Category Archives: Appeals

Tribunal finds letter by taxpayer constitutes a notification of entitlement to input tax credits

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In North Sydney Developments Pty Ltd and Commissioner of Taxation [2014] AATA 363 the Tribunal found that a letter provided to the Commissioner was a valid notification for the purposes of s 105-55(1)(a) of Schedule 1 to the TAA in relation to input tax credits for tax periods ending December 2005 and January 2006.

Set out below are the principal events underlying the input tax credit claim as identified by the Tribunal and the conclusions of the Tribunal. As I appeared in the case I will not be providing an analysis of the decision.

The principal events were as follows:

  • May 2004 to November 2005: North Sydney lodged 17 monthly Business Activity Statements reporting GST purchase payments totalling $1,070,800, and no sales. The Commissioner accepted that North Sydney was entitled to input tax credits in relation to the amounts claimed in each statement.
  • December 2005: North Sydney did not lodge a Business Activity Statement for the month.
  • January 2006: North Sydney again did not lodge a Business Activity Statement for the month.
  • 16 February 2006: the Commissioner issued a “lodgement and payment” notice requiring North Sydney to lodge its December 2005 Business Activity Statement, and pay any liability amount it recorded.
  • 8 March 2006: a mortgagee appointed a controller to the substantial property, whose (not yet completed) development had been the reason for the $11.78m GST purchases reported in the Business Activity Statements lodged up to November 2005.
  • 24 March 2006: the Commissioner issued a further “lodgement and payment” notice requiring North Sydney to lodge its January 2006 Business Activity Statement, and pay any liability amount it recorded.
  • 23 June 2006: North Sydney was placed in receivership, and the receiver subsequently sold the partially completed development.
  • 3 September 2009 North Sydney wrote to the Commissioner. The letter reported the receiver’s appointment on 8 March 2006 and stated that “ASIC and the receivers” had taken possession of all North Sydney’s books and records, and refused to either return them or provide access to them. The letter continued with statements to the effect that:
      1. North Sydney was unable to complete the lodgement of Business Activity Statements for December 2005 and January 2006
      2. The letter was to “provide notice that substantial GST refunds are due for these months”.
      3. North Sydney would be unable to lodge Business Activity Statements for those months until it gained access to the necessary books and records.

After considering a number of authorities (including Central Equity Ltd v Federal Commissioner of Taxation [2011] FCA 908; MTAA Superannuation Fund (RG Casey Building) Property Pty Ltd v Commissioner of Taxation [2011] AATA 769; National Jet Systems Pty Ltd v Commissioner of Taxation [2011] AATA 766 and Brookdale Investments Pty Ltd v Commissioner of Taxation [2013] AATA 154) the Tribunal observed as follows (at [25]):

The common themes resonating through the decisions to which I have referred are the absence of any formal notification content requirement, a disavowal of amount specificity and the apparent sufficiency of a notice where it communicates a claim relating to a particular tax period in relation to a particular kind of tax liability. Implicit in the third theme, and variously expressed in the judgments and reasons, is a refusal to endorse any particular requirement for the details, grounds or even circumstances relied on to support the claim. 

The Tribunal’s conclusion was as follows (at [31]):

In my view, North Sydney’s 3 September 2009 letter did notify the Commissioner of “the refund, other payment or credit” to which TAA Schedule 1: s 105-55(1)(a) applied. It did so for two reasons. Firstly, the provision required no greater specification than the tax period involved, and the nature of the refund or input tax credit claimed. The letter, by describing the notification as relating to the expected outcome of Business Activity Statements for December 2005 and January 2006, satisfied the requirements of a complying notification. Secondly, if the letter required some greater degree of specificity in order to permit satisfaction that any subsequent claim was covered by the notification, the letter also satisfied that requirement. It did so because it indicated that the reason for the notification was the lack of access to the contemporary books and records in the possession of the receiver. On this view any subsequent claim would be limited to a summarised reproduction of the information in the purchase, payment and supply records maintained by the receivers. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxpayer’s submissions in the MBI Properties appeal now available online

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The taxpayer’s (respondent) written submissions to the High Court in the Commissioner’s appeal of the Full Federal Court’s decision in Commissioner of Taxation v MBI Properties Pty Ltd [2013] FCAFC 112 are now available on the High Court website. They can be accessed here.

