On Monday 4 June and Tuesday 5 June the High Court heard the Commissioner’s appeal in the Qantas case, arguably the most important GST case to date.  The appeal was heard in Brisbane by a bench of 5 Justices (Gummow, Hayne, Heydon, Kiefel and Bell JJ). Judgment was reserved.

The transcript can be accessed here: Day 1  Day 2

The Commissioner appealed against the decision of the Full Federal Court in Qantas Airways Limited v Commissioner of Taxation [2011] FCAFC 113 where the Full Court unanimously allowed Qantas’ appeal against the decision of the Tribunal ([2010] AATA 977) and found that GST was not payable in respect of fares paid by passengers where those passengers did not show for the flight – because there was no taxable supply. My post on that decision can be accessed here.

The submissions filed by the parties are available on the High Court website and can be accessed here:

• Appellant’s submissions
• Respondent’s submissions
• Appellant’s submissions in reply

On 8 May 2012 the NZ Supreme Court granted leave to the taxpayer to appeal the decision of the Court of Appeal in Commissioner of Inland Revenue v Stiassny [2012] NZCA 93 where the NZ Court of Appeal allowed the appeal by the Commissioner and found that the claim for a refund of GST by the receivers appointed to the partners in a GST-registered partnership should be struck out.  To see my post on the decision of the Court of Appeal, click here.

In a matter which has implications for restitution and insolvency law, as well as GST, the approved grounds are appeal are:

• whether the GST payment was a “debtor-initiated payment” in terms of s 95 of the Personal Properties Securities Act 1999 so as to confer priority to the Commissioner over any claim to those moneys by any respondent;
• whether any of the appellants can recover the amount of GST so paid from the Commissioner on the basis that it was paid by the receivers under a mistaken belief that they were personally liable to pay it or on any other basis.

In further news, the Supreme Court today handed down its judgment in Lewis G H Thompson v Commissioner of Inland Revenue [2012] NZSC 36 upholding the decision of the Commissioner to re-register a taxpayer who had de-registered for GST before disposing of real property.  The case provides an interesting insight into the “turnover threshold” provisions in the NZ legislation, which are focused solely on the future operations of the enterprise and include the disposal of capital items in the test.  This can be compared to the provisions in Division 188 of the GST Act, which have both a “pre” and “post” test and exclude the disposal of capital items from the “post” test.

On Friday the European Court of Justice handed down its decision in Lebara (Taxation) [2012] EUECJ C-520/10. In this case the Court was asked to determine whether the supply of phone cards by Lebara to distributors who then on-sold those cards to customers involved a single supply of telecommunication services by Lebara or (as contended by the Revenue) the supply of two services by Lebara, being (i) the issue of the card and (ii) the redemption of the card by the end user.  The Court found that only a single supply of telecommunication services was made.

The facts can be simply stated.  Lebara sold phone cards to distributors for an agreed arise (being lower than the face value of the cards), the distributors then resold the cards at their face value (either under their own brand or even under the Lebara brand) – in any event, the distributors were acting in their own name and not as agents of Lebara.  The phone cards were activated by Lebara following a request by the distributor, provided that the distributor had paid for them.  Lebara did not know the identity of the user, but had systems in place which enabled it to track each card sold, whether the card was still valid, the amount of unused credit, the numbers called – the distributors did not have access to that system.

Lebara did not account for VAT on the sale of phone cards to distributors in the basis that the transaction was a supply of telecommunication services in the Member State in which the distributor was established and that, in consequence, it was the distributor which had to pay the VAT in that Member State in accordance with the reverse charge mechanism.  Lebara contended that the actual use of the card did not entail the supply by Lebara, for consideration, of services to the end user.  By contract, the Revenue contended that Lebara had to pay VAT in the UK because it supplied two services, (i) the issue of the card, which took place t the time the card was sold to the distributor, and (2) the redemption, when the card was actually used.  The UK taxes the second supply – the taxable value was contended to be the amount paid by the distributor to Lebara which represented the use actually made of the card by the end user as a proportion of the face value of the card.

