On 1 February 2013 I reported the decision of the Tribunal in Bayconnection Property Developments Pty Ltd and Ors and Commissioner of Taxation [2013] AATA 40 where the Tribunal affirmed the view of the Commissioner that the applicants were not entitled to input tax credits they had claimed.  This was because it was clear that none of the applicants were carrying on an enterprise, even taking into account the extended definition of “carrying on” that includes “doing anything in the course of the commencement or termination of the enterprise”. The Tribunal also upheld the imposition of penalties of 75% for intentional disregard of the taxation laws, plus an increase in penalties by 20%.

On 20 February 2013 the taxpayer lodged an appeal to the Federal Court.

Yesterday, in a further twist, in Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Ltd (No.2) [2013] FCA 208 the Federal Court ordered that the taxpayer be wound up and a liquidator be appointed. In April 2012, the Federal Court had adjourned the Deputy Commissioner’s application to wind up the taxpayer until after the Tribunal determined the review proceeding (see [2012] FCA 363). The taxpayer sought similar orders adjourning the application until after the Federal Court had heard the appeal from the Tribunal’s decision – submitting that there were irreversible consequences if the corporations were not allowed to proceed with the appeal and there was no public interest in winding up the taxpayer.

The decision provides a helpful illustration of the difficulties facing taxpayers where recovery proceedings have been issued but the taxpayer wishes to fight the assessment through the review procedure in Part IVC of the Taxation Administration Act. In the judgement Robertson J observed the following points of principle (at [15]):

I take into account that it is the taxpayer which bears the onus of persuading the Court that a stay ought to be granted in the particular circumstances; that great weight must be given to the clear legislative policy which gives priority to the recovery of taxation revenue notwithstanding that the taxpayer has a Pt IVC proceeding on foot; that it is too narrow a view of the discretion to grant a stay merely because Pt IVC proceedings are pending or because on review of those proceedings there appears to be an arguable case; that in cases where the Court considers that it is in a position to assess the merits of pending Pt IVC proceedings and that it is appropriate to do so, the weight to be attached to those merits will vary according to the relative strengths of the merits but the taxpayer needs to have more than merely an arguable case; that irrespective of the merits of pending Pt IVC proceedings, a stay will not usually be granted where the taxpayer is party to a contrivance to avoid liability to pay the tax; and that more weight would be given to the merits factor if the case is one where the Deputy Commissioner has abused his position.

Robertson J then reviewed the judgment of the Tribunal and the grounds in the Notice of Appeal filed by the taxpayer, noting that the grounds were necessarily limited to questions of law. His Honour concluded that the grounds were not reasonably arguable and the clear legislative policy outweighed any merits of the appeal. The application to adjourn the winding up application was refused and the taxpayer was ordered to be wound up.

In February 2013 a number of VAT/GST decisions were handed down in the UK and Canada. Of particular interest is the decision of the UK Court of Appeal in BAA Ltd v Revenue & Customs [2013] EWCA 122. The issue in this case was whether the BAA VAT Group was entitled to an input tax credit claim for VAT charged on the acquisition of professional and advisory services by a company known as ADIL in respect of a take-over bid by ADI for BAA. At the time ADIL made the acquisitions, it was not registered for GST and it was not part of the BAA VAT Group. At first instance, the First Tier Tribunal found that credits could be claimed – [2010] UKFTT 43. On appeal, the Upper Tax Tribunal allowed the Revenue’s appeal – [2011] UKUT 258. The Court of Appeal dismissed the appeal by the taxpayer. My analysis of the decision can be found here.