The Commissioner’s submissions were filed in May and my post discussing those submissions can be accessed here.

In my post I observed that the principal issue identified by the Commissioner in his submissions brought into question the decision of the Full Federal Court in South Steyne Hotel Pty Ltd v Commissioner of Taxation [2009] FCAFC 155 and whether the purchaser of a reversionary estate in land leased to a sitting tenant makes a “supply” to the tenant after completion of the purchase.

The taxpayer’s submissions (at [3]) contend that the relevant statutory questions in the appeal are not properly reflected in the “principal issue” as stated by the Commissioner. Also, the taxpayer makes the following contentions (at [8]-[9]):

  • prior to the special leave application, the Commissioner had not at any point contended that MBI made a separate supply to Mirvac in the form of a separate supply of residential premises by way of lease.
  • before the primary judge and the Full Court the Commissioner submitted that South Steyne was correctly decided
  • the appeal is in substance an appeal from the decision of the Full Court in South Steyne

The taxpayer contends that the relevant statutory questions are as follows:

  • did MBI intend to make any “supply” as a consequence of acquiring the reversionary interest in the residential premises?
  • if so, was any such supply intended to be made “through the enterprise” that was the subject of the acquisition by MBI from South Steyne for the purposes of s 135-5?
  • if so, what was the character of any such supply? In particular, was it an input taxed supply of residential premises by way of lease within the meaning of s 40-35?
  • what was the “price” of any such supply for the purpose of applying the formula in s 135-5(2)?

The Commissioner’s reply is due on 20 June 2014.

Tribunal hands down decision on what constitutes an enterprise

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Yesterday the Tribunal handed down its decision in Davsa Forty-Ninth Pty Ltd as Trustee for the Krongold Ford Business Unit and Commissioner of Taxation [2014] AATA 337. The question was whether the applicant was entitled to input tax credits for the acquisition of motor vehicles and whether the applicant was carrying on an enterprise.

The interesting context in which the enterprise question arose was noted by the Tribunal in the first paragraph of the judgment:

The disputed claims arise in circumstances where the Applicant carried on activities described as a one man business by its principal who had a genuinely held belief that they would, or could, be profitable and that they constituted a business but on an objective view, the possibility of making profits or gains was close to, if not actually, zero.

After a detailed review of the facts and the legislation, the Tribunal found that an enterprise was being carried on. Unfortunately for the applicant, save for one vehicle, credits were ultimately not available because most the motor vehicles were used at least partly for a private purpose and no evidence was given to determine an appropriate apportionment and tax invoices were not held.

The decision illustrates that the question of whether an enterprise is being carried on involves a detailed factual enquiry and in many cases (as in this one), the decision will be finely balanced. There is no bright line test.

Some of the observations of the Tribunal in undertaking its enquiry included the following:

  • At [16]: In determining whether a business is carried on, possibly the rule should be that if there is a significant commercial purpose then there will be a business and without it, other matters need to be considered.
  • At [18]: Identifying whether an “enterprise” is carried on involves a lower standard than identifying whether a “business” is carried on.
  • At [22]: the qualification in s 9-20(2) that activities which constitute a private recreational pursuit or hobby is not an enterprise applies to all entities – however, there is a conceptional difficulty in an entity other than an individual carrying on a hobby unless an entity does so as a vehicle for an individual’s pursuit.
  • At [23]-[26]: the qualification in s 9-20(2) that activities undertaken  by an individual that do not have a reasonable prospect of profit or gain is not an enterprise is a discrete test which applies to individuals and partnerships comprising of individuals – this test does not apply to other entities.
  • At [27]-[29]: determining whether an acquisition is made in the course of commencement of an enterprise requires the identification of the essential character of the step taken and the essential character of the acquisition.
  • At [37]: Prospective profitability, and/or a strong likelihood of it, is a positive indicator of the most important criterion for whether someone is carrying on a business (and by extension an enterprise), namely intention to make profits. However, an objective view that profits are unlikely is not fatal to the analysis that a person is engaging in activities intending to make profits.

