Tax Exposure | KPMG | NA

Do you have a tax exposure when benefits are granted to you?

Tax Exposure

The Namibian Income Tax Act requires every employer who pays or becomes liable to pay remuneration to any employee to deduct or withhold from that amount, employees' tax.

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Tax

Mr Pii is employed by Namibia (Pty) Ltd. Namibia (Pty) Ltd has a 100% shareholding in Accommodation (Pty) Ltd and Vehicles (Pty) Ltd.
Mr Pii was asked to supervise a project in the Northern part of Namibia for Namibia (Pty) Ltd. Accommodation (Pty) Ltd offered the right of use of a holiday apartment they rent that was not being occupied, to Mr Pii for the duration of the assignment. Similarly, Vehicles (Pty) Ltd granted the right of use of a vehicle they recently imported from Angola.

Does Mr Pii have a tax exposure in terms of the Namibian Income Tax Act for the housing and vehicle benefits he is enjoying? And if so, who is responsible to withhold employees’ tax on these amounts?
The Namibian Income Tax Act provides that any amount, including voluntary awards, received or accrued in respect of services rendered, will fall into gross income. Gross income also specifically includes any benefits or advantage granted in respect of employment and includes residential accommodation provided by an employer, whether free of charge or for a rental consideration which is less than the rental value of such accommodation and any cash payment or subsidy made by an employer in respect of rental due by the employee for the lease of a private residence.
Remuneration is defined as “any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered.”

The definition specifically also includes any benefit received in respect of accommodation as aforementioned.
According to the definition of employer, “any person paying remuneration (as defined), to any other person is regarded as an employer. An employee is defined as, any person (other than a company) who receives any remuneration or to whom any remuneration accrues.”

Application

Applying the above to Mr Pii, it is clear that he enjoys a benefit from Accommodation (Pty) Ltd and Vehicles (Pty) Ltd that meets the definition of remuneration as the definition specifically includes any benefit or advantage granted in respect of employment.

The Namibian Income Tax Act requires every employer who pays or becomes liable to pay remuneration to any employee to deduct or withhold from that amount, employees' tax. The definition of employer provides that any person paying remuneration as defined shall be an employer and the question arises as to whether Accommodation (Pty) Ltd and Vehicles (Pty) Ltd meet the definition of being Mr Pii’s employer. In this regard, neither company will pay “salary, wages, commission, fees, emoluments…” as set out in the first part of the definition of “remuneration”. They will also not pay any amount or grant any benefit or advantage “in respect of employment” as specified.

The Namibian Income Tax Act provides that the employer must pay or become liable to pay the remuneration. It could thus be said that a contractual obligation of employment must exist between the employer and the employee. It could thus be argued that without the contractual employer/ employee relationship with Accommodation (Pty) Ltd and Vehicles (Pty) Ltd, employees’ tax will not be applicable.

OECD commentary provides guidance on the term “employer” which provides that an employer is understood to be “the person having rights on the work produced and bearing the relative responsibility and risks”. Taking this into consideration, the argument remains that the rights to work produced by Mr Pii is held by Namibia (Pty) Ltd who also bears the said responsibility and risk, and is therefore considered to be the employer.

On the basis that no contractual obligation/ employment relationship exists between Mr Pii and Accommodation (Pty) Ltd and Vehicles (Pty) Ltd nor do they hold the said rights to his work, there is a strong argument that neither Accommodation Pty (Ltd) nor Vehicles Pty (Ltd) will be required to withhold employees tax on the right of use of the apartment and the vehicle as no employer/ employee relationship exists.

However, since any benefit or advantage granted in respect of the motor vehicle and accommodation will be granted by virtue of the employee’s employment with Namibia (Pty) Ltd., Namibia (Pty) Ltd will be regarded as providing “remuneration”. It will therefore be required to determine the amount of the taxable benefit with reference to the costs it pays to the two subsidiaries to reimburse them for the provision of the vehicle and accommodation and the Inland Revenue’s schedule for determination of the taxable value of benefits.
 

Written by Memory Mbai, a Tax Manager at KPMG. She holds Honours Degrees in Accounting and in Taxation. She has more than five years tax experience and advises a wide spectrum of corporate clients, both local and international, on Namibian income tax, indirect tax and employees’ tax considerations.

© 2017 KPMG Advisory Services (Namibia) (Pty) Ltd, a Namibian private company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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