The Taxman Cometh

What is more complex are the taxation implications of accepting hospitality.

"If a benefit is received by someone who is an employee, and is not part of business in itself, then that is a taxable benefit and the liability rests with the employer rather than the party providing the benefit," says John Sullivan, a partner in tax services at PricewaterhouseCoopers.

"There used to be a fair amount of animated discussion about how would the employer know that there were trips to a factory, then the obligatory three-day pass to somewhere near Anaheim [the home of Disneyland] and Hawaii on the way home. Employers legitimately in some cases did not know," Sullivan says.

However, the attitude from the Australian Taxation Office (ATO) recently has been more a case of "Unless you actively prohibit it then we will assume that you approve it", according to Sullivan, which has led to many companies establishing clear policies regarding the acceptance of hospitality or gifts. And, following the introduction of the GST, which spawned a rash of tax audits, the acceptance of fringe benefits has been more carefully monitored by the ATO (though through GST audits rather than FBT audits), leaving companies without clear policies vulnerable, according to Sullivan.

He says that the emergence of centralized procurement or strategic sourcing departments in large enterprises has led to firmer policies regarding purchasing probity in those organizations. Of course smaller organizations cannot afford such luxuries, and purchasing decisions are signed off by the CIO, CFO and CEO in concert. In those cases companies need to be sure they have express policies regarding accepting vendor hospitality or risk exposing themselves to an FBT liability.

It is not just the user community that has been looking at ways to reduce exposure. "Suppliers generally are making trips less of a junket to get around the fringe benefits," says Sullivan. "Life's moved on a bit from funding them [CIOs] on a jolly to a tourist location." He says vendors are constructing marketing programs where CIOs are herded into a single location, providing the vendor with "more control".

Too much control though and the CIOs will not come at all.

Two years ago Australian CIOs were invited on an all expenses paid cruise around Australia, which was sponsored by a number of vendors. "I rejected the invitation," says a CIO who saw it as a lose-lose situation. "I couldn't think of anything worse than being trapped on a ship. I could either jump off and be eaten by sharks, or stay on board and face another lot of sharks."

According to this CIO, although he is regularly invited interstate or overseas, he only accepts if he pays his own way. Earlier this year for example he visited two major US companies. "And while I might get good hotel rates off the back of their [vendor] discounts, we always settle the bill with our own credit cards."

The only exception is when he has been invited to speak at a conference organized by a vendor, in which case he might accept a flight. However he never seizes the opportunity for a "little holiday", preferring to get in, do the job and get out. "I just think about my integrity. My role is to train staff about their obligations and I take that very seriously."

It can be hard, though, to differentiate between a legitimate learning experience and a marketing junket. "One of the software companies used to run a CIO program - they said it was to provide feedback on their products and services," says another CIO. "They took CIOs and their partners to Uluru or Hayman Island and we attended two to three days of presentations. There was no hard sell and no order books at the end. I suppose at the end of the day I should feel guilty because the spouses came, but they made you work and didn't pay for you to stay on.

"It never affected my purchasing decisions. In any case we had outsourced by then, so really they should have invited the outsourcers because they were making all the decisions. The second time we went I presented at their conference - I went on that condition."

Scruples of course vary widely. One CIO formerly on the vendor side of the street says that on one occasion, when the business was close to signing off on a sale, "my sales manager came and said that to win the deal he needed to buy the CIO a suit. They'd settled on a suit.

"I said if you want to take the money out of petty cash, then go jump. But if you want to take the money out of your own commission, then I don't want to know. That was the closest thing I've seen to a bribe when I was in sales."

As a CIO he is not interested in up-front inducements. "I'd rather they said they'd invest in looking after me when the going gets tough," he says.

And when vendors do invest and the solution works well, he and other CIOs are prepared to act as international reference sites themselves, hosting CIOs visiting Australia from the northern hemisphere. "We've entered into a relationship with the vendor and as they get successful we get successful. When it comes to being a vendor reference site we are extremely happy to become one because it binds them to us. I see it as a form of risk mitigation, a form of insurance.

"I don't see a sale as a transaction - it's more of a relationship. I want them to go well. If the vendor does a good job for us then I'll scratch their back. It won't be misconstrued as me selling the vendor's product, instead I'm just describing the relationship."

Some CIOs nevertheless are precluded from acting as reference sites by internal policies, which argue that acting as a testimonial site might weaken the user's hand if they ever came into conflict with a vendor that had to be settled in the courts.