Having regards to the evidence, the Tribunal found that, while finely balanced, the Applicant had engaged in a series of activities that have sufficient indicia of business to be regarded as carrying on an enterprise, or to have been carrying out steps in the commencement of an enterprise.

MBI Properties update – Commissioner’s submissions now available online

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The Commissioner’s written submissions to the High Court in his appeal of the Full Federal Court’s decision in Commissioner of Taxation v MBI Properties Pty Ltd [2013] FCAFC 112 are now available on the High Court website. They can be accessed here.

The critical issue in the appeal is clearly outlined at paragraph 2 of the Commissioner’s submissions as follows:

The principal issue in the appeal is whether the purchaser of the reversionary estate in land leased to a sitting tenant makes a “supply” (as defined in the A New Tax System (Goods and Services Tax) Act 1999 “the GST Act”) to the tenant during the currency of the lease after completion of the purchase.

The essence of the Commissioner’s submissions is that the performance of the landlord’s obligations under the lease by the purchaser of the reversionary interest in the land comprises a “supply” for the purposes of s 9-10 of the GST Act. Interestingly, this did not appear to be the principal issue before the Full Federal Court, but it is clearly what this appeal is now about. This brings into question the conflicting analysis of this very issue by the Full Federal Court in Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 and South Steyne Hotel Pty Ltd v Commissioner of Taxation [2009] FCAFC 155.

In Westley Nominees, the Full Court found as follows (at [22]):

While the matter is not entirely free from doubt, we have concluded that when the appellants purchased the reversion they assumed the obligation of [the vendor] to honour the lease according to its terms and in that sense entered into an obligation to tolerate an act or situation and in consequence, made a ‘supply’ by virtue of s 9-19(2)(g). The fact that the obligation arises by operation of law does not, in our view, impede this conclusion; after all, the reference to ‘obligation’ in s 9-10(2)(g) must be a legal obligation, although not necessarily one sourced in contract.

In South Steyne, the judgments were as follows:

  • Finn J (at [2]): …the sales of three apartments to MBI Properties subject to their respective leases did not constitute a new or further supply. The covenants of the initial leases remained but the benefit of the respective tenants’ covenants and the burden of the landlord’s covenant “ran” with the reversion by virtue of real property legislation…and not by virtue of a distinct supply agreement or arrangement…
  • Emmett J (at [32]): There is a real question as to whether the Continuation Category involves any supply at all. Properties acquired from Sough Steyne the legal estate in respect of apartments in the Sebel Hotel, being the reversion of the leases in favour of Management. It is common ground that there was a supply on the grant of the leases. The better view is that there was no further supply, merely by reason of the continuation of the leases after the sale of the reversion. Rather, the situation is provided by Division 156.
  • Edmonds J (at [76]): I have come to the view that when MBI purchased the reversionary interest in the three apartments there was no new supply by MBI to MML but merely a continuation of the first category of supply…

The taxpayer’s written submissions are due on 6 June 2014, and the Commissioner’s reply on 20 June 2014.

My analysis of the decision of the Full Court can be accessed here. The transcript of the hearing of the special leave application before the High Court can be accessed here.

International cases update – March/April 2014

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In March/April 2014 the following decisions dealing with VAT/GST issues were handed down in the UK and Canada. My research did not disclose any decisions in New Zealand.

I discussed the decision of the UK Supreme Court in Secret Hotels2 in my January/February update – The appeal concerned the liability for VAT of a company which markets and arranges holiday accommodation though an on-line website and the essential question was whether the appellant was acting as a principal, or as an agent, when making the supplies of hotel accommodation. My analysis of the decision of the UK Supreme Court can be accessed here.

The decision is interesting because the facts are similar to the facts considered by the Full Federal Court in ATS Pacific Pty Ltd v Commissioner of Taxation [2014] FCAFC 33. Looking at the two decisions, the Full Federal Court appeared to take a more expansive view as to what can be taken into account when characterising a supply made under a contract (including the manner of the performance of the terms of the contract and identifying the the “purpose” of the transaction and the practical or business reality of the circumstances), whereas the Supreme Court appeared to limit the scope of the investigation to the terms of the agreement – relying on traditional contract law principles. This is discussed in more detail in my case analysis of the decision of the Full Federal Court.

