The question at the centre of the appeal was whether payments totalling R6.8 million made by BMW SA to tax consulting firms KPMG, Price Waterhouse Coopers and Raffray Tax Consultants CC for services to expatriate employees in respect of their domestic tax obligations, constituted a taxable benefit and formed part of gross income.
As part of the group's international business policy, employees are required to work for short or medium-term periods in locations where the group has a presence, other than in their home countries.
Such employees retain their connection with their home countries and continue to submit tax returns there.
Additional costs are incurred by the expatriate employees, as a result of the group requiring them to work in foreign countries. The employment relationship between the expatriate employees and the group operates on an agreed "tax equalisation" basis, the SCA judgment read.
This means that the group, wherever it has a presence, will ensure that the net income of their employees, in countries where they are placed, is no less than in their home countries.
According to the SCA judgment, BMW SA, in order to facilitate tax compliance by their expatriate employees, engaged the services of the firms to complete their registration as taxpayers.
According to the judgment, the SA Revenue Service (Sars) had in 2009 queried why payments to the firms did not constitute a taxable fringe benefit, in respect of which each expatriate employee would be liable. In Sars’ view the payments to the tax consultants by BMW SA constituted such a benefit.
BMW SA wrote back, denying that the payments constituted a benefit.
Sars, unmoved, issued an assessment for the tax years 2004-2009. BMW SA objected to the assessment and Sars disallowed the objection.
BMW SA, in turn, lodged an appeal against the assessment that was heard in the tax court. The tax court dismissed the appeal by BMW SA and made no order as to costs.
The case then went to the high court in Gauteng, which found with the tax court.
The SCA subsequently found that the services were utilised for the employees’ private or domestic purposes.
“In terms of their tax equalisation policy, they will have to bear the additional tax burden on behalf of the expatriate employees.
"BMW SA'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 SCA found.
BMW SA manager for business communications Alexander Parker said: “BMW SA notes the judgment of the SCA and will not be commenting further.”
Sars did not respond to requests for comment by deadline.