Gross income - Fringe benefits Flashcards
BMW group’s international business policy requires employees to work for short or medium-term periods in locations where the Group has a presence, other than in their home countries. When the employee works in a foreign jurisdiction, they are known as expatriates. Such employees retain their connection with their home countries and continue to submit tax returns there. The employment relationship between the expatriate employees and the BMW Group operates on an agreed ‘tax equalisation’ basis, which is standard in the Group. In simple terms, this means that the net income of their employees, in countries where they are placed, is no less than in their home countries. So, for example, if the marginal tax rate is higher in another jurisdiction, the Group will ensure that the impact is nullified by structuring remuneration in such a way that the employee is not worse off in terms of net remuneration.
As a result, BMW SA paid for tax consultants to provide various tax services to assist its expatriate employees with their domestic tax obligations to ensure the individuals tax compliance. This was part of the employees’ secondment conditions and the tax services provided was not solely for the employee’s benefit, as they had no choice in this matter.
The tax consulting services was also partly for BMW SA benefit to protect their interest in terms of the Group tax equalisation policy, which requires the Group to incur any additional taxes that may be incurred by that employee while employed in the foreign country.
BMW SA
Issue:
Should the payments made by BMW SA to the tax consultants constitute a taxable fringe benefit in the hands of the expatriate employees in accordance with the 7th schedule para 2(e) or (h) to the ITA?
Principle:
(a) Whether an advantage or benefit was granted by an employer to an employee; and
(b) Whether it was for the latter’s private or domestic purposes.
These benefits were rendered in terms of the contract of employment. EE’s would have had to make these payments had BMW SA not paid them. Therefore, the payments to the tax consultants are a taxable fringe benefit in the hands of the employees in terms of S2(e) of the 7th schedule of the ITA.