In considering the issue, the Court referred to the following principles (most of which would also have application in Australia):

• the principle of the common system of VAT is the application to goods and services of a general tax on consumption which is exactly proportional to the price of goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged;
• VAT is intended to tax only the final consumer and to be completely neutral as regards the taxable persons involved in the production and distribution processes prior to the stage of final taxation, regardless of the number of transactions involved;
• it is supplies of goods or services which are subject to VAT, rather than payments made by way of consideration for such supplies
• the supply of services is effected “for” consideration only if there is a legal relationship between the service provider and the recipient, pursuant to which there is a reciprocal performance, the remuneration received by the service provider constituting the value actually given in return for the service supplied to the recipient

In finding that Lebara made a single supply of telecommunication services, the Court found that a supply of services is only taxable if it is made “for” consideration, which presupposes a reciprocity between the service provided and the remuneration constituting the value given in return for that service – Lebara only received a single actual payment in the course of supplying its telecommunication services. Further, that payment cannot be treated as a payment made to Lebara by the end user, even if the resale of the phone card by the distributor ultimately leads to the burden of making that payment being passed on to the end user.

From an Australian perspective, the case does appear unusual, particularly as it appears that the UK was trying to claim a second amount of VAT on what was a single payment.  As is often the case, the impetus for the case may well lie in the complexities of the European system and the UK feeling that it was missing out on VAT revenue (the phone cards were sold in other Member States).  In Australia, the issue would not appear to arise as the voucher provision in Division 100 of the GST Act would operate with the effect that no GST was payable on the redemption only, not on the issue of the cards.

International cases update 

In April 2012 the following decisions were handed down in New Zealand and the UK (including the ECJ) and Canada.

New Zealand

Court of Appeal

• Simpson v Commissioner of Inland Revenue [2012] NZCA 126 – whether receivers of mortgagee selling real property personally liable for GST – to see my post on this case, click here.

United Kingdom and ECJ

Upper Tax Tribunal

• Brendan McMahon v HMRC [2012] UKUT 106 – VALUE ADDED TAX – evidence of export – whether First-tier Tribunal applied correct legal test – despite incorrect statement, yes – whether tribunal’s findings of fact supported by evidence – yes – appeal dismissed
• Sally Moher at Premier Dental Agency v HMRC [2012] UKUTB2 – VALUE ADDED TAX – exemptions – appellant engaged dental nurses and supplied them as temporary staff to dentists – whether appellant made supplies of staff or of medical treatment – supplies of staff – supplies standard-rated – appeal dismissed

First Tier Tribunal

• Collins (t/a Unique Vehicles) v Revenue & Customs [2012] UKFTT 220 – VAT – entitlement to credit for input tax on motor cars – article 7 of VAT (Input Tax) Order 1992 (SI 1992/3222) considered – whether intention to make car available for private use – intention to use car primarily for self-drive hire – evidence of entitlement to input tax where documents contradictory or missing – 2007 statement of practice on input tax deduction without valid invoice – jurisdiction of Tribunal to review HMRC’s exercise of discretion whether to accept alternative evidence of entitlement to input tax deduction – misdeclaration penalty – appeal allowed in part
• The Trustees of The Eaton Mews Trust v Revenue & Customs [2012] UKFTT 249 – VALUE ADDED TAX — zero-rating — construction of building — VATA s 30(2), Sch 8 Group 5 — whether retention of party wall a condition of planning consent — yes — appeal allowed
• Sound Solutions (Europe) Ltd v Revenue & Customs [2012] UKFTT 251 – VALUE ADDED TAX- – MTIC-sale of mobile phones and CPUs – appellant’s repayment claim of £3,039,723.75 refused on grounds that the appellant knew or ought to have known that the transactions were part of an MTIC fraud -appellant knew that the deals were part of a VAT fraud –appeal dismissed – to see my post on this case, click here.