I note that on 23 April 2014 the taxpayer lodged an application to the High Court for Special Leave against the decision.

United Kingdom

Supreme Court

Revenue & Customs v Secret Hotels2 Ltd [2014] UKSC 16

Court of Appeal

Revenue & Customs v British Telecommunications Plc [2014] EWCA Civ 433

  • whether taxpayer entitled to compound interest on refund of VAT

Chancery Court

Littlewoods Retail Ltd v HM Revenue & Customs [2014] EWHC 868

  • whether the claimant entitled to compound interest on refund of VAT

Upper Tribunal

Revenue & Customs v Colaingrove Ltd [2014] UKUT 132

  • Value Added Tax – zero-rating – static caravans in Group 9 of Schedule 8 to Value Added Tax Act 1994 – meaning of ‘removable contents’ – Item 4 of Group 5 of Schedule 8 – meaning of ‘building materials’ – meaning of ‘fitted furniture’

First Tier Tribunal

Astral Marine Services Ltd v Revenue & Customs [2014] UKFTT 269

  • VAT – appellant licensed by ferry company  to operate gaming machines and casino on board ferries – whether separate supplies of gaming machine and casino licence or single supply of gambling provision – separate supplies – place of supply – whether ships capable of being  a “fixed establishment” for purposes of determining place of supply – yes – whether “human resources” for purposes of determining fixed establishment had to be employees of person receiving supply- no – casino areas on board ferries were fixed establishments for purpose of place of supply rules in relation to supply of casino licence – no fixed establishment on board ferries for purpose of place of supply in relation to gaming machine licence – appeal allowed in part

MG Rover Group Ltd v Revenue & Customs [2014] UKFTT 327

  • VAT – group registration – claim for overpaid output tax – company which made the sales in respect of which VAT overpaid leaving VAT group – whether claim rests with that company or with the representative member for the time being of the group – the former is correct answer for UK law – EU law does not need to be considered although is likely to give same result – appellant succeeds on preliminary issue

The Roald Dahl Museum & Story Centre v Revenue & Customs [2014] UKFTT 308

  • Value Added Tax – Input tax – Museum making both exempt and taxable supplies – Exempt supplies of admissions to museum and taxable supplies (standard rated and zero rated) of items sold in museum shop – Whether expenditure incurred in creating museum exhibits should be treated as residual input tax – Value Added Tax Regulations 1995, reg 101(2)(b) and (d) and (10) – Appeal allowed in part

Standard Chartered PLC, Standard Chartered Bank, Lloyds Banking Group PLC, Black Horse Ltd v Revenue & Customs [2014] UKFTT 316

  • VAT – claims under s 80 VATA – VAT groups – Art 4(4), Sixth Directive (Art 11, Principal VAT Directive) – s 43 VATA – entitlement to claim – effect of individual taxable member joining a VAT group on VAT overpayments arising prior to that event – effect of all the members of one VAT group joining a second VAT group on cessation of the first VAT group on VAT overpayments arising during the currency of the first VAT group – effect of company leaving the second VAT group on VAT overpayments arising during the currency of the second VAT group

Dazmonda Ltd v Revenue & Customs [2014] UKFTT 337

  • VAT- single or multiple supply – supply of land – provision by club of private booths for exotic dances

Canada

DiFlorio v The Queen 2014 TCC 67

  • whether applicant carrying on business in partnership with husband – whether applicant jointly and severally liable for GST as partner – NO

Commissioner issues Interim Decision Impact Statement for ATS Pacific; taxpayer applies for special leave

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Today the Commissioner issued an Interim Decision Impact Statement for the decision of the Full Federal Court in ATS Pacific Pty Ltd v Commissioner of Taxation [2014] FCAFC 33. I also note that on 23 April 2014 the taxpayer lodged an application to the High Court for Special Leave against the decision.