United Kingdom

Court of Appeal

• BAA Ltd v Revenue & Customs [2013] EWCA 122 – VAT – whether representative of VAT Group entitled to input tax credits for services received by member entity at the time when the member entity was not part of the group – whether member company carrying on an economic activity at the time it acquired the services – whether there was a “direct and immediate” link between the acquisition of services and the outward taxable supplies by the VAT Group – case analysis

Upper Tax Tribunal

• Birmingham Hippodrome Theatre Trust Ltd v HMRC [2013] UKUT 57 – VAT – claim for repayment of overpaid output tax where irrecoverable repayments had been wrongly made of input tax attributable to other fiscal years – claim denied and appeal dismissed
• HMRC v Abdul Noor [2013] UKUT 71 – VAT – whether first-tier Tribunal had jurisdiction to consider legitimate expectations to recover pre-registration input tax on supply of services – No- decision of First-tier Tribunal allowing taxpayer’s appeal reversed

First Tier Tribunal

• Antiques Within Ltd v Revenue & Customs [2013] UKFTT 89 – Value Added Tax – antiques centre supplying stallholders with space and a sales service – whether one single exempt supply of a right over land or one single standard rated supply of a sales service – neither – two distinct individually rated supplies – Appeal allowed in part
• Chi Drinks Ltd v Revenue & Customs [2013] UKFTT 94 – VAT – zero rating – food – coconut water – is it a beverage? – yes – supplies held to be standard rated – Group 1, Schedule 8, VAT Act 1994
• Massey (t/a The Basement Restaurant) v Revenue & Customs [2013] UKFTT 102 – VAT– Transfer of going concern – Restaurant premises reverting to Landlord on termination of tenancy – purchase of  assets by the Landlord – was there a transfer of a going concern – yes – Appeal dismissed
• Westinsure Group Ltd v Revenue & Customs [2013] UKFTT 114 – VAT – exemption for provision of services of an insurance intermediary – whether exemption applies to services provided to facilitate insurance brokers obtaining better terms and  related benefits from insurance companies and other insurance related services – Article 135 (1)(a) Directive 2006/112 EC- Schedule 4 Group 2 Value Added Tax Act 1994

Canada

Federal Court of Appeal

• Twentieth Century Fox Home Entertainment Canada Limited v Canada (Attorney General) 2013 FCA 25 – application for judicial review of decision of Attorney General to refuse to exercise discretion to refund overpaid GST due to error in computer software where claim made out of time

Tax Court

• GF Partnership v The Queen  2013 TCC 53 – whether builder and developer of residential subdivisions liable to GST on consideration including development charges – or whether development charges payable directly by purchaser and therefore not included in the price
• FP Newspapers Inc v The Queen 2013 TCC 44 – whether partner in partnership entitled to input tax credits for services acquired for own benefit – whether partner carrying on commercial activities of the Partnership therefore entitled to input tax credits

The Federal Court portal shows that on 27 February 2013 the taxpayer filed an appeal to the Full Federal Court from the decision of in MBI Properties Pty Ltd v Commissioner of Taxation [2013] FCA 56 where the Griffiths J found that the applicant had an increasing adjustment under Division 135 in respect of the acquisition of a going concern, being the acquisition of residential premises subject to a lease. The callover for the appeal will be heard on 17 April 2013. My analysis of the decision can be found here.

On Wednesday 6 March 2013 the Full Bench of the High Court will hear the Commissioner’s application for special leave from the decision of the Full Federal Court in in Commissioner of Taxation v Unit Trend Services Pt Ltd [2012] FCAFC 112 . In December 2012 the High Court (French CJ and Gageler J) referred the application to an enlarged bench for further hearing. A transcript of the application can be found here. My analysis of the Full Federal Court decision can be found here.

Last week the Victorian Supreme Court handed down its decision in Duoedge Pty Ltd v Leong & Anor [2013] VSC 36 which illustrates the continued difficulties (and disputes) with regards to GST and real property transactions. In this case the contract was stated to be inclusive of GST and upon discovering that GST was not payable by the vendor, the purchaser sought a refund of 1/11th of the purchase price. The Magistrates Court agreed with the purchaser, finding that it was an implied term of the contract that the vendor would refund the GST amount if GST did not apply to the sale and that the contract should be rectified accordingly.

