XN000022-1990-09-21 — Page 2

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FRIDAY, SEPTEMBER 21, 1990

STATUS QUO ON FRINGE BENEFITS TAXATION TO STAY

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THE PURPOSE OF INTRODUCING AMENDMENTS TO THE INLAND REVENUE ORDINANCE ON TAXATION OF FRINGE BENEFITS IS

REFLECT THE INLAND REVENUE DEPARTMENT'S PRE-GLYNN ASSESSING PRACTICE IN ORDER MAINTAIN THE STATUS QUO, THE COMMISSIONER OF INLAND REVENUE, ANTHONY AU-YEUNG, SAID TODAY (FRIDAY).

MR

SPEAKING AT A LUNCHEON MEETING OF THE CHARTERED ASSOCIATION OF CERTIFIED ACCOUNTANTS, MR AU-YEUNG SAID THE LEGISLATIVE EXERCISE WAS PROMPTED BY THE DECISIONS MADE BY THE COURT OF APPEAL AND SUBSEQUENTLY BY THE PRIVY COUNCIL IN THE GLYNN CASE.

THE CASE INVOLVED THE QUESTION OF WHETHER PAYMENTS OF SCHOOL MADE DIRECT BY MR GLYNN'S EMPLOYER TO HIS DAUGHTER'S SCHOOL CONSTITUTED CHARGEABLE INCOME OF MR GLYNN.

FEES

DEPARTMENT'S

MR AU-YEUNG EXPLAINED THAT THE

ASSESSING PRACTICE IN RESPECT OF FRINGE BENEFITS WAS BASED ON ITS UNDERSTANDING OF MONEY'S WORTH' RULES ESTABLISHED DOWN BY COURT DECISIONS IN ENGLAND.

IN BROAD TERMS, A BENEFIT WAS VIEWED AS CONSTITUTING MONEY'S WORTH IF IT WAS CAPABLE OF BEING CONVERTED INTO MONEY BY THE RECIPIENT OR INVOLVED THE DISCHARGE OF A PERSONAL LIABILITY OF THE EMPLOYEE, MR AU-YEUNG ADDED.

EXPLAINING THE DEPARTMENT'S PRACTICE IN RESPECT OF EDUCATION BENEFITS, MR AU-YEUNG SAID THAT APART FROM EDUCATION BENEFITS PROVIDED THROUGH DISCRETIONARY TRUSTS, THE DEPARTMENT CONSISTENTLY TOOK THE VIEW THAT SUCH BENEFITS WERE CHARGEABLE TO TAX IRRESPECTIVE OF THE ARRANGEMENTS USED TO PROVIDE THE BENEFITS.

"THIS ATTITUDE WAS BASED ON THE UNDERSTANDING THAT IT WAS NOT POSSIBLE FOR AN EMPLOYEE AS A PARENT TO TRANSFER THE LIABILITY FOR THE EDUCATION OF HIS CHILD TO A THIRD PARTY.

"ON THIS FOOTING, ANY PAYMENT OF SCHOOL FEES MADE BY THE EMPLOYER WAS REGARDED AS A DISCHARGE OF THE EMPLOYEE'S LIABILITY AND ACCORDINGLY TREATED AS CHARGEABLE TO SALARIES TAX, HE SAID.

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WITH REGARD TO EDUCATION BENEFITS PROVIDED BY DISCRETIONARY TRUSTS, THE DEPARTMENT ACCEPTED THAT BENEFITS PROVIDED BY A GENUINE DISCRETIONARY TRUST CONSTITUTED INCOME OF THE CHILD AND NOT INCOME OF THE EMPLOYEE, THE COMMISSIONER SAID, ADDING THAT THIS POSITION WOULD NOT CHANGE UNDER THE PROPOSED LEGISLATION.

AS FOR THE TAXATION POSITION OF SCHOLARSHIPS AND SIMILAR EDUCATIONAL ENDOWMENTS, MR AU-YEUNG SAID THE POSITION DEPENDED ON WHETHER THE EMPLOYEE OR HIS CHILD WAS THE RECIPIENT OF THE SCHOLARSHIP AND WHETHER IT WAS AWARDED BY VIRTUE OF EMPLOYMENT.

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