The case involved the proper characterisation of the supply by Australian travel agents or tour operators to non-resident travel agents or tour operators in booking or arranging accommodation, goods and services for the customers of the non-resident travel agents or tour operators, namely the non-resident tourists. My analysis of the decision of the Full Federal Court can be accessed here. I published an analysis of the decision of the primary judge at the time of judgment and I have extended that analysis to include the appeal.

The Full Federal Court allowed the Commissioner’s cross-appeal against the finding of the primary judge that there were two supplies, the supply of a promise to ensure that the products would be supplied to the tourists (taxable) and the supply of arranging or booking services (GST-free), and found that the taxpayer made only one supply which was wholly taxable.

In the Decision Impact Statement the Commissioner notes that some taxpayer have lodged GST returns based on the primary judge’s decision (i.e., not paying GST on the margin) and confirms that he will only seek to recover under paid GST if, after finalisation of the High Court proceedings, the decision of the Full Court stands. The Commissioner does note that taxpayers have the option to self-revise their GST returns now and voluntarily paying GST, pending the High Court appeals – and if this is done, any GIC will be fully remitted.

The Commissioner also states that he will cease to consider taxpayers’ requests to exercise the discretion under s 105-65 of Schedule 1 to the TAA for refunds of GST paid in previous tax periods pending the outcome of the High Court appeal.

The issue of s 105-65 and refunds may also be relevant if a taxpayer elects to take up the Commissioner’s offer and amends their GST returns and voluntary pays GST. The Decision Impact Statement is unclear as to whether the Commissioner would seek to apply s 105-65 to restrict the refund of those voluntary payments if the High Court allows the taxpayers appeal.

Comments on the Interim Decision Impact Statement are due by 30 May 2014.

 

 

High Court grants special leave in MBI Properties

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On Friday 11 April 2014 the High Court granted the Commissioner’s application for special leave to appeal the decision of the Full Federal Court in MBI Properties Pty Limited v Commissioner of Taxation [2013] FCAFC 112. The transcript can be accessed here.

The Full Court allowed the taxpayer’s appeal against the decision of the Federal Court in MBI Properties Pty Ltd v Commissioner of Taxation [2013] FCA 56.

The Full Court agreed with the taxpayer that it did not have an increasing adjustment pursuant to Division 135 of the GST Act where it acquired, as a going concern, residential premises which were leased. This was because the supply was made on the grant of the lease and that while the lease (being the subject of the supply) may have continued, the supply made on the grant did not. The Full Court also agreed that on its proper statutory construction, s 135-5(1)(b) only applied to supplies made by the acquirer of the enterprise. My analysis of the decision of the Full Court can be accessed here.

The opening paragraphs of the Commissioner’s submissions set out below helpfully outline his central argument in the application for special leave:

Your Honours, the central question in this appeal is whether the Full Court was correct to hold that for GST purposes a purchaser of real property who receives rent from the sitting tenant makes no supply whatsoever to the tenant in return for the rent received. If the Full Court is right to so hold, the decision produces the curious result that a tenant carrying on business in a rented factory must go on paying to the purchaser of the freehold a rent calculated to recover the GST on the rent, but the purchaser is not liable to pay the GST and the tenant obtains no input tax credit in respect of the GST component of the rent. That is a result so remarkable and, with respect, so implausible that it suggests that there is an error in the Full Court’s reasoning. In our submission, the error lies in the Full Court’s reasoning that the only supply made between landlord and tenant is the creation of the leasehold estate.

Our argument is that by making the premises available to the tenant and observing the covenants in the lease after the acquisition, the new owner goes on making a supply – not the same supply as was made by the grant of the lease, but a supply which is sufficient to attract GST.

 

 

UK Court awards taxpayer compound interest on refund of overpaid VAT

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Claiming refunds of overpaid GST is a controversial issue in Australia. However, it pales in comparison to the UK, where VAT refund claims are being made going all the way back to 1973. The battle ground has now expanded, with the Chancery Court awarding compound interest, which the claimant contends is the staggering sum of approximately 1.2 billion pounds.

