Whether the fees paid to consulting firms by a company for assisting foreign nationals (who are tax equalised) would be regarded as a taxable fringe benefit in the hands of the expatriate?
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
I accept that the taxpayer (employee) concerned is in receipt of RSA source income (or is exclusively deemed to be a resident of the RSA). Either way, the assumption is that the RSA has a taxing right in respect of the individual concerned.
I am not aware of the foreign cases, but here is my understanding of the issue.
If the service of completing a tax return of a RSA resident employee was provided by a third party and paid for by the employer, there would be no doubt that it is a taxable benefit. So I accept that one of the reasons why you raise the question is whether or not the benefit is granted as a benefit or advantage of or by virtue of the person’s employment or as a reward for services rendered by the employee to the employer. I don’t believe that the fact that the employer “will be responsible for picking up the tax cost arising from the assignment to South Africa and any compliance that may be required” breaks the link with the in respect (or by virtue of) requirement. In other words, my view is that the reason the employer picks up the cost is, as it was put by Judge Howie in the Stevens case, that “there was an unbroken causal relationship between the employment on the one hand and the receipt on the other”. The receipt in this case the benefit granted. So paragraph 2(e) of the Seventh Schedule to the Income Tax Act applies.
The next issue is whether it has been utilised by the employee for his or her private or domestic purposes. In my view this may well be private in nature. From a tax point of view the employee would not be able to make a deduction of these fees against his or her remuneration – section 23(m) would deny that. In order to treat it as not for the employee’s private benefit the employer will have to meet the burden of proof that it was not. I suppose one would argue that it is a cost of getting the specific employee to work in the RSA, accepted worldwide that employers pick up the expense, etc. But that would then basically be saying that it is not a benefit granted as by virtue of employment.