Citibank, SARS dispute to affect multinationals

The local unit of US investment banking group Citibank is in the crosshairs of the South African tax authority over the secondment of the company’s offshore employees, an activity the SA Revenue Services claims amounts to the importation of services and is subject to VAT. A Business Day report says the outcome of the dispute is likely to have ripple effects on other multinational firms operating in SA as they tend to send their employees to work in other countries to manage and assist with special projects and implement firm-wide systems. SARS said the issue before the Gauteng High Court (Pretoria) was not the employment status of seconded employees under SA law but the VAT liability of Citi’s local branch for the imported services provided by such employees. SARS contended because the home branches of the seconded employees pay the salaries of these individuals on behalf of Citi SA and that it reimburses the ‘sending entity’, this constitutes taxable imported services. SARS also said payments made by Citi SA to its overseas counterparts are payments for a service in terms of a service agreement and do not constitute the recovery of a disbursement. However, Citi is of the view that the seconded employees are its employees because it has a right to supervise and exercise control over them during the duration of their secondment, it said in its court documents. It also also said the reimbursement payments fall outside the scope of VAT.

SARS drew first blood in the dispute when the High Court dismissed Citi’s appeal against the stance taken by the receiver of revenue, says the Business Day report. Judge Omphemetse Mooki said Citi SA’s argument that the seconded employees are akin to being its employees fell short. ‘The application falters at two levels. First, the applicants have not shown that they are “employers” of the seconded employees. Second, the applicants have not shown that payments by the applicants to the sending home entity constitute “remuneration” within the meaning contemplated in proviso (iii)(aa) to the definition of “enterprise”.’ However, Citi still has the option of appealing the decision to the higher courts.