The Supreme Court allowed the vendor’s appeal, finding that:

• There was no term to be implied into the contract that the vendor would refund the GST amount. In coming to this finding the Court found it relevant that because the sale was not a taxable supply, the purchaser (being a developer) was able to utilise the provisions of the margin scheme with respect to the developed units.
• There were no grounds for rectification of the contract because there was no common intention or common mistake recorded incorrectly in the written contract.

My analysis of this decision (including references to other decisions where parties have disputed the GST position in real estate contracts) can be accessed here.

On Thursday last week the Federal Court handed down its decision in MBI Properties Pty Ltd v Commissioner of Taxation [2013] FCA 56 where the Court found that the applicant had an increasing adjustment under Division 135 in respect of the acquisition of a going concern, being the acquisition of residential premises subject to a lease. The Court found that Division 135 applied because the applicant intended that the supplies made through the enterprise to which the supply of the going concern relates will be supplies that are neither taxable nor GST free supplies. The Court rejected the applicant’s submission that the section only applied where the recipient of the going concern itself intended to make supplies that were neither taxable nor GST free.

The decision is related to the decision of the Federal Court in South Steyne Hotel Pty Ltd v Commissioner of Taxation [2009] FCA 13 (and on appeal [2009] FCAFC 155).

My analysis of the decision can be found here.

Update on appeal in AP Group

On 6 February 2013 there was a callover for the appeal by the taxpayer and the cross-appeal by the Commissioner in A P Group and Commissioner of Taxation. The appeal is to be heard by a Full Court rather than by a single judge. As the Tribunal was constituted by a Presidential Member, in appropriate matters the Chief Justice can order that the matter be heard by a Full Court rather than a single Judge. Both parties had been asked to provide reasons why the matter should be heard by a Full Court.

The appeal is listed for hearing in the sittings commencing 29 April 2013 with an estimate of 2 days. This will be an important appeal as it will give the Full Court an opportunity to grapple with the issue of the proper nexus between “supply” and “consideration”.

In Prudential plc v Special Commissioner of Income Tax [2013] UKSC 1 the UK Supreme Court has determined (by a majority of 5:2) that the taxpayer was required to produce documents to the Revenue and that those documents were not covered by Legal Advice Privilege (LAP) where the advice was given by accountants in relation to a tax avoidance scheme.  The essential question in the case was whether LAP extends, or should be extended, so as to apply to legal advice given by someone other than a member of the legal profession (in this case to tax advice given by PwC), and, if so, how far the privilege thereby extends, or should be extended.

While the case does not deal with GST or VAT, it is an important decision because it had the potential to impact on the ability of the Revenue to obtain documents from taxpayers. It is established that the Revenue cannot obtain privileged documents (save for some exceptions, including where the privilege has been waived) – the extension of privilege to tax advice by accountants (which would include advice on GST) would greatly extend the scope to which taxpayers could refuse to disclose documents to the Revenue.

While the majority of the Lords found that LAP did not extend to the advice provided by PwC, the minority (Lords Sumption and Clarke) gave powerful dissenting judgments.  The majority essentially took the view that the issue was best left to Parliament. Nevertheless, the majority appeared to agree with the minority that, in principle, there was no difference between tax advice from accountants and lawyers.  As noted by Lord Hope (at [79]):

A search for a principled answer might well lead one to the conclusion that there was no good reason at all for holding that the tax advice of chartered accountants should be treated differently from similar advice given by a barrister or a solicitor, as Lord Sumption’s powerfully reasoned judgment so ably demonstrates. He starts from the position that the English law has always taken a functional approach to legal advice privilege, and that all one needs to do is recognise as a matter of fact that much legal advice falling within the principles governing legal advice privilege is given today by people who are not lawyers.

In Australia, Accountants have been pushing for legal privilege to be extended to tax advice. On 15 April 2011 the Assistant Treasurer released a discussion paper which explores this issue and sought submissions from interested parties.  I believe the submissions are still being considered.

My analysis of the decision can be found here.

This is my last post for 2012.  I will be taking a break from chambers (and posting) and I will be back in the new year.  I would like to wish everyone a great holiday season.