It all started with the decision of the House of Lords in Fleming (t/a Bodycraft) v HMRC [2008] 1 WLR 195 which involved a claim for a refund of VAT as far back as 1973, the date the VAT was introduced in the UK. The House of Lords ruled that UK legislation providing for a retrospective limitation on claiming VAT refunds, which did not include a transitional regime to allow taxpayers with accrued rights to bring proceedings, breached the EU principles of effectiveness and legal expectation.  As a result of the decision, legislation was introduced to ensure that repayments would be subject to a four-year cap, but traders had a period to submit refund claims for periods as far back as 1973 (known as “Fleming Claims”).

To rub salt into the wound, earlier this week the Chancery Court handed down its decision in Littlewoods Retail Ltd v HM Revenue & Customs [2014] EWHC 868 where the Court found that in addition to the refund of VAT paid from 1973 to 2004 and the payment of simple interest on those amounts, the claimant was entitled to a further amount on account of compound interest from the dates of the payment until 31 October 2013.

The case is also noteworthy because at the first hearing of the matter and upon the initial reference of questions to the European Court of Justice, the Revenue expressly admitted that the claimant had overpaid VAT because of a mistake of law. The Revenue sought to withdraw that admission before the Chancery Court because of a subsequent decision of the ECJ in another matter. That the Revenue would seek to make such a contention appears to reflect the gravity of the issues (and sums) in dispute.

The decision is very lengthy, running to some 450 paragraphs. But the salient points appear to be as follows:

  • it was not open to the Revenue to re-open the underlying tax issues, because to do so would be an abuse of process;
  • European law entitles the claimants the receive an adequate indemnity for the loss occasioned to them by the overpayment of VAT – that indemnity required the payment of an amount of interest which is broadly commensurate with the loss of use of value of the overpaid tax, running from the dates of payment of the tax until the dates when the loss of use value is fully restored to them;
  • as a matter of English law, the correct approach to quantification of the claims is to ascertain the objective use value of the overpaid tax, which is properly reflected in an award of compound interest.

The case will be of interest to restitution lawyers as well as tax lawyers, given that the fundamental basis of the claim lay in restitution. The decision may only be of academic issue to refunds of GST in Australia as our legal system does not have the overlay of EU law and the rights of claimants to recover GST under the common law (including rights of restitution) appear to have been replaced by the statutory regime in the Taxation Administration Act. So much appears to have been confirmed by the very recent decision of the High Court in Thiess v Collector of Customs [2014] HCA 12 which was discussed in my post published yesterday.

Commissioner issues draft Determination on when the supply of a credit card is GST-free; High Court decision on refunds

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Yesterday the Commissioner issued draft GST Determination GSTD 2014/D1 ‘Goods and services tax: in what circumstances is the supply of a credit card GST-free under paragraph (a) of Item 4 in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999?

The Commissioner takes the view that the supply of a credit card facility is a “supply made in relation to “rights within paragraph (a) of Item 4 in ss 38-190(1) as it is a supply of a thing comprising a bundle of rights that derives its value exclusively, or almost exclusively, from those rights.

The Commissioner considers that the supply will be GST-free under Item 4 to the extent that the cardholder will use the facility when he or she physically outside Australia and provided that the cardholder’s location outside Australia is integral to the use of the card.

The Determination acknowledges the following alternative views which are not supported by the Commissioner:

  • the relevant right is the right to tender the credit card and this right is used where the payment obligation is discharged (i.e., the location of the merchant) – the physical location of the cardholder is irrelevant
  • the relevant right is the ongoing use of the right to credit over time – the extent to which the cardholder is outside Australia  over the period of time will determine the relevant GST-free component.

Comments on the draft determination are due by 2 May 2014.

High Court decision

Yesterday the High Court handed down its decision in Thiess v Collector of Customs [2014] HCA 12. The Court agreed with the Supreme Court of Queensland that the taxpayer was statutorily barred from a claim to recover overpaid customs duty and GST.

The taxpayer imported a yacht and his customs agent mistakenly believed the yacht was 108 tonnes (it was actually 160 tonnes) and ascribed the wrong tariff classification which resulted in customs duty of $494,472 and GST of $49,447 being paid. The true position was that no customs duty or GST was payable.

