‘gross income’ in Section 1(i) of the Income Tax Act 58 of 1962 (the Act), read with paragraphs 2(e) or (h) of the Seventh Schedule thereto.

The tax court considered the primary question to be whether the expatriate employee received or accrued any benefit or advantage from the payment by BMWSA of the consultancy fees. It had regard to the submission on behalf of BMWSA that what fell to be considered was whether the expatriate employees were better off than had they remained in their home country and whether they received more of a financial benefit than had they not come to South Africa. That was the principal submission on behalf of BMWSA. It was contended that, no advantage had been gained by the expatriate employee by virtue of the use of the consultancy services and the payment by BMWSA of their fees. The court went on to hold that it was a benefit that could be valued in money and fell within the definition of ‘gross income’ in Section 1 of the Act. Alongside Section 1 of the Act, the Court considered the provisions of paragraph 2(e) of the Seventh Schedule. As regards paragraph 2(e) it noted that, a benefit is taxable, if it is in the form of a service rendered to the employee, at the expense of the employer and where the service was used for his or her private or domestic service.

The completion of the tax registration process and of an expatriate employee’s tax returns is admittedly complex. The services rendered by the firms to expatriate employees, were to ensure that the latter met their obligations to SARS. It is undisputed that, the amount set out in para 1 above, constitutes payments by BMWSA for the services rendered to the expatriate employees set out in paras 22 and 23. That payment was made in terms of the contract of employment. These were services that, the expatriate employees would otherwise have had to pay for personally. The ineluctable conclusion is that the services provided are a benefit or advantage as contemplated by Section 1 of the Act, read with paragraph 2(e) of the Seventh Schedule. 12

The services were correctly valued and utilised for the employees’ private or domestic purposes as contemplated by Section 1 of the Act read with para 2(e) of the Seventh Schedule. The confirmation of the assessment will not lead to the expatriate employees being worse off in terms of their employment with BMWSA. In terms of their tax equalisation policy, they will have to bear the additional tax burden on behalf of the expatriate employees. BMWSA’s policy and terms of employment cannot dictate the application of the provisions of the Act. The conclusions by the tax court and the court below confirming the assessment cannot be faulted. The appeal is dismissed


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