European Court of Justice

• Able UK (VAT) [2012] EUECJ C-225/11 – Exemptions – Article 151(1)(c) – Supply of services of dismantling obsolete US Navy ships in the territory of a Member State
• Balkan and Sea Properties (VAT) [2012] EUECJ C-621/10 – Sale of immovable property between connected companies – Value of the transaction – National legislation providing that for transactions between connected persons the taxable amount for VAT purposes is the open market value of the transaction

Canada

Supreme Court of Canada

• Calgary (City) v Canada 2012 SCC 20 – Single supply or multiple supplies  ― City acquiring and constructing transit facilities ― City claiming and receiving public service body rebates for portion of GST paid ― City also claiming input tax credits in respect of GST paid on purchases made for transit facilities ― Whether acquisition and construction of transit facilities constituting an exempt supply, a taxable supply or both ― Whether “transit facilities services” a taxable supply to the Province separate from exempt supply of “public transit services” to public – to access my case summary click here

Tax Court of Canada

• Legace v The Queen 2012 TCC 117 – whether directors liable for unpaid GST of company – whether “due diligence defence” satisfied
• SWS Communications Inc v The Queen 2012 TCC 114 – whether supply of telecommunication services zero-rated as an export to non-resident – whether supplier had a permanent establishment in Canada

On 10 February 2012 the High Court dismissed the taxpayer’s application for special leave to appeal the decision of the Full Federal Court in Russell v Commissioner of Taxation [2011] FCAFC 10. The transcript has just become available and it can be accessed here.

The case involved issues relating to income tax and GST.  The GST issue was whether the taxpayer (a partnership) could claim input tax credits in respect of various “enterprises” that it carried on.

The Commissioner has released Decision Impact Statements for three decisions of the Tribunal dealing with GST issues.

Mold and Commissioner of Taxation [2011] AATA 823 

The decision impact statement can be accessed here.  My analysis of the decision can be accessed here.

The ATO accepts that this decision was open to the Tribunal due to the particular facts and circumstances of this case and the evidence presented during the hearing.The ATO does not accept as a general principle that there will always be consistency between deductions and input tax credits due to the different laws applying to the different taxes. The relevant Acts for income tax and GST have a number of different criteria for the allowance of deductions and input tax credits, and each case needs to be looked at individually to determine the allowance of relevant amounts.

The ATO also accepts that the penalty decision was open to the Tribunal on the particular facts and circumstances of the case, and the evidence presented. However, the ATO notes that, in relation to penalty, the Tribunal considered the case marginal and that the voluntary disclosure decision was made “on balance”.

The Trustee for the Naidu Family Trust and Commissioner of Taxation [2011] AATA 910

The decision impact statement can be accessed here.  My analysis of the decision can be accessed here.

Mackay, Hugh and Commissioner of Taxation [2011] AATA 593

The decision impact statement can be accessed here.

On 7 and 8 February 2012 Callovers were held for appeals to the Full Federal Court to see which of those cases are to be listed in the May sittings.  A review of the Federal Court portal discloses that each of the following appeals is to be listed in the May sitting of the Full Federal Court:

• LVR (WA) Pty Ltd ACN 095 742 635 v Administrative Appeals Tribunal – my discussion of the case can be accessed here.   To see the orders made by the Court – click View orders
• MTAA Superannuation Fund (RG Casey Building) Property Pty Ltd v Commissioner of Taxation – my discussion of this case can be accessed here. To see the orders made by the Court – click View orders 
• National Jet Systems Pty Ltd v Commissioner of Taxation – my discussion of this case can be accessed here. To see the orders made by the Court – click View orders

The appeal lodged by the taxpayer in Central Equity Limited v Commissioner of Taxation is scheduled for a Callover in April 2012.

On Friday 10 February 2012 the High Court granted the Commissioner’s application for Special Leave to appeal from the decision of the Full Court in Qantas Airways Ltd v Commissioner of Taxation [2011] FCAFC 113.  The appeal will be heard later this year.

The transcript of the hearing can be accessed here.

I will not be providing any analysis or making any comment as I am involved in the matter.