After the prescribed period in the Customs Act, the taxpayer discovered the mistake and brought an action in the Supreme Court for the recovery of the customs duty and the GST. The claim was framed principally as one for one for money had and received, relying on the money having been paid under a mistake of fact, and in the alternative as one for restitution in equity or for equitable compensation.

The Court of Appeal determined that the Commonwealth had lawful defences to the claim: s 167(4) of the Act provided a defence in so far as the claim was to recover the amount of $494,472 paid as customs duty; s 36 of the Taxation Administration Act 1953 (Cth) provided a defence in so far as the claim was to recover the additional amount of $49,447 paid as GST. I should note that s 36 to the TAA was the predecessor to s 105-55 of Schedule 1 to the TAA.

The High Court unanimously agreed. The Court did not discuss s 36 of the TAA, noting that the taxpayer conceded that he cannot recover the amount paid as GST if he is prevented by s 167(4) from recovering the amount paid as customs duty.

Section 167(4) of the Customs Act provides as follow:

(4) No action shall lie for the recovery of any sum paid to the Customs as the duty payable in respect of any goods, unless the payment is made under protest in pursuance of this section and the action is commenced within the following times:

(a) In case the sum is paid as the duty payable under any Customs Tariff, within 6 months after the date of the payment; or

(b) In case the sum is paid as the duty payable under a Customs Tariff or Customs Tariff alteration proposed in the Parliament, within 6 months after the Act, by which the Customs Tariff or Customs Tariff alteration proposed in the Parliament is made law, is assented to.

The section provides a time limit on recover of overpaid customs duty and effects a statutory bar to recovery in similar terms to s 105-55 of Schedule 1 to the TAA for GST, although taxpayers have 4 years under that section.

The High Court also observed that the section removed any right at common law to recover overpaid customs duty and to introduce “a statutory action” for the refund of overpaid duty. Section 105-55 would appear to have the same effect, through its interaction with s 8AAZLF of the TAA and s 35-5 of the GST Act. If the taxpayer is barred from taking that statutory action (e.g., because of the passage of time), then no other action is available to the taxpayer to recover.

Full Federal Court hands down decision in ATS Pacific appeal

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Yesterday the Full Federal Court handed down its decision in ATS Pacific Pty Ltd v Commissioner of Taxation [2014] FCAFC 33. The Court dismissed the taxpayer’s appeal and allowed the Commissioner’s cross-appeal.

Justice Edmonds (who delivered the lead judgment – Pagone and Davies JJ agreed with his Honour) observed that the case involved the proper characterisation of the supply by Australian travel agents or tour operators to non-resident travel agents or tour operators in booking or arranging accommodation, goods and services for the customers of the non-resident travel agents or tour operators, namely the non-resent tourists. His Honour also noted that this issue had previous come before the Federal Court in Saga Holidays Ltd v Commissioner of Taxation [2005] FCA 1892; (2005) 149 FCR 41 (Conti J); on appeal Saga Holidays Ltd v Commissioner of Taxation [2006] FCAFC 191; (2006) 156 FCR 256 and observed that:

The advent of these two cases so early in the life of the GST says something about the difficulty of drafting legislation to give effect to the policy design of the GST, in the factual context of the way in which tours to Australia are packaged and sold to non-resident tourists, where the policy design is, undeniably, that “[g]oods and services consumed by tourists in Australia, such as meals and hotel accommodation are subject to GST under the general rules” (Explanatory Memorandum, A New Tax System (Goods and Services Tax) Bill 1998 (Cth) at 12).

Critically, the Full Federal Court rejected the appellant’s contention that the characterisation of the supply was to be determined having regard to the terms of the contract and considered that, at the end of the day, the determination of the characterisation of the supply in a case such as the present was a matter of practical or business reality. This approach can be compared with the recent decision of the UK Supreme Court earlier this month in Revenue & Customs v Secret Hotels2 Ltd [2014] UKSC 16 (considered in an earlier post) where the Supreme Court appeared to rely more heavily on contract law principles to characterise the supply made under similar circumstances.

My analysis of the decision can be accessed here. I published an analysis of the decision of the primary judge at the time of judgment and I have extended that analysis to include the appeal.