The High Court has heard the Commissioner’s application for special leave to appeal from the decision of the Full Federal Court in Commissioner of Taxation v Unit Trend Services Pt Ltd [2012] FCAFC 112 – the transcript of the application has just appeared on austlii can be found here.

The application dealt with the proper construction of the anti avoidance provisions in Division 165 of the GST Act and particularly the “choice provisions” providing that the provisions do not apply if the GST benefit arises because of a choice, agreement, election etc arising under the GST Act.  The Commissioner summarised his contention as follows:

It is our submission that the division of opinion within the Full Court of the Federal Court as to the proper interpretation of the section justifies the grant of special leave.  The section applies easily enough if the taxpayer makes a single choice, or a single agreement under an express provision of the statute and confers a benefit.  The problem with the application of the section arises where the taxpayer engages in a scheme involving a series of steps or actions, which are integrated and which together combine to produce the GST benefit.

The Commissioner argued that the dissenting view of Dowsett J in the Full Federal Court was correct, namely that the test is to be applied to a discrete choice – as opposed to the majority, which found that the test could be applied to more than one choice.

The Commissioner also contended that where the scheme involves things which are not choices or agreements under the GST Act, being commercial choices or commercial actions which are necessary integers to produce the GST benefit, the question arises whether you can say that the GST benefit is “attributed” to the statutory choice.  In this context, the question was the proper meaning of the word “attributable” – being “how tight does the nexus need to be between the choice and the GST benefit”?

The High Court (French CJ and Gageler J) referred the application to an enlarged bench for further hearing – that will likely be a bench of five or seven judges.  This is an unusual course of action, but the Court took a similar approach in hearing the special leave application by the taxpayer  against the decision of the Full Federal Court in Commissioner of Taxation v  American Express Wholesale Currency Services [2010] FCAFC 122.

My analysis of the Full Federal Court decision in Unit Trend can be found here.

GST in 2012

It has been another busy year in GST.  We have seen a decision of the High Court on GST (Qantas), three decisions of the Full Federal Court (MTAA, Unit Trend and Cyonara Snowfox) one of which the Commissioner is applying to take to the High Court (Unit Trend) and number of Federal Court and Tribunal decisions.

In legislative issues, self assessment was introduced in July 2013 and s 8AAZLG of the TAA was introduced in the wake of the Multiflex case to allow the Commissioner to retain refunds pending verification.  Also, Treasury looks to have given up on section 105-65 of Schedule 1 to the TAA and is looking to replace the existing discretion it with Division 36 of the GST Act.

Looking overseas, we have had decisions of the highest court in Canada (City of Calgary) and New Zealand (Stiassny) on GST issues

Looking at 2013, we are looking at two Full Federal Court appeals in the February/March sittings (Yaccoub and Central Equity) and the Special Leave application in Unit Trend before an enlarged bench.  We are also awaiting the appeals in A P Group (son of holdback). More details on these appeals is set out below.

Appeals Update

The Federal Court portal provides the following information on the GST matters heading towards the Full Federal Court.

The taxpayer’s appeal in Yacoub v Commissioner of Taxation  has been set down for hearing by the Full Federal Court on 26 February 2013 before the Full Federal Court in New South Wales.

The taxpayer’s appeal in Central Equity Limited v Commissioner of Taxation has been set down for hearing on 26 February 2013 before the Full Federal Court in Victoria.

The appeal by the taxpayer and the cross-appeal by the Commissioner in A P Group and Commissioner of Taxation is awaiting a decision by the Chief Justice of the Federal Court as to whether the appeal is to be heard by a single judge or a Full  Court of the Federal Court.  Both parties have been asked to provide reasons why the matter should be heard by a Full Court.  As the Tribunal was constituted by a Presidential Member, in appropriate matters the Chief Justice can order that the matter be heard by a Full Court (where the Tribunal is constituted by a judicial member, the appeal is to the Full Court as of right – Qantas